It’s exactly the question I asked myself many time by reading FIRE blogs and books. Let’s say a family renting a 2000CHF/month housing with quite small kids live currently out of 100’000CHF/year. The family can manage to save or get 25*100’000=2.5MCHF. According to the FIRE “4% rule” you can live out of it without additional income. But also it’s wished that you diversify the investment, so let’s say half of this is used for a housing (no mortgage to make it simpler, Mr MP said he bought their main family housing in full I think), you are left with 1.25MCHF invested in stock market.
So your net worth is still 2.5MCHF plus minus variation of the stock market and housing market. But if you decide to live out of your saved fortune you can only spend half of it that is in the stock market. Obviously you will not do a mortgage on the house and increase it each month by 2% or something. Because of the house you are spending less in monthly housing cost, you pay only charges and maintenance on the house, but that’s not half of your expenses reduced, maybe 20’000CHF saved per yer. Taxes might be slightly lower with no income, just fortune, let’s say you save another 10’000CHF on taxes, depending on the Canton/city of course. So you still need about 70kCHF to live, if you take it out of the 1.25mCHF that’s much more than 4%, around 5-6%.
Is it still sustainable because the risk that you end up with zero cash/stocks and need to sell the house is low? Or in this case you should increase your saving up to 1.75MCHF to keep 4% spending not counting the value of the housing in your calculation?
Again it’s of course not counting any margin to have life cost increase, especially with kids growing that might cost you more that when you calculated as small kids.
It’s also what I would have said, but it’s never clearly mentioned by FIRE advocates as far as I remember.
So the proper calculation if you want to own (or if the region you are living make much more sense to own your primary residence) is cost of the primary residence + 25x spending. Which of course in Switzerland would make the bar much higher in most cases. So to answer the main topic, FIRE in Switzerland might be more difficult to achieve for most people, especially families, mostly due to housing costs, even more in case of owning of the primary residence vs renting.
For me financial freedom is priority no 1 and retire early a distant no 2
Moving to Germany to live a frugal 40k / yr lifestyle in a cooperative flat would not make me feel free, in fact I would feel trapped, but each to his or her own
My RE budget will be ~3% of NW so I have budget for some lifestyle inflation in the future
Care to give some examples? Find me a place that doesn’t kill you with taxes, is safe, has esthetically looking buildings and streets, no trash, is close to mountains/forests/lakes/seas.
If you plan to totally abandon work and live frugally for the rest of your life, then sure, 1.5m will do. But if you want to keep doing something productive, you will get remunerated for it much better in Switzerland.
Also, we’re in a very critical moment in history. Inflation is running wild globally, public and private debt is high, social benefits are skyrocketing. What do you think, where will they find the money to finance it all? I think they may come for the money of the “rich” first. I would avoid heavily indebted countries with rapidly aging population.
Is your partner also on the FIRE path? Is she saving her own share and is she going to reach it as soon as you? In my case it’s not like that. She has a much lower NW.
The German cities that I’ve seen are ugly, due to being destroyed by the war. Think Nürnberg, Stuttgart, Munich, Frankfurt. I liked Berlin, Dresden, Leipzig.
You say this now. It’s harder to do it when you actually reach that point. You think you don’t give a damn about your job or about what Switzerland has to offer. Then you move to Munich, no job, no status, living frugally in a Genossenschaftswohnung. Yeah, it can work, but I would be scared.
I just don’t see a long-term solution for the current debt spiral and a political system, where the more you promise, the higher chance you have of getting elected. In Poland we already have child support, 13th and 14th pension, and who knows what comes next. The governments, together with the have-nots are more and more indebted and there is a widening wealth gap. I wonder how this will resolve. I don’t think it is sustainable.
I think the situation isn’t framed properly. I’d say:
You can count the value of your own house in your net worth if you are willing to sell it to sustain your needs. Any asset that you are not willing to sell if needs be can’t really be accessed and should not be counted.
It is a math problem: diversification through own homeownership isn’t a necessity. If homeownership doesn’t reduce your expenses enough to justify the tied up capital, then it is a poor value proposition that doesn’t make financial sense. Sure, there are other benefits, but those are mainly lifestyle oriented: a more expensive lifestyle (for example, choosing to own a 1.25M home when one could rent a good enough lodging for 2K/month) requires more assets to FIRE, some truths keep applying no matter the situation.
On a side note, if I am FIRED, I can buy a less expensive home needing more renovations and get on much of it myself given the free time I have. If one doesn’t put the available time in the balance and expects to spend all FIRE time sitting on a beach drinking cocktails, then yes, reaching FIRE becomes a more difficult endeavour that requires way more assets.
Nobody mentioned pensions so far… Do you count your pillar 1, pillar 2, pillar 3… in your FIRE plans? Do you count them towards your net worth from which you’ll be withdrawing 3-4 % yearly?
If you’re in your 40’s, how do you start including your old-age pension into your calculations? Can you worry a bit less about your portfolio and net worth problems since you know you’ll start receiving a pension from the age of 65? What if you’ve only moved to Switzerland in your 40’s, how does that change things?
Basically, I’d like to learn how an old-age pension plays out in your plans and calculations.
This is indeed a point I wanted to raise. Except for people planning to retire very early (in which case you’d need astronomical salaries to be able to set aside 3-4 millions in your thirties) the pension system plays a role.
I’m accounting for pillar 1 to kick in at retirement age (and in my RE spending I consider to continue funding it based on my hypothetical assets at the time) and to do a staggered withdrawal of pillar 2 (which would stay invested in a VBA between RE and withdrawal dates).
Of course you need to do some assumptions regarding return of invested money etc but basically the shorter the period the higher you can dare to go above the 3-4% value
Something like this
Just as a side note. I think in Switzerland we also have another advantage, namely that part time jobs are acceptable. And not only as a cashier in Migros, but also for good positions. And you even don’t have to become independent. So if you are earning 200+ k at an American IT company and you are very good at what you are doing, you have a chance to negotiate a part time occupation. If not, you still might get a part time position at a governmental or related office (they are obliged to promote flexible occupation), or become a teacher. That should still give you 90+k at 100% per year.
In the rest of the world you are either working or you don’t.
From experience: it’s not that difficult to negotiate part-time in this scenario (and in IT in general) I.e. it’s not necessary to be “very good at what you’re doing”. If you want to do part-time, you’ll be able to. I know plenty of people working 80% and multiple people working 60% in US big tech.
As for IT in general in Switzerland: I’ve done multiple interviews with Swiss companies and got offers I didn’t end up taking. Every single time I was able to negotiate the offer down to 80%.
I work in banking and there are many people who work 80%, some who do 60, 40 or even 20. I know a guy who got 2 babies in a small interval, so he decided that one of the parents will always be at home, so he and his wife both reduced to 40%, for a couple of years. I guess it’s probably easier to reduce if you have an established position within a company and then you go to your boss and tell him you only want to come 2 days a week. The boss knows the pain of finding a good replacement, and he knows that you have it all figured out, so you will probably cover your topics in these two days anyway, so he could allow it.
You can probably explain a year or even two as a sabbatical or travelling the world. More than that will probably frowned upon by many employers …unless you got a new degree or something in the meantime.
Some businesses or occupations are quite seasonal. Think accountants, builders or ski instructors. Even my lowly office job has its “all hands on deck” periods.
If you fly in for three or six months for work each year … it’ll probably require good connections to your employer, good rapport with your boss and just knowing your stuff. But the amount you’ll be making will go a long way in some “low-cost” countries.
By the way, if you have a high income and you plan to make a 1-year sabbatical, you can defer your income. What I mean is, for example, you can leave 20% of your income tax-free for 4 years, and only have it taxed on the 5th year, when you do your sabbatical. This way you can lower your progressive tax. You gonna pay less on 5 x 80% than 4 x 100% + 1 x 0%. I’ve never done that, but heard it’s possible.
I assume this is something the company would have to offer by adjusting the payment of your salary (paying over 5 years instead of 4). Or do you mean tax deferral would be possible despite receiving the full income in these 4 years (and not via pillars 2 or 3a)? The latter could generally be interesting but I haven’t heard about such an option.
I don’t know the technicalities, my boss suggested it to me. So maybe this deferred income stays within the company. I don’t know if it’s possible for a private person to defer their income simply on their tax declaration. Maybe it will only work in small companies. If the money remained in the company, that makes the calculation more complicated, as you can’t use the money instantly.
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