goals · Goals Progress

2020 goals recap and setting 21(!) goals for 2021!

What a year it has been. Several things that one year ago I would not have held possible has happened. One year ago my biggest concern was the Australian forest fires. They just kept going and going. Proof of climate change was delivered! But that was without taking some unexpected events into account.

I know its been said 100 times already. Corona impacted all our lives and even our freedom. In my case it meant moving back from abroad to Belgium. I remember sitting on the trainride back and not realizing I would not return. I did return on a 1 week visa to clear out my apartment. I left my 90m2 2-bedroom apartment in Amsterdam and traded it for my one bedroom apartment in Gent of 55m2 that until then only sporadically visited. It became a home to me, my stuff from Amsterdam and on top of that my living room also suddenly became my office!

On the Finance side it meant saying goodbye to travel reimbursements I got giving a blow to my income.

After moving I also ended up being locked away here, as I was not even allowed to take the car to visit my family. Of course this is nothing new to you all, you were all in the same situation, and I fully understand why it was needed.

I would be lying if it all had negative sides. In fact I believe that thanks to this I had a chance to self reflect, sport move and improve my physical health.

I had to come back from living abroad to Belgium. I had to learn new hobby’s and find my way again, but generally I enjoyed that. I had a great summer here spending most of my free time at and on the sea. Even winter I enjoyed cycling trough forests, hills and winter landscapes.

But I can’t go around the negative side either. My goals were severely affected. Investments, saving rate, buying a house and even my sportive goals.

When looking at my financial goals then I can say I was not successful, at he same time I would not say that I failed either. The two law suit in peer to peer investments that ties me up will probably take a few years to round up. The rise in my ETF portfolio could not make up for this loss, so financially I must say it was not a good year.

But it was not that bad either. My losses are all in all limited, there is still a good chance to recover some funds by law suits, and the experience I had this year was priceless. I feel more confident then ever about my investments in the stock market.

Goals should be measurable so that was what I tried to do for the first time. I would say this was okay for a first attempt, but when making my goals I should pay more attention to what I can control more. For example instead of 5% better saving rate, a 5% cut on expenses might have been better.

Financial goals for 2020

In the end I achieved 2 goals fully, 1 half, and 2 I missed completely.

1. – 30.000 EUR invested in my ETF Portfolio

In the end this 30.000 became 18.000 which is still a lot. Actually a chunk of this came from transfers from my peer to peer portfolio to this. All in all I am satisfied with this goal as it probably was set a bit to high

2. – Passive income of 350 EUR per month

Initially I hoped to get some passive income from peer to peer investments. If not there I might have been able to buy a second home, and rent out my first apartment. Last but not least I could have rented out my couch during the Ghent City Festival, 10 days a year where touristic rental prices skyrocket.

All of this failed, and I have serious doubts I would set such a goal again, without having at least some passive income to begin with. At this point I even think passive income is not useful anyway. In all of the above it comes with extra hassle and is not fully passive.

3. – 5% higher saving rate then 2019

A very optimistic goal, and pre-corona I really believed I could make it, even without proper budgeting. In the end my saving rate ended 3% lower, but I did learn a lot about spending.

4. Buy off university years

It costed me 6000 EUR from my savings but I did accomplish this goal. And in 2021 I will be able to substract 3000 EUR of my taxes from this. Additionally this is really a needed goal to have financial freedom at an earlier age.

Remember if you didn’t do this yet you can still do this but not up to any age. The first 10 years you started working this will cost you the same as I paid. After that it will cost more every year.

5. – 1000 views / month on the blog

Not only did I managed to successfully complete this goal, I actually managed to get over a 1000 readers 9/12 months! It seemed like an impossible number when I started this blog.

This is all thanks to you guys! I am so grateful to the people who come here and support me just by reading this blog! I hope you will stay with me on our Roadtrip to Financial Independence!

Sportive goals

I also had a few sportive goals set. It included participating at some mountainbike tours in the Ardennes. All of these got canceled however so I could only complete 2/5 goals.

I was able to complete “Mountainbike 60km” and “Run for 10km”.

In sportive terms 2020 was a record year for me with almost 200 sportive hours logged on Strava. Mostly this was cycling but it also included running, spinning, gym, sailing and hiking. I do hope I can break this record in 2021! I plan to set some high goals for myself for 2021.

Setting 21(!) goals for 2021

I’m not going to make it easy for myself. With 20 goals for 2021 I am preparing to put new boundaries and test myself more then ever in the upcoming year!

As you know I love tracking, so I will be tracking these goals at my main goals page and I will update it regularly which I will announce in my portfolio blog.

Conclusion

To measure is to know. 2020 was my first attempt to set some goals, I think all in all I am quite happy with how I performed given the circumstances.

How was your year? What are your top 3 goals for 2021? Let me know in the comments bellow!

Liked what you read? Then follow me and stay up to date of my Roadtrip to Financial Independence!

investing

Hunting for a home part 4: is it better to rent or buy in Belgium?

This post is part of a series, check out the last posts if you want to know more about my search:

Effect of corona on the housing prices

The situation for buying a house hasn’t improved. The amounts of houses on the Belgian markets have increased only after the first wave passed, around September there was quite a large offer. The government created a lot of restrictions of house viewing in October, making it very hard to visit houses that are for sale.

As a result the amount of houses on the market plummeted in October and there is no end in sight.

So the government actually made sure the housing prices went trough the strongest rise in 15 years in Belgium despite a huge loss of jobs. The question is of course what will happen when the economy wakes up after Corona and house viewings are allowed again and we actually start seeing an actual job loss. I could not predict it last year and I still cannot.

I also have to admit I did come across a few houses that I almost accepted to be fine, so then I need to ask myself if I am not just to demanding?

The reason I am so demanding is the large amount of taxes paid on houses. A 6% minimum, but it could go up to about 12% if it is auctioned. Now if its your only house you can substract these taxes when you sell the house later on and buy a new one.

I don’t like to pay taxes.

The catch? There is a limit of about 12500 EUR to that. That means a house price of about 208000 EUR you can buy just fine and if you just live there for at least 5 years you will get all these taxes back if you decide to upgrade. As this is already an upgrade for me (my second home), that means that anything over that I will have just waisted on taxes.

But what can you get for 208000 EUR in Belgium right now? I did had a quick look at the market right now, and it is possible to find older 2 bedroom apartments with even a bit of outside space outside the city center. I would think this should be enough for any starter. Of course if you want to move closer to the city center you might look at a 1-bedroom flat, like the one I live in now.

Rent or buy?

So I re-read a blog of fightofire.com who was in a similar situation and eventually decides to buy after carefully examining the pros and cons. Since its his first home I absolutely agree with him that this was the best decision. He can still upgrade later on and he shouldn’t worry if its not perfect since it probably won’t be his final home.

And normally I would be in favor of buying again. Either a new bigger home, or a second home depending of your situation.

At the same time is the rise in housing prices really so big compared to the stock market? Say if you put 200k in the stock market right now or 200k in a house (that you live in yourself), would there be such a big difference in profit after 10 years? There actually wouldn’t be, given of course that you can put down 200k in cash for the house, which of course is unlikely.

The rise in housing prices (biggest in 15 years) was about 5.93%. This was the biggest in a long time. The stock market goes up about 7% per year on average. Of course you do have tax benefits from your own house, but at the same time you also have costs that can run up highly.

It was not an equal rise either. Houses at the sea had a much higher rise, most likely related to city’s at the beach closing down the beaches for non-residents. Obviously people bought out of fear that they would lose access to the sea. In the city “Nieuwpoort” right at the sea houses went up with up to 42%! And the coastal cities are probably the main reason for “the biggest rise in 15 years”.

Historical earnings are not necessarily a good reference to future earnings

Again this is for personal use as a rental property will also give you rent in addition to the rise, but it does show that from a financial perspective there is not that much difference in Belgium if you take up a safe, constant, passive investment strategy.

There is in any case no doubt that doing nothing will cause you to lose money as the only certainty in life is that the value of money steadily drops.

Buying your second house

  • Instead of paying rent I would be paying off principal, meaning I would be building up capital, and additionally I could leverage the unpaid principal when the value of the house goes up
  • I do believe the value of houses will keep going up, at the very least in the mid term and long term
  • When I moved into my apartment I kicked out the people that were currently renting the place. Don’t worry it were young people and they said they found something bigger for the same price, however when you are 70 and you get kicked out of your house I can imagine its a terrible experience, having your own house will make sure nobody can evict you
  • If you are confident of what you buy and you can live there long term, without a huge loan that will kill your saving rate, it is for sure the best choice
  • You need to keep a large amount of money in the money market as I should be ready to buy “now”, so while you search your money is not working

Renting your second home

  • Renting contract is usually about 3 years, and you can even get out of it (for a fee) even right after you sign the rental contract (the fee can be up to 6 months of rent but drops -1 month every year), so you are flexible
  • I only need to rent what I need right now, not what I might need in 3 years, since I can upgrade in 3 years if need be
  • I can still decide to buy in a few years if I come across a good bargain
  • You can invest all of your money currently in the money market in the stock market without having to worry the stock market will crash in 1 year. The money you have right now can work for you right now.
  • As its your second home you can rent out your first getting a rather cheap upgrade
  • If you bought a modest home for your first home, with a 10 year loan, after 10 years your loan is paid off and this gives you very little risk for renting, as you can keep the difference between rent and income from rent low

What is best for my situation

As you can see I have been hunting for a house for quite long, my first blog about it is already 2 years old. I am frustrated of the amount of money in the money market that is not working for me. At the same time I do believe I am way overdue for an upgrade. My apartment is a one-bedroom apartment in the city, which is great for starters, but in my current situation I am missing:

  • Preferably a garden, or otherwise a big terrace
  • A place to wash my mountainbike and a warm (or at least not to cold) indoor garage to work on it
  • A second room that I can use as office
  • Big living room to receive guests

I do like the location really. I love living in the city, but it doesn’t fit with the other requirements I have. So I would want to live outside the city, but I have no idea if I could get accustomed to the country life. Renting would be a much cheaper test to see if I could then buying. Additionally I am currently single and I would hate to buy something and find out my future partner doesn’t like to live there.

Additionally I can invest my money in the stock market, or perhaps even buy a second rental property where I can look more at rental value rather then emotional value.

Lets run the numbers on renting

How much can I rent my current apartment for?

Beforehand I never considered this idea, but right now I actually want to give this a chance. I currently have three loans as you can see in my yearly update (updated yearly in May) and two of these will be paid back by September, including my morgage on my apartment and one renovation loan. The third will be paid back by February 2023.

So that will give me the financial space that I need to decide on rental. My apartment building contains 4 other apartments similar in size. I happen to know one is rented out for 650 EUR and one for 630 EUR. Both are all in, so I would think 550 EUR is a realistic number I could ask plus another 60 EUR for a garage I have, who are scar and popular in the neighborhood. So that leaves me at about 600 EUR in rental revenue per month or 7200 EUR per year.

How is it taxed?

Taxes in Belgium are pretty special for rental properties. Rent is actually a lot lower then in other West European countries, maybe partly because taxes are low as well.

Every home has something what they call “KI” (=Kadastral Income), this is a fictional rental value you can get for your property. Generally it is believed that it is lower then the actual rental value.

This number is increased with the index since it was created, and then you add another 40% to get the amount you will be taxed.

In my case that would mean (KI apartment + KI garage)* index * multiplier

This multiplier is 40%

Or (583 + 60) * 1,7 * 1,4 = 1530 EUR

Now this is the part you need to pay taxes on. This depends of your taxes. Generally people in Belgium pay 50% taxes + your local taxable amount: taxable amount * tax percentage * local tax percentage

So in my case this would be 1530*0.5*1.067=816 EUR

Complex right? But at the same time 816 EUR per year or 68 EUR per month is quite modest.

But Belgium wouldn’t be Belgium if there was not another loophole. Namely if you move for work related or social reasons from your one and only home you will pay 0% tax.

I have actually used this loophole in the past when I moved abroad for work. This was actually much easier to argue since my work was in another country and I couldn’t possibly drive there every day from Belgium.

Now I went a bit more creative. I live in a one-bedroom apartment so I don’t really have an office space. Since working from home is not going anywhere, I felt moving because I needed a separate office space might be considered a valid excuse for moving. I have asked them this question directly and expect to get an answer within the next days. I would say there is a 50/50 chance they will accept this but it is hard to tell. I will update this blog when I have this answer.

What about insurance?

There is a limited offer of rental insurances in Belgium. Immoweb for example will give a rental insurance, just like Axa bank. Generally they charge about 5% of the rent. Most likely I will be getting this rental insurance just to feel more comfortable.

So what budget would I foresee for rent?

So with a 600 EUR – hopefully tax free – rental income, I would say that if I can find something for 850 EUR I would say that’s ok. Then I only pay 250 EUR every month on living then I would if I would not move and I would feel very comfortable to put 100% of my saved income into the stock market.

I realize its still more then just staying where I am and I could invest even more if I didn’t change, but this would not make me happy. Living now is just as important as living when I am 60. I don’t want to sacrifice my current self for my future self and I will still live bellow my means.

In conclusion..

I never considered rental before, but now it actually makes a lot of sense. I want to give myself a few more months to find a house to buy and at the same time I want to have a look at the rental market and see what I could get for my budget to see if this is feasible.

And please let me know what you think. What do you think of this plan? Do you prefer to rent or buy?

Interested to see where I end up? For sure I will be sharing this in one of my next blogs. The goal is really to move this year, so sign up to stay tuned!

saving

Savings Rate December 2020: closing the year with an amazing 69.46% saving rate

With 2020 coming to an end its time to calculate my savings rate for the last month of the year. December finished at a 69.46% savings rate, meaning I was able to save a huge amount of my income. Of course its also thanks to the semi-lockdown in Belgium and the end of year bonus I got this month

Expenses

Lets go over the different expenses for this month

The highlights

  • Housing: my housing costs remains the biggest with with 760 EUR, with the biggest part being the loan. Additionally I bought some new furniture that costed me 120 EUR. At some point you might think your home is finished. Well let me tell you something, your home is NEVER finished, you will always think of something that can be better, and once you went all around the home to improve everything you can start back from the first item you improved.
  • Hobbys on the second place at 273 EUR: this was mainly bicycle maintenance for both bikes. Together they costed me about 215 EUR in Maintenance. For my racebike I expect this will be rather rare, for my mountainbike that I use heavily I am considering to take a course so I can do more myself. At least basic maintenance like putting in a new chain is something I will try myself next time. The material is cheap, just the man hours are expensive.
  • Groceries at 217 EUR: a 30 EUR drop from last month, I suppose its partly because I went to eat Christmas dinner out of the home. Within the Corona rules of course. I also decided to eat more bread going forward, as opposed to eating cooked meals twice a day
  • Shopping 84 EUR: mostly small things but one thing I purchased was Tile. Tile lets you easily find your items when you lost them, by showing its last known position and they also have the ability to ring. It costs me 70 EUR but I figured losing my wallet or keys would cost me more..
  • Costs 63 EUR: this is mainly my insurance that costs me about 61 EUR to renew
  • Smaller expenses: gifts (47 EUR – it was Christmas..), Holidays (26 EUR – down payment for spring) and restaurants (20 EUR takeaway + treated a friend).

Expenses overview for 2020

Total Expenses for December = 1494 EUR, my lowest of all of 2020! Paying attention to what you spend helps! My current top expense on record is January 2019 at 1426 EUR so I came very close to breaking it!

Income

My income rose to about 4890 EUR this month, mainly because I got my end of year bonus, which almost doubles my regular wage. Taxes on these bonuses are huge unfortunately.

Saving Rate

So thanks to this boost on income I was able to report 69.46% saving rate this month!

2019 saving rate: 45.8%

2020 average: to be announced in my overview post

What’s next

  • I will blog about my conclusion for 2020, and more importantly I will use all my 2020 data to take a realistic look at my spending, and make a realistic budget for 2021!
  • Expenses planned Q1 2021: tools & toolbox for bike repairs (so I can do more myself) – 70 EUR, yearly membership sailing club – 180 EUR, safety leash kiting – 70 EUR, I will try to spread these out over multiple months..

Interested to follow me? Then subscribe and join me on my Roadtrip to Financial independence!

Financial Independence · investing

December 2020 Portfolio update & outlook for 2021

Let me start off by wishing you all a happy 2021, for 2021 I wish you all a year full of friendship, love, support, happiness, good health and profit of course!

The stock market continues to rise with good news for vaccinations all over the world. In the lead of top 5 most vaccinated countries we have some expected countries like US & Britain who started earlier in December, but there is also some surprises such as Denmark, Bahrain and most of all Israel. Israel already vaccinated 9% of their population and aims to vaccinate 60% by end of march! Amazing how they manage to leave all other countries behind. Their secret? They purchased large amounts of the Pfizer-BioNTech paying almost 3 times as what EU paid, but this way they did ensure very fast delivery dates.

Also in Belgium vaccinations with the Pfizer-BioNTech started, be it at a slower pace, but there is hope of acceleration as more vaccines will get approved by the EU the coming weeks and months.

Meanwhile most of Europe has closed their restaurants by now, but as usual the market looks at the future and with vaccines being distributed the market has a very positive outlook, causing a welcome rise in the markets this month.

The change of url went relatively smooth. The main issue was to get my domain rating back, which took some time, and which I noticed on my visitors coming from search engines, but by now my rating is at least the same level it was before, making sure it ranks high enough on google to bring in some users. I might create an additional blog with my 2020 results for the blog.

On a personal level the closure of the housing market has made it very challenging to view any houses. Housing visits are very restricted and I can feel realtors are really filtering out the visitors. I was only able to visit one house in December, so I am eagerly awaiting visitor days to be allowed again.

In terms of sports I have kept up with mountain biking and started running again after a short break. I purchased a sport watch using Miles I had gathered from business trips and I am looking forward to be able to do some sport events in 2021!

Alright enough stuff about my life lets go and check how much my portfolio dropped or increased.

Image result for I am not a financial advisor

My Portfolio

My FIRE fund

Firstly I need to start off with explaining I added a new type of investment which is my “House Fund”. Beneath it is actually just 1 ETF, but the idea of this is to cover myself in more from the lowering value of money market in the case that I would not be able to find a house in 2021, at least my money will not lose value.

My Portfolio has increased to 78736 EUR (+8847). This included a 2800 EUR extra investment, but also included a end of year recalculation for my pension fund (+5322 EUR) and a rise in the stock market (+725 EUR). So the big good news show.

Generally I try to invest about 800 EUR / month in this portfolio.

My Real Estate fund

I decided to start a real estate fund. As said above I hope this fund will give me better protection from inflation as housing prices continue to rise.

I have no graph yet as the fund was just created but I can say that to start off I invested 2000 EUR this month into ISHSIII-CORE MSCI WORLD U.ETF. Its a similar ETF as SPDR MSCI WORLD UCITS just from a different provider. Its slightly more expensive (0.20% yearly costs vs 0.12%), but cheap enough to justify the purchase, and this way I have an easy way to separate my FIRE portfolio from my Real estate portfolio. Over the next months, maybe years I will be moving my money from the money market into the stock market.

ETFs

My ETFs are reporting a good profit, so a great way to close the end of year. As you know the inception date for most of these ETFs was the beginning of 2020, so that means that even in the biggest crisis year since WW II I managed to make a modest profit and so there is no “bad timing” to start investing.

Right now 13% of my FIRE fund is in the emerging markets. I want to increase this to slightly above 15%.

SPDR MSCI World UCITS ETF (SWRD)

My World ETF has made a nice jump this month, putting me at a 5.24% profit since inception.

ISHARES CORE MSCI Emerging Markets IMI UCITS ETF

Also my emerging markets ETF had a great month leaving me at a position of 5558 EUR or a total profit of 5.81%

Peer to Peer

I am left with only 5 peer to peer investments: 1 active peer to peer investment (Crowdestor), and with 100% of the funds in recovery (Mintos and TFGCrowd) and 2 where I am trying to recover some funds trough legal action.

I only show withdrawals here. So far I withdrew about 58.85% (+0.85%) of the funds I had invested in peer to peer.

PortfolioStartTotal at 29/02/2019Left inpeer to peerExpected end dateMoney left to withdraw
Crowdestor30/09/2019297476025/03/202225.55%
Grupeer30/09/201989908990Defaulted. In Legal procedure100.00%
Iuvo Group31/12/2019224004/20200.00%
Kuetzal30/09/201910051005Defaulted. In Legal procedure100.00%
Mintos30/09/2019998285501/06/20218.57%
NeoFinance30/09/20191273004/20200.00%
PeerBerry30/09/20192548005/09/20220.00%
TFGCrowd30/09/201914348817/11/20206.14%
Total30/09/2019284301169805/09/202241.15%

CrowdEstor

  • I was able to cut my investment in CrowdEstor down a little bit further thanks to the secondary market and it is now at 760 EUR (-147 EUR). The last 760 EUR will be a challenge. At least 300 EUR of that is really stuck in defaulted projects. For the remaining 460 EUR I still have some hope. I need to withdraw another 440 EUR here to actually not have loss in my Crowdestor investment. I might not know this until the end of 2022.

Grupeer & Kuetzal

Nothing new to report this month, just letting legal action take its course. I am fully expecting to see some money back in 2021 here.

Mintos

Capital Service started repayments, but it is going so slow that I am strongly considering just to default this whole investment..in theory a large portion should be paid off in 3 years. My balance remains unchanged.

TFGCrowd

No additional repayments for TFCCrowd this month. My money is stuck pretty good there. They also introduced some rather wacko investment plans called plan terms. You basically give them your money and you have no idea what they do with it. Like a super high risk savings account. You would need to be pretty insane to invest in that, they are not even trying to appear like an investment site anymore apparently. Lets see if they manage to pay me another 6 EUR this month..

No way to do any kind of due diligence if you “invest” in this pon..I mean investment plan

Startups

I still have now 3200 EUR in startups invested, I have every intention to withdraw this whenever possible.

Retirement funds

I decided not to update my retirement funds all the time since for most of the funds I get an update just once a year, so I will update it also just once a year. This is from end of 2019. I will update it again in December 2020.

November 2019Current Value
KBC Pension funds9492
First job Pension plan1507
Second job Pension plan602
Third job Pension plan15949

Wins / losses this month

  • My Portfolio made a 725 EUR profit!
  • The domain rating of my blog got back to what it was before

What blogs are coming up next?

  • I need to review the 2020 goals I set (eek!), and set new goals for 2021
  • I want to review my savings rate for December and of course all of 2020
  • I want to set some realistic saving rate goals for 2021 (or should I say spending goals)
  • I will probably do an overview blog specifically for this blog, with visitor numbers etc somewhere in Q1 2021

I will also post a savings rate update soon! Subscribe and make sure you don’t miss any of my monthly portfolio updates!

Early Retirement · Financial Independence

Setting my FIRE number 2020 update, when can I retire early?

Previous blogs: Setting my FIRE number: when can I retire early? (2020)

In 2020 I made a first attempt to update my FIRE number, I was not really sure how to calculate it yet, as there was no sure way to calculate this in Belgium. Most calculation models are based on a US model where people need to save themselves fulltime for their retirement. In Belgium the situation is a bit different, as we have three pillars for our retirement

What pillars do I have?

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The 3.5% rule

Before starting I just wanted to give a quick recap on what we call the 3.5% rule. Actually a lot of FIRE blogs will stick to the 4% rule, but the 3.5% rule is actually a lot safer. It assumes that the stock market will go up every year on average with 3.5% + the inflation rate, giving you enough money to survive every year. You will not have to worry about the stock market going up or down, as it usually does, but instead you just take 3.5% of whatever is in your portfolio every year and survive on that. That should be small enough to have an ever-lasting portfolio.

My state pension

If the law does not changes I will get my state pension at 67. This is the age that the government wants people to retire. There is an online app called mypension.be where you can actually see how you get at the retirement age.

While many European Countries give a pension this pension only comes at a late age. In Belgium its 67! It might be that by this age the age has moved back again. You shouldn’t take the risk to let the government decide on when you can retire. At the very least you need a backup plan.

But assuming that everything is going like they tell me now I will get a pension at 67. The height of this pension is depending of how much taxed you paid and mostly how long you worked. Additionally you can buy off educational years (up to 4) that you studied. This is quite cheap if you do it within the first 10 years after graduation, but after that becomes expensive fast. Its especially useful if you plan to retire before 67, if not then its probably not so useful for you. I have bought off these years for this reason.

My pension looks like this, it means the longer I wait to retire, the higher my pension will be.

You can see that if you work until 67 that even then the retirement money is not so high, only 1934 EUR, unless you own a home it will not be enough to have a comfortable retirement, especially since you will have more medical bills and probably more staff such as house cleaners since you can do less yourself. In other words, additional funds will be needed. So that means even if you do not plan to FIRE you really should start thinking about how you will manage when you retire as the state pension will most likely not be enough.

In case you want to do the simulation yourself (as a Belgian citizen), you can do this on mypension.be

The second pillar: Occupational pension

My previous job invested about 1% in a work pension, my current job even invests 6% of my yearly wage into a work pension. That’s quite interesting, because as it turns out it can grow to quite high by the time you are 67. The downside here is that the growth is limited by the minimum growth the government says the fund should have, which is pretty much the inflation. Still its a very nice boost you would get at 67. Using the 3% rule it would give me an additional 637 EUR at 67 if I kept working until then.

The Third pillar: private pension

The third pillar includes an extra pension saving plan that the government is giving Tax advantages for. You can save about 1260 EUR per year in an additional pension fund and withdraw 30% from your taxes when you fully invest inthere. The downside is of course that these funds come with considerable costs and the returns are not necessarily higher then what you invest yourself. I do invest fully in these funds because:

  • Its only 1260 EUR per year
  • The less taxes I pay the better

For the growth of this fund I have assumed a modest 3% growth per year, this together with my yearly investment, gives me the following income at 67, depending of when I stop working:

So another 252 EUR income IF I stay on the job force until 67, giving me a total of 2854 EUR. I would say this is good news. If you are in the workforce, and don’t want to worry to much about retirement and don’t mind to work until 67 then your pension should be high enough to cover your retirement.

Its only when you want to retire before age 67 that you run into a problem. Say you want to retire 10 years earlier I would only be left with 2242 EUR at age 67 plus I would need to find a means to survive for an extra 10 years. It gets more difficult if I wanted to retire at age 47, as then I would only have 1644 EUR at 67 plus a 20 year gap I would need to fill.

The fourth pillar: other investments

This is where my fourth pillar comes in. While officially its part of the third pillar, I prefer to classify this under a second pillar. This is where you store your additional investments in real estate, the stock market or other type of alternative investments.

In my case I plan to invest right now about 800 EUR per month in this fourth pillar. I already have 47.000 EUR invested inthere. The good thing about this investment is that you can start withdrawing whenever you like, so you can use this portfolio to bridge the gap between when you retire and the official age of 67.

Now I am assuming a growth of 6% per year for this porfolio and with a monthly investment of 800 EUR per month, the growth cycle looks like this:

Meaning at age of 67 I would be able to withdraw 3220 EUR safely or combined with my other pillars almost 6000 EUR. A pretty wealthy retirement right?

What about retirement before 67?

Right the interesting part. Of course we don’t need 6000 EUR / month to survive. Even half of that would give us a very comfortable wealthy lifestyle.

There is two main things that affect your retirement age: how much you invest, and how much you spend. I really do say how much you invest and not how much you save, as you might be setting aside money for other goals as well. In my case I am also setting aside cash to invest in a house for myself so I am not investing everything that I save. Its important to make this distinction for yourself as I really do consider housing to be important.

But for those who want to retire before 67 (or who knows it could be higher as the government increases this number)

Lets calculate my FIRE number

2019 Recap

In 2019 I calculated that my FIRE number was 983350 and I was 3.7% along to FIRE. This was based on my current portfolio and a yearly expense in 2019 I had of 29501 EUR!

I did had 29501 EUR expenses in 2019, but also a great income. This year my income dropped with about 20%

It was a pretty huge number, both in terms of expenses as in terms of FIRE number.

What changed in 2020

In 2020 I had about 25000 expenses, so I actually managed to lower my expenses with 4500 EUR! Thats pretty nice. Lowering expenses actually makes it easier to retire. For me I noticed I spend huge amounts on restaurants so just cutting these out already allowed me to save a lot more. Granted Corona did help a lot with that!

I calculated that in 2019 I needed about 27 years until I FIRE’d. This was still better then the 32 years to go to official retirement. My income dropped with about 20% in 2019 because of Covid, however because expenses matter so much in terms of FIRE, I actually managed to cut off another 8 years from my retirement. I am now planned to FIRE in 20 years! Of course I want to try to lower that a few years more. This shows to me that FIRE is not a one set number you calculate once and it stays like that, infact lots of things can influence your FIRE number such as buying a house or having children. Its not because today I can FIRE in 20 years that this will be the same number next year.

I can also say that where in 2019 I was 3% FIRE, I am now 6% FIRE. This is going up slow, but thanks to compound interest the number will accelerate as it grows larger.

How to deal with purchasing a house, children

Well its because of these additional expenses I am only investing a fixed amount. That means higher saving rate does not necessarily lower my retirement age. I invest a fixed amount of 800 EUR in the stock market every month. Once I bought my house then I will consider to increase this number, but I expect it to be fixed in 2021.

Additionally I am slowly starting a house-saving portfolio. So far I put money I saved for a house in the money market, but I realized that the hunt could take longer then expected and then its good to be covered somewhat for inflation. It remains risky to do something like that because it might be cash I need on the short term, but I found that keeping it in money market is just as Risky, as the prices of houses go up and the value of cash goes down. To limit the risk I am moving the cash with about 2000 EUR per month from money market to the stock market. More about that in my December portfolio update!

Interested to follow my progress? Follow me and join me on my Roadtrip to Financial Independence!