Retirement at 40: with this plan, the dream can succeed

Retirement at 40: with this plan, the dream can succeed

Quit your job at forty and live in financial independence? The concept of frugalism aims to do just that. What frugalism is and how frugalists live, shows the video.

Berlin. Never work again and still live a relaxed life: This is the dream of many. With strategy and discipline, the can become reality.

  • Retire at 40? That doesn’t sound very realistic
  • But there is a movement that aims to do just that
  • How the pension at 40 can work, read here

Drop the pen at 40, buy a round of champagne to mark the retirement, and then ride off into the sunset whistling happily: That’s the sound of the promise of F.I.R.E movement. Their supporters have dedicated themselves to the dream of early retirement – and sometimes take on a life of privation to achieve it. Here you can find out what the idea is all about, how the dream can succeed and what problems it can bring with it.

What does F.I.R.E.?

F.I.R.E. stands for "Financial Independence, Retire Early". The name says it all: the movement does everything it can to avoid having to work as early as possible and not having to rely on social security. In other words, followers of the movement are trying to build up as much money as possible in as short a time as possible Assets to then no longer be dependent on gainful employment for the rest of one’s life.

Financial freedom should be achieved by the age of 40 at the latest, ideally even by the age of 30. The F.I-R-E.-This idea originated in the USA, where it developed in the wake of the financial crisis of the 2000s, but its basic features can also be found in 17th century Calvinism. Century. In Europe and Germany the financial philosophy is also known as "frugalism," derived from the Latin word "frugalis," which can be translated as "frugal," "economical" and "orderly.

Retirement at 40: with this plan, the dream can succeed

How does frugalism work?

Core of the Frugalism The key to achieving this is to cut back on consumption, earn as much income as possible in the present, and have a clever investment strategy. On the one hand, cutting back on consumption involves looking at expenses that may seem unnecessary, such as eating out, new clothes or always-new electronics.

On the other hand, people consume more consciously, e.g. they cook a lot themselves, repair defective items or buy second-hand goods. The bottom line is tightening belts and cutting spending to the bare necessities. Saved in this way Money is then invested.

At the same time, frugalists try to earn the highest possible Income to earn money that allows as much of it as possible to be put aside for later. To increase their own market value, they rely on training and salary negotiations, among other things. The basis is as good an education as possible.

How Frugalists invest?

Frugalists put their money where their mouth is Invest primarily on risk-spreading and reinvesting funds or ETFs. They do not take a speculative approach, but hold their investments over a long period of time in order to benefit from interest and compound interest. Instead of actively managed and thus expensive funds, the movement’s followers are keen to build the most efficient portfolios possible – in other words, to manage their own money cost-effectively.

Use as a financial anchor Frugalists Call money or time deposits. While they yield little to no return in the current low interest rate environment, they are up to 100.000 euros per customer and bank, however, is protected EU-wide by the deposit guarantee scheme. Secure alternatives are also offered by commodities, government bonds or real estate.

  • More on pensions:You can deduct all these costs from your taxes

How much do frugalists save?

Depending on the respective Net income Frugalists save between at least 30 to, in extreme cases, 80 percent of their earnings. The goal here is financial freedom, a term open to strong interpretation. To achieve this, frugalists often use the concept of the 4 percent rule. It goes back to the 1998 Trinity Study and states, in simplified terms, that a retiree can spend only four percent of his or her assets per year without getting into financial trouble in the long term.

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A simple calculation example reveals how high the buzz of all the Deposits The dream of early retirement must not be dashed: if you spend 40 percent per year, you will have.If a person has only one million euros in saved assets, or 25 times annual spending, he or she needs to retire 25 years before the actual retirement age. Those who want to get out even earlier need more, those who want to work longer need less.

What are the problems?

Frugalism Is not free of problems. For example, the idea does not take into account that the unforeseeable occurs. A serious accident or long illness can lead to higher expenses that deplete savings too quickly. Starting a family is also not factored into the pure doctrine – that is, the targeted retirement at 40 – nor is job loss. And what happens if a person needs care or taxes on investment income are increased? Read more: How is the pension taxed?

Pensions in Germany – facts and history

  • system: The statutory pension works according to the principle of equivalence and the solidarity principle.
  • Pension types: There is still the Basic, the reduction in earning capacity and the survivor’s pension.
  • ExceptionsA large majority of the self-employed and freelancers are exempt from compulsory insurance.
  • Funding: The statutory pension in Germany is basically pay-as-you-go.
  • Problems: The problems of underfunding result mainly from the increasingly aging population in Germany.
  • Three pillars: The Old-age provision in Germany is based on three pillars. This includes statutory, occupational and private pensions.
  • origin: It was introduced on 22. July 1889 under Imperial Chancellor Otto von Bismarck officially introduced.

Also, the idea is aimed primarily at the upper middle class, Frugalists are often found in well-paying jobs in the IT or financial sector. Low-income earners are simply not in a position to achieve the high savings amounts to later live carefree solely from the returns on their assets.

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Ethical questions also arise: Is it justifiable that High earners Rent cheap apartments, although financially they would be able to move into more expensive properties? Finally, they compete with low-income earners for the same pool of housing, while the latter have no money to rent more expensive apartments.

Last means Frugalism also the disadvantages of conscious renunciation: Those who save up for vacations at the age of 20 may miss out on formative experiences that can no longer be made up for. Social life may also suffer under ambitious savings targets if – to exaggerate – canned ravioli is on the agenda instead of going out. And if finances become the all-dominant purpose of life without need, partnership or family can suffer as a result.

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