How to Retire Early in Europe

It’s about time I gave you an update on a goal I’ve been pursuing together with my wife since 2017, financial independence and early retirement.

Basically, we’re trying to reach a point where we don’t have to work any more and where our investments would be able to cover our living costs indefinitely.

Since the FIRE movement started in the US, where you can earn quite a bit more if you’re a skilled worker compared to many other countries and Central Europe isn’t necessarily known for low taxes, you might be wondering: Is it really possible to reach financial independence and retire early in Europe as well?

And how much do you need? 500.000€, a million euros or more? After all, you almost never hear of anyone retiring early around here.

Well, my wife and I (I’m 33 and she’s 30 by the way) are based in Austria, which is not known as a location with a low-cost-of-living or competitive tax rates and social insurance payments. And yet, we’re actually getting closer and closer to reaching FI in a handful of years.

Considering we only started this journey 6,5 years ago and we now also have a beautiful 9-month old baby girl to take care of, we feel extremely lucky and can’t believe how much progress we’ve made.

We’ve learned a lot throughout this period, even more so since becoming parents for the first time. I want to share all of that with you today. You’ll also find out some of the principles that got us here in the first place.

Please don’t forget that none of this is investment advice, I’m just sharing what we’re doing.

How we got started

Ok, so let’s start at the beginning. How did we get here?

Minimalism and low living expenses

Both of us are pretty minimalist when it comes to what we spend money on. We discovered the concept of minimalism back in 2016 and it really resonated with us.

It doesn’t mean we’re cheap by any means, I’ve always loved tech gadgets for example, we just ask ourselves these three questions before spending money:

1. Does the value we’re getting from a purchase or restaurant visit match the price?
2. Is what we’re buying worth whichever number of work hours required to pay for it or would we be happier if we had more free time and needed to work less instead?
3. Do we really need something or are we making an impulse purchase simply because something is on discount right now?

As it turns out, the two of us were really happy living in a small, very inexpensive studio apartment for 7 years. That allowed me to take the risk of self-employment, as I had less pressure due to our low living expenses.

Despite friends and family members frequently encouraging us to move to a bigger place (after all, we could easily afford it), we were really grateful for the freedom this one part of our life gave us and we loved our time there.

We have since moved to a larger 3-room apartment in 2022, after my wife got pregnant. We got very lucky with our rent once again (in part due to long-term planning on our part and the availability of co-ops in Austria) and as it stands, we could imagine staying here indefinitely.

By the way, I broke down our monthly living expenses as a family of 3 a few months ago in this post. Just a quick update on that, due to a few vacations, over the last three months we were closer to 1.700€/month in expenses, but then again this does not take into account the 350€/month we’re getting in child subsidy, which is pretty nice.

Financial Independence

Now, our low living expenses have enabled us to save the large majority of our monthly income, which brings me to my next point. Our pursuit of financial independence.

We actually discovered FI at the perfect time, in the beginning of 2017 when listening to Mr. Money Mustache on the Tim Ferriss Podcast.

His story of how he managed to retire early within 10 years in the US together with his wife and the simple math behind it really resonated with us. After diving deeper into the topic both on his blog and in several books (for example The Simple Path to Wealth by JL Collins), we started buying our first ETFs.

We started by over-complicating it in the beginning with several ETFs, but ultimately landed on a simple, passive, low-cost 1-ETF solution, where we just buy the accumulating Vanguard FTSE All-World (ISIN: IE00BK5BQT80, VWCE), covering over 3.600 stocks from all across the world, every month.

It represents the main pillar of our early retirement strategy.

Our ETF portfolio has grown significantly since we started, to over 234.400€ in value, with a total return of over 45.000€ coming from capital gains and paid out dividends.

Now, while ETFs represent the large majority of our portfolio, we also have two other investments.

About 40.000€ are invested on a handful of P2P lending platforms for diversification and extra cash flow you (here are my current top 3) and pretty much the same amount is in crypto after its latest run, equally split between Bitcoin and Ethereum.

I prefer crypto as a high-risk bet for a small portion of our portfolio compared to trying to outsmart the stock market via single stocks, which are likely to under-perform broad low-cost ETFs over the long run. But that’s just my personal preference, it’s definitely not for everyone!

In percentage terms, we basically have 75% of our investment portfolio in ETFs and 12,5% each in P2P lending and crypto. I’m happy with this allocation right now.

We also have a few months of living expenses in cash reserves for emergencies currently earning 2% interest on Trade Republic, which I didn’t include here to keep things simple.

Now you’re probably wondering – ok great, but how much do you actually need to retire? People tend to mention large amounts like a million euros without thinking about it in more detail.

The 4% Rule (as a rough guideline)

Well, this is where the 4% rule comes in.

In short, it’s based on the trinity study, which tried to find out out what percentage of their initial investment portfolio (made up of a mix of stocks and bonds) retirees in the US could spend every year without running out of money after 30 years.

But, since the study only looked at data from 1925-1995, The Poor Swiss re-calculated it on his blog including data up to 2022, making it more relevant for today.

The good news is, it still showed that a 4% withdrawal rate adjusted for inflation had a 97% success rate over a 30 year period with a 100% allocation to stocks, a 93% success rate over 40 years and an 87% success rate over 50 years.

Not only that, in the vast majority of cases, retirees ended up with a much larger investment portfolio than they started their retirement with even after withdrawing an inflation adjusted 4% of its initial value every year for 30-50 years.

Now, obviously all of this is based on the US, where the stock market performed very well over the past 150 years and nobody knows the future. Still, we need to start somewhere and the US currently makes up 60% of our global ETF anyway.

You should also know that the study assumes retirees had zero income from any other source and that they never once lowered their inflation-adjusted withdrawals even in the worst recessions, which is extremely unrealistic.

For example, many of us will likely receive pension payments when we reach a certain age (although I wouldn’t count on that being too much to be honest) and all the people I know who achieved financial independence actually ended up making extra income working on projects they were passionate about after officially retiring from their jobs.

Still, to keep things simple, I’m using the 4% rule to track our own progress towards FI and I’m including all of my investments here – ETFs, P2P lending and crypto – since I’m expecting average yearly returns of 7% or more from all three of them long-term.

Now, to calculate our FI number using the 4% rule, we simply need to calculate our yearly living expenses and multiply them by 25 (or divide them by 4%), whichever you prefer.

We’re this close to retirement

In our case, including what we’ll be paying for day care in a few months we would currently need 1.700€ per month x12, so 20.400€/year for our family of three.

Multiplied by 25 we get to 510.000€ we would currently need invested to retire early and never have to work again.

Since our portfolio is currently standing at about 314.000€ in total, this means we’re 61,57% of the way there.

So, we still have some way to go. But depending on how things go, both in the markets and regarding our expenses as our daughter grows up, we might be able to reach our goal in 3-5 years already, while we’re still in our thirties.

That would be incredible!

The big picture – Lessons learned

That being said, I want to zoom out a bit and look at the big picture based on a few lessons we learned since starting this journey in 2017.

There is no need to rush this process. For example, when given the choice, I would always pick a job I enjoy even if it pays less, rather than something I can’t stand doing for 8 hours per day.

If this means I won’t be able to retire as quickly so be it, that’s worth the trade-off for me. After all, I quickly realized that every single young person I know that is mathematically FI and wouldn’t need to work any more, is still working on something today, in this case on projects they enjoy.

That’s because just lying around doing nothing, even if that’s on a beautiful beach somewhere, gets pretty boring and unfulfilling after a while.

The funny thing is, these passion projects usually still end up generating some extra income for these early retirees, so in many cases they don’t even need to touch their investments to cover their expenses.

After seeing these examples over the years, my wife and I started asking ourselves what we would do once we reached our magical FI number. And what’s actually stopping us from doing that already today?

That’s something we’ve been trying to implement more and more. After all, we have plenty of money saved up (over 15 years of living expenses) so we don’t need to worry about our monthly expenses for a long time.

For example, my wife is now doing graphic design work which she loves, even though she has a masters degree in something else that could earn her a lot more and I’m choosing to spend more time working on projects like this blog and my YouTube channel.

I would want to be doing exactly this right here if money was not a factor any more and I have every single one of you to thank for all the positive feedback and support you’ve given me over the years!

All I’m trying to say is that sometimes it’s worth taking a step back to reflect on what it is you would want to do with your time once you reached your financial goals. Maybe there is a way for you to live that life already before that time comes.

Freedom is underrated.

One thing that’s really important to us is being able to spend plenty of time together as a family.

Thus, I’m so grateful that we started this journey almost 7 years ago and that our finances now allow us to be a lot more relaxed when it comes to how many hours we need to work, so that we don’t have to miss any part of our baby girl growing up, which is happening way too quickly anyway.

There will come a time when my daughter doesn’t want to fall asleep on my chest any more, stops asking me to pick her up and doesn’t want to hang out with her parents as much.

Knowing this, I definitely don’t want to miss out on this unique period of our lives by pushing harder just to accumulate money faster. It’s not worth the trade-off.

I love having the freedom to take my daughter for a long walk in the morning on a weekday for example, while others are rushing to work.

Or as Sahil Bloom puts it:

I couldn’t agree more.

Conclusion

Obviously, your situation is likely different from ours – our low rent in particular, us not needing a car in Vienna and the low costs for child care in Austria give us an advantage compared to what it’s like in other countries in Europe. Depending on your own savings rate, it might take you a long time to be able to fully retire financially.

Still, I believe reaching financial independence is possible in Europe as well and hopefully this post gave you some insights into how you can calculate your own FI number. Depending on your expenses, it may be lower than you think.

Just don’t forget to also take some time to reflect on how you would want to spend your time once you reach your financial goals.

Perhaps there is a way for you to pursue that activity a lot sooner and who knows, make a living from doing it already in the near future, instead of waiting for retirement.

Either way, our pursuit of financial independence since 2017 and the habit of putting aside and investing money on a regular basis has paid massive dividends for us over the years, most importantly in how much freedom we now have.

I’m pretty sure it will do the same for you. Just don’t forget to enjoy the journey and to celebrate small victories and milestones along the way! But now I want to hear from you guys:

Do you have a retirement number in mind?

Leave a comment below!