The financial freedom and early retirement journey is a personal journey. Each person will have his own definition of what financial freedom means to him, the amount he needs and how he wants to achieve it. So the below will be my view on it, but I believe that most people in Belgium will be able to agree with most of it.
First thing we need to determine is how much money does a person in Belgium need to life a comfortable, albeit somewhat frugal life. This means you have enough to pay for your basic needs for food, housing, clothing, transportation and social contact. Driving a Porsche or frequent dining at a Michelin star restaurant will not be part of the package (if you do want those things I am afraid you have come to the wrong site, this site is about freedom to do whatever you want with your time, not the freedom to buy whatever you want).
Again, this number will be different for every person but I believe most people will agree that life can be pretty sweet in Belgium on budget of 1.500 euro per month, especially if you do not have to go work for it 40 hours a week.
The average after tax wage is 2.100 euro and our national lottery has a popular scratch ticket (aptly named ‘win for life’) promising a monthly sum of 2.000 euro a month. Their Deluxe version of it is 3.000 euro. So basic living for 1.500 euro a month? Seems like a safe assumption to me.
In my last post I mentioned this rule of thumb that 25x your annual expenses means you are financially independent.
So 1.500 x 12 = 18.000 a year.
18.000 x 25 = 450.000 euro
So 450.000 euro of investments (let’s call it The stash, because it does have a nice ring to it and thanks to this guy most people in the personal finance community know what is meant by The Stash) will buy you your freedom of work in Belgium. Personally I exclude the house as in most cases this does not provide you with any income to live off. A house is definitely worth something. And once it is paid off that will definitely have an impact on your annual budget (see that this stuff is personal and different for everybody?) and thus on the amount you need to accumulate. But to keep things simple we will ignore it for the time being.
What we will not ignore is the Belgian social system.
Just as taxes will play a big (negative) role in the accumulation of the Stash, the Belgian social system also plays a big (positive) role in the size of The Stash you need.
Our health system is pretty cheap and a reason why I think you can live a comfortable life with 1.500 euro a month.
But we also have unemployment benefits. If you have worked, you qualify and since everybody will have needed to have worked to get a sizeable stash (lottery winnings and inheritance aside) everybody reading this will qualify. And the thing with the Belgian unemployment benefits is that it is not means tested. So you can be a billionaire and still qualify for it. Dividend income, capital gains or option premium income are all compatible with receiving unemployment income. Extra special: there is no time limit on it. You can have it for decades upon decades. It does decrease over time but the bare minimum for a person living together with another person (single people get more) is around 500 euro/month. And although the government is now more persistent in activating the unemployed (a.k.a. getting your lazy ass back to work), 500 euro/month is something you can count on (worst case scenario is you have to go back to work for a few months to avoid losing this benefit: this basically means more money for you). Receiving unemployment benefits does prevent you from going to live abroad but the unemployed also qualify for vacation days. Stretch the rules a little bit, and there is nothing standing in your way to take a month or even two-month travel holiday (basically you have 20 official holidays and officially you need to declare to the government when you ‘take a holiday’, but everything is done on line now and you only need to declare these holidays at the end of a calendar month). It may not be complete freedom, but it is pretty close!
Since the government will give you 500 euro/month for not working, 1.000 euro income from the stash is enough to get to 1.500 euro/month income in total.
1.000 x 12 = 12.000
12.000 x 25 = 300.000 euro
Lets play it on the safe side and add in 25.000 in cash (to cover 2 years of living expenses) and the basic amount needed in Belgium to declare yourself financially independent is: 325.000 euro.
425.000 euro will make life a bit more comfortable (or assure you live on 3% return of your stash, plenty of companies paying out a 3% net dividend).
At 525.000 euro you no longer need to care about unemployment benefits or whatever. Total and complete freedom.
So there we have it. Financial freedom in Belgium is having a passive income between 1.000 euro or 1.500 euro a month from investments (depending on how you feel about pocketing unemployment benefits). This means a Stash between 300.000 euro to 500.000 euro. Add 2 years of expenses in cash as a buffer and you need 325.000 to 536.000 euro.
Sloth,
Nice write-up, but I feel like I must adress a couple of things: the unemployment benefits and the healthcare costs.
You don’t automatically apply for unemployment benefits “because you’ve worked in the past”. There are some stringent rules (e.g. quiting yourself doesn’t give you access). On top of that the amount of money you get does diminish over time and you need to prove you’re actively searching for a new job.
Then there’s the ethical equation of relying on unemployment benefits when you’ve got a massive pile of cash and actively chosen to retire early. Personally I feel it’s wrong to rely un any government benefits that were designed to help people in need simply because I want to be financially independent. Besides, how independent are you when you rely on unemployment benefits?
Just my two cents!
Another thing that I feel you present a little bit too easy is healthcare. Yes, it’s really cheap in Belgium, but only if you have an insurance policy (ziekteverzekering). And you can only apply for one of those if you are actively working or in a similar regime (retired, unemployment, self-employed, etc.). Otherwise you’d have to pay the social security contributions that now get deducted from your paycheck to the federal government yourself! I believe the minimum amount is around €2000 every year. On top of that you won’t be covered for every medical expense and still need additional insurance (hospitalisatieverzekering), which now probably is covered by your employer but not cheap at all.
Cheers,
NMW
You don’t automatically apply for unemployment benefits “because you’ve worked in the past”. There are some stringent rules (e.g. quiting yourself doesn’t give you access). On top of that the amount of money you get does diminish over time and you need to prove you’re actively searching for a new job.
Getting fired does the trick. I seem to have a talent for ending up at jobs that get restructured and even yield a nice severance package. Perhaps the third time is a charm?
On top of that the amount of money you get does diminish over time and you need to prove you’re actively searching for a new job.
500 euro a month is the lowest it will go and is the amount I use in my calculations. Based on my current work history I would be eligible for about three years of 800 euro a month before dropping down to the 500 euro level.
Then there’s the ethical equation of relying on unemployment benefits when you’ve got a massive pile of cash and actively chosen to retire early. Personally I feel it’s wrong to rely un any government benefits that were designed to help people in need simply because I want to be financially independent. Besides, how independent are you when you rely on unemployment benefits?
Unemployment benefits are there for people who are unemployed and are given on the basis of your employment history, it has nothing to do with the amount of money you have invested as it is not means tested. OCMW is there for people in need, and that is means tested. They are two different programs. And apparently the government does not mind giving unemployment benefits to people with a lot of money or they would have made it means tested as well. It is what it is. On the money moustache forums I have a more detailed calculation but if you go the dividend route and take into account the VAT of 21% you pay on most of what you consume in Belgium, even with getting unemployment benefits you will still be a net contributor to the Belgian government.
Another thing that I feel you present a little bit too easy is healthcare. Yes, it’s really cheap in Belgium, but only if you have an insurance policy (ziekteverzekering). And you can only apply for one of those if you are actively working or in a similar regime (retired, unemployment, self-employed, etc.).
This is exactely the reason why you have to be ‘something’ in Belgium. Quitting the system completely is very expensive. Especially since we have the high taxes on earnings to pay for the system, which make it even harder to get a big stash. Playing the system is the only sensible route left. And as I mentioned, going the dividend route (with the new 30% tax) you will still pay more in taxes then what you will receive in benefits (or break even). If you really want to go for the completely independent route I am afraid you will have a long way to go. I have a plan A and a plan B I will talk about in ore detail in a future post.