Last week I received a message from a fellow Italian expat telling me he was putting together a discussion group around f.i.r.e. because he thinks that in Italy the topic is not as mainstream as in other countries. While replying, the length of the message got so massive I realised there was material for a blog post.
The question I was trying to answer in the message (and in my mind) was: can you retire early in Italy? What about other countries outside the US, when the ‘movement’ started? What makes it a viable option?
First ingredient to retire early is to have savings that generate enough income for your daily needs (and hopefully beyond) and to compensate for the inflation erosion. To have savings you need a high income and you need it early in your career: the movement started in the US when the need for coders vastly outpaced the offer. Incidentally the few people that had the right skills were fairly young, so they were able to negotiate high salaries than in the past were awarded only to profiles with higher seniority (a.k.a. old folks).
The second ingredient is the ability to materially lower your cost base; no, I am not talking about skipping the daily Frappuccino. Coders are one of the first category that can comfortably (for them and for their employer) work remotely. Imagine a banker in London: for sure they get a huge salary since the beginning of their career, but they have to live close to the City (or to some extent Canary Wharf). Their job already keeps them 12 hours/day in the office, imagine top that up with a 3 hours commute because you want to save on rent; you would be better of sleeping on the train and skip the whole renting thing altogether. If you wan to be a banker, you have to sacrifice a rather big slice of your salary in rent/mortgage payment, there is no way around it. But if you are a coder, you can work for Google in Mountain View and live in…Iowa, or whatever cheap place in the US.
The third ingredient is that the job that pays you a high salary has to be a shitty job; ever wondered way Leonardo DiCaprio or Cristiano Ronaldo never came up with the f.i.r.e. idea? Because they love what they do. If you do not know any coder and want to understand the type of pressure they face, I suggest you this nice doc on Netflix.
Maybe you think this third point is useless, but I think is one of the main reasons why not enough people talk about f.i.r.e. The retire early part can distance two potential listener groups:
- the ones that do not have the capacity to save enough money to retire early. Instead of dismissing completely the concept, they can learn how to save in order to fund, for example, a sabbatical year to study and change career, or spend time with their kids, or change country because their spouse got an opportunity elsewhere.
- the ones that love what they do. They can learn how to invest to give better opportunities to their kids or simply because shit happens, and maybe they will be forced to retire early because they got fired (pun intended) or they play
soccerfootball and they break a leg.
So, why do I think just a few are talking about f.i.r.e. in Italy?
- It is really difficult to get a high salary in Italy and if you do, either you are close to retirement already or your job is your passion. The initial potential audience is very small, if you do not modify the message into something like “learn how to save, invest and get your life more flexible/less risky”.
- The tax system is punitive if you want to retire early. Contrary to the US, where there is no State-funded pension, in Italy part of your taxes go (well, should) into your State pension savings. This means that you are paying more taxes while you work (so it is harder to save) and can access those funds only at ‘pension age’. To complicate the matter, you can ONLY access those funds if you worked for a (big) number of years. Therefore if you wan to retire early, you are throwing part of the tax expenditure into a charity for other Italian pensioners.
Many other European countries are not as extreme (the tax rate is lower and you have a reasonable expectation to receive back the funds your tax man sets aside for you) but are closer to the Italian model than the US one. This means the system incentivise you more toward financial independence – move to a job that you like (less hours or less stress or vocation, you name it) than outright early retirement, so that you still pay taxes, stay in the system and get your State pension at the end of the road. The positive aspect of the ‘European system’ is that you will get your monthly check (as small as it is) for life, so you do not have to worry to outlive your saving pot or that the 4% rule will leave you broke due to an outlier market crash; the monthly check is also partially protected from inflation.
If you are in the early years of your career and already know f.i.r.e. will be your plat du jour then I suggest you to try to move to a country that will make your life easier, like the US or the GCC (Dubai, Doha); if you stay in Europe, whatever your saving rate will be, prepare yourself to work until after your sixties.
What I am reading now:
