Retiring at 67 is Broken: Retire Early Instead!
Ready to retire early in Germany? Discover the 5 essential steps to calculate your number and achieve financial freedom. 🔥
Key Takeaways
- Financial independence requires clear rules, consistency, and a structured approach beyond the simplistic advice seen online.
- Calculate how much money you need using the 4% Rule, but consider lower, safer withdrawal rates for longevity.
- Accurately track all income and expenses to understand your true savings capacity and identify debt to eliminate quickly.
- Reduce non-essential spending to both boost your savings rate and lower your overall long-term financial needs.
- Increase your earning potential through new skills or side hustles to drastically accelerate the journey to financial freedom.
- Diversify investments across asset classes (ETFs, pensions, real estate) and optimize your German tax structure.
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More InformationYour 5-Step Blueprint to Financial Independence (FIRE)
If you want to reach financial independence, you need to remember three simple rules. Rule number one: you’re going to need more money than you think. Rule number two: you cannot expect to get there overnight. And rule number three: don’t fool yourself into thinking you can download an app, buy one ETF, and call it a day. There’s much more to this journey than the oversimplified advice you see online, and it all starts with the first step that most people overlook.
For those living and working in Germany, planning for retirement—especially an early one—is crucial, as the public pension system often proves insufficient for maintaining a comfortable standard of living. This blueprint will provide you with the structure and knowledge needed to achieve financial freedom on your own timeline.
Step 1: Define Your FIRE Number
The very first step on your FIRE journey—Financial Independence, Retire Early—is figuring out how much money you actually need. For that, one of the most popular rules is the so-called 4% Rule. The rule suggests you can safely withdraw 4% of your investments each year to cover your expenses without running out of money.
So, to calculate your “FIRE number,” you simply take your annual expenses and multiply them by 25. For example, if you live on €2,000 per month, that’s €24,000 per year. Multiply that by 25, and you’ll need €600,000 invested to call yourself financially independent. Now, this sounds simple—maybe even too simple. The 4% rule was originally designed for a 30-year retirement, not for someone who stops working at 35 and might live another 60 years. Add in inflation or rising healthcare costs, and it’s risky to rely on it blindly.
Think of it as a guideline, not a guarantee. You might want to consider safer withdrawal rates of 3% or even 2% for extra security. That’s why different FIRE types exist: Lean FIRE for frugality, Fat FIRE for luxury, Barista FIRE for part-time work, and Coast FIRE for saving early and letting compounding do the rest. Your first step is deciding which of these paths and numbers fit you, because financial independence isn’t one-size-fits-all.
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More InformationStep 2: Find Your Starting Line
Now comes the tough part: you need to know exactly where you’re starting from. Think of it like drawing a map: if you don’t know your current location, you can’t accurately plan the route to your destination. Start by writing down your income and expenses. Every Euro coming in, every Euro going out. You can use an Excel sheet, a budgeting app, or just a notebook—what matters is complete accuracy. This gives you the first honest look at how much you really save each month.
Next, list your assets and liabilities. Assets include your bank accounts, investments, and properties—anything with positive value. Liabilities are your debts: mortgages, car loans, and credit cards. Any debt above 6–8% interest is FIRE’s biggest enemy; paying it off fast beats almost any investment.
And don’t forget your emergency fund. Keep 3–6 months of expenses in a separate savings account, so you won’t need to sell investments in a crisis. If you want the accounts with the best interest rates in Europe, check out our calculator linked above. Once you’ve done this, you’ll see your real starting line. For many people, it’s a shocking moment, but this awareness is exactly what makes the next step so powerful. If you don’t want to figure this out all alone, we offer free one-on-one sessions just for you to help you build a clear roadmap.
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More InformationStep 3: Embrace Frugalism Intentionally
Here’s the uncomfortable truth: the fastest way to move closer to financial freedom is to spend LESS than you do today. So the real question is: how much are you truly willing to sacrifice for FIRE? This is where frugalism comes in—a lifestyle of cutting unnecessary costs, focusing on what really matters, and channeling the difference into savings and investments.
Some people in the FIRE community save 30%, 50%, or even 70% of their income, which is extreme and far above the German average. But the principle is simple: the less you need to live, the less you need to be free. You win twice: you save more today, and your FIRE number from Step 1 shrinks.
Now, frugalism doesn’t mean being miserable; it means being intentional with your spending. Do you really need three streaming services? What about that expensive phone contract you’ve had for years? And would cooking at home instead of ordering in really hurt your happiness? These small choices compound just like investments do. The point is not to copy anyone else’s lifestyle, but to define what you value most and cut the rest. Of course, saving is only half the equation, because no one ever reached financial freedom just by shrinking their lifestyle. That’s where Step 4 comes in.
Step 4: Accelerate Your Income
Saving money is powerful, but you can only cut so much. To really accelerate your journey to financial freedom, you also need to earn more. Think about the impact: if you earn €3,000 per month and save €500, your savings rate is 17%. But if you grow your income to €4,000 while keeping expenses the same, suddenly you’re saving €1,500—that’s three times as much. So, ask yourself: how can you make yourself more valuable? Can you upgrade your skills, change companies, or start a side hustle? Sometimes even small changes, like freelancing or turning a hobby into income, can make a huge difference.
Once you’ve built a strong active income, the next step is creating passive income streams. Now, passive income isn’t magic. It takes upfront work or capital, often both. But over time, these streams keep flowing even when you’re not actively working. And building those streams requires one crucial ingredient, which brings us to Step 5.
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More InformationStep 5: Invest Smartly and Tax-Efficiently
By now, you’ve defined your number, checked your finances, cut expenses, and grown your income. The final step is making your money work for you—through smart investing. The golden rule here is diversification. Don’t put all your eggs in one basket. Real diversification means spreading your money across asset classes, regions, and even income streams: stocks, bonds, pensions, real estate, and maybe even your own business. The goal isn’t chasing the highest return, but reducing risk and growing steadily over decades.
So what are your options? ETFs are simple, low-cost, and globally diversified. Pensions (like a Rürup in Germany) let you invest in ETFs while claiming massive tax benefits. Real estate can provide rental income, stability, and tax benefits. The right mix depends on your goals, your risk tolerance, and your timeline.
And something many people ignore: taxes. Optimizing your taxes is just as important as picking the right investment. In Germany, most investment income is taxed at 25%, yet every person has a tax-free allowance of €1,000 per year if you set up a Freistellungsauftrag with your bank. Depending on your situation, tax-advantaged pensions or real estate can save you tens of thousands over the years.
Would you like to start calculating your personal FIRE number based on your current expenses? Feel free to book a free meeting with us.
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