While the debate is heating up on the financial independence/early retirement movement, officials in Sweden are reforming the pension system and successively raising the age of retirement to 64 years old by the year 2026. Currently, the earliest age of retirement is 61, but the average age of retirement stands at 64.5 years, according to official statistics. This indicates the present need for a significant portion of the population to work beyond the cut off age, with a financial motive. Yet, on the other hand, research continues to surface on the pros and cons of leaving the workforce early, and prompts the question from Swedish citizens: Can I retire early in Stockholm? Sweden has continued to grab headlines for having a generous approach to parental leave, its free education policy and high quality of life. But how can this equate to a better foundation for an early retirement?
Bridge The Gap Between Pensions
Stockholm happens to have a relatively large proportion of older citizens. Over 20 percent of Sweden’s inhabitants are aged 65 and over, and with life expectancy being one of the highest in the world, you can safely assume that residents of Stockholm spend a long period in retirement. One of the main things mentioned by early retirees is sorting out finances to address this longer period. One of the great things about retirement in Stockholm is that your retirement age can be somewhat flexible, and depending on yourself and your employer, you can continue to work in some capacity and earn pension rights. In addition, you are able to access your pension as early as 61 in Sweden, which partially addresses the gap that arises with early retirement. However, there is still some need to implement income sources to fund your retirement needs, especially if you choose to retire before the age of 61.
The Swedish pension system and more specifically governmental retirement pension is also a bit more proactive and providing than other countries. The Premium Pension scheme which is set for a reform beginning November 2019, allows employees to choose their preferences for the investment of their funds. Each year, employees pay approximately 2.5 percent of their salary into a chosen Pension Fund or if not chosen, the Seventh AP Fund. There is also the Occupational Pension Scheme which is funded by employers and allows employees the option of investing in private pension schemes. Over 90 percent of Sweden’s working population is covered by pension agreements like these and these schemes are seen as a positive way of allowing workers accountability for their pension. In addition, these schemes encourage an active approach to investment by employees and can help them to become well versed in the world of investment; a skill that they can use to increase their likelihood of achieving early retirement and financial stability. However, there is still some need to implement income sources to fund your retirement needs, especially if you choose to retire before the age of 61.
Establish Post Retirement Income Sources
Besides your pension, establishing a diversified income portfolio is one of the smartest things you can do. Stockholm (and Sweden in general) is possibly one of the best places you can do this, thanks to a number of relaxed loopholes on the generally high tax rules. This includes reduced or nil rates on taxes such as inheritance or capital gains taxes. For long term planning, investments such as green bonds, mutual funds, and real estate are your best bet. In 2016, Sweden’s third pension fund recorded a 9.4 percent return, showing the continued investment by the country in sustainable investment.
In terms of real estate, a period of rising house prices has been followed by a swift decline during the last quarter of 2018 and 2019. For investors, this could turn out to be a good thing, since it reduces the capital needed for purchases. The key will lie in securing the market for rental such as commercial spaces where rent increased by 13 percent in 2017. Real estate investment portfolios such as Mengus can help you invest in potential commercial spaces and secure a steady income for those looking to position their finances to retire early.
Address Your Outgoings Early On – And Redirect To Your Savings
Finally, another important source of retirement income would be your savings. In this case, time will equate to leverage. This means the earlier you begin to save and implement these decisions, the more likely you are to succeed in early retirement. One way of doing so is by reducing your expenditures early on in your career. This means reducing rental or mortgage costs and living expenses, and getting rid of any debt. According to Check In Price, the average salary is 22000 SEK after taxes, and while the cost of living is adjudged to be high, so is the quality of life in the city. For parents, Sweden’s free education policy relieves a lot of financial pressure from their budget, while in terms of healthcare, the city provides free (or heavily subsidised) healthcare for retirees and the general population. With two of the key expenses being minimised, those looking to retire early have a better chance of cutting their expenses in a bid to reach their retirement fund goal.
While the city of Stockholm is often said to be one of the most expensive places to live, it can turn out to be surprisingly forgiving to retirees, including those that choose to do so a little earlier. As recommended with anyone retiring early, it is always wise to nail down a retirement plan and begin provisions early on. Establishing post-retirement income streams and cutting your expenditure to create a cash surplus will be the two key actions you can take now to ensure your dream becomes a reality.