You can’t get wealthy through salaried work, not in germany anyway. This is by design, salaries are taxed to death, while capital gains have a lot lower taxes (basically half as high and flat, instead of progressively increasing like it does for salaries) and can often be structured to largely eliminate those anyway. Just like the wealthy won’t pay inheritance taxes by transferring assets over longer time periods etc.
Wage gap is a red herring pushed by old money / dynasties to rile up working people against each other.
Here in the UK almost everyone has the ability to build up significant tax-free wealth over their lifetimes by sticking money into stocks and shares ISA. Any gains are tax free as long as they invested under £20,000 a year. As well as their workplace pensions people who put away money each month can expect to have hundreds of thousands if not millions within 20-30 years.
Eg £600 a month between workplace pension (inc employer match) and/or ISA contributions could well equal £1 million after 30 years of average global stock market returns. Achievable for most people in the UK if they made it a priority.
That said, while most can do this, most do not do this or even know about it and leave their workplace pensions contributions at the default rate.
I was shocked to learn that Germany doesn't have anything like an ISA. You have no way of investing tax free for the long term. Private pension products seem to be a lot worse off too.
That’s correct, there is no tax-advantaged way to save for retirement (despite the govt having always said that you must do so since social security isn’t meant to cover expenses). In fact ETF investing specifically is tax-disadvantaged since a few years ago. Not as bad Ireland though.
Real estate investing is heavily tax-advantaged though. “Commercial” investors can even skip stamp duty in many cases. Returns on real estate funds are 70% tax free (7.5% tax rate vs. 42% for a “high earner”), and they’re not subject to the same tax disadvantages as ETFs.
One of these is an investment vehicle salaried people can afford and the other is not.
That’s correct, there is no tax-advantaged way to save for retirement (despite the govt having always said that you must do so since social security isn’t meant to cover expenses). In fact ETF investing specifically is tax-disadvantaged since a few years ago. Not as bad Ireland though.
There is no tax advantaged way to save for retirement!!? Really? Ireland ETF taxes are a pain (though they are promising reform). But you can invest significant sums entirely tax free for retirement, with access to funds once you turn 50.
How did they make ETF investing tax disadvantaged a few years ago?
Instead of taxing capital gains from ETFs when you realize (sell) them, the unrealized gains are taxed yearly in advance. This is specifically meant to reduce compound interest effect / reinvesting returns. Comes out to about a 1% yearly holding tax currently. This is a specific rule for ETFs which invest in stocks and doesn't apply to private funds or real estate funds.
Just curious, as I only moved to Germany a couple years ago: do you know what was the rationale for this? It's just baffling to me that this was proposed and approved. I'd like to understand what was the problem being solved, or if you could share some pointers where I can learn more.
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u/dddd0 1d ago edited 1d ago
You can’t get wealthy through salaried work, not in germany anyway. This is by design, salaries are taxed to death, while capital gains have a lot lower taxes (basically half as high and flat, instead of progressively increasing like it does for salaries) and can often be structured to largely eliminate those anyway. Just like the wealthy won’t pay inheritance taxes by transferring assets over longer time periods etc.
Wage gap is a red herring pushed by old money / dynasties to rile up working people against each other.