Reaching Financial Independence When Facing the Highest Income Tax Rate in the Western World

Reaching Financial Independence When Facing the Highest Income Tax Rate in the Western World

Today I was browsing through the newspaper when my eyes caught an article that read “Belgium has the highest tax burden of the 34 OECD member countries.” Immediately I sat up straight and pricked up my ears. Some of you might not know this, but whenever I read about the tax rates on labour income on your blogs, I always turn jealous at how low they are. Yes, actual jealousy. I know, horrible characteristic.

Grouchy SmurfWhy? Because the average worker in Belgium is faced with a tax burden on labour income of 55.8%, according to a recent OECD study. Guess who earns almost exactly the average gross income? You guessed right!

However, I don’t want to turn this post into grumble fest 2K14. What I do wan’t to talk about is how such a high tax rate factors into the financial independence game.


The downside to Belgian taxes

My personal tax rate is about 55%, compared to 31% should I decide to move to the United States, for example. That’s a 24% lower net paycheck every month. When saving 50% of my salary every month, I’ll be stuffing away 12% less of my income than my American counterpart.

Consider the scenario where I invest my savings on a monthly basis and let them compound at a 6% rate annualy for 15 years. The power of compounding interest will increase the savings gap between my Belgian and American self even further. After 15 years my Belgian net worth is only 65% of my American net worth, a significant difference.

For argument’s sake, I obviously didn’t consider the difference in cost of living. The above is only to show that building wealth over the long-run is much more difficult in a high tax situation, clearly a downside of the Belgian tax system.


The upside to Belgian taxes

Every downside has its upside, of course. Even though my tax rate sounds like a lot – it truly is a lot, trust me – it doesn’t tell the full story. On top of my monthly paycheck my employer offers full health insurance, pays for my commute and provides me with a wide variety of fringe benefits.

But that is not all. I’m also building personal rights to a pension at the age of 65. Even though I expect that age to be much higher by the time I can apply for official retirement and even though the level of my monthly pension is subject to political randomness, that’s still a big plus. If I did the standard 9-to-5 until you’re 65, I’m entitled to a pension worth 75% of my average salary from the last ten years of employment.

Great, you would say! Except I don’t think working until 65 is an option for me. If I worked full-time at my current employer until the age of 40, which is 15 years in total, the pension rate would go down to about 25%. Obviously, my 10-year average salary will also be lower now than 30 years from now.

Considering that I’m currently trying to save 50% of my net income, which makes the 25% pension rate effectively 50% of my spending pattern, that’s still a boost of 50% to my safe withdrawal rate when I turn 65. As a result, I can build a freedom fund that’s less than 25 times my annual spending and still be safe.


Now what?

The above is great and all, but I have absolutely no clue yet on how to deal with it. At the moment there are too many uncertainties.  Will there still be a pension when I turn 65? Will the official age for retirement remain at 65?

Because I don’t like uncertainty, I’ve decided to ignore the pension for at least another 15 years. In the meantime, I’ll try to build my net worth and portfolio to the point I can fully sustain myself with passive income.

What do you guys think? Are you allowed to call yourself financially independent when you rely on a far off monthly government pension to make early retirement happen?

For seasoned financial independence practitioners and frugalists it’s probably pretty clear what I should do. Since the high tax rate makes boosting my income difficult, I should focus on lowering my expenses. Indeed, a lower spending rate is a sure-fire way to speed up your progress towards early retirement.

That’s why I’m excited to find out my savings rate for the first month of truly living on my own in a couple of days. It’ll give a clear indication of how attainable financial independence and early retirement is in Belgium, the country with the highest income tax worldwide. And if it turns out to be possible in Belgium, it should be possible anywhere!


  1. Wow that’s a lot of taxes you’re paying. Here in Canada I’m paying pretty high tax rate too but not as high as you are.

    Other than contributing to your pension does you tax money to go other social benefits like health care and free education? I know some Scandinavian countries have high taxes but the citizens have great social benefits like free university.

    Since early retirement is not the norm, people like us that are trying to achieve early retirement kind of get screwed over on these “benefits” designed for the norms.

    1. Yup, it’s a lot, but I actually don’t mind too terribly. We have one of the best and most inclusive social security systems in the world, so at least we get something in return for our high taxes.

      Too bad most of those policies are aimed at families and the like, so as a single I’m not getting too many immediate benefits. Although I went to University almost for free (I did a post on that if you’re interested).

      The huge downside to the way our pensions are structured is that, since the baby boomers are all retiring, there will be less and less people in the workforce to pay for the retirees’ pension. That’s why I expect any pension I receive later will be at a later age and be lower in general.

      The average income tax rate for Canada seems to be 31% for an average single earner, which isn’t too bad if you ask me. You guys get rather great benefits too if I’m not mistaken!


  2. At least we (being Canadian and all) get a fairly solid social safety net for all the taxes that we do pay. When I hear stories of how people in the US without medical insurance end up in the hospital for emergencies and have to pay $$$$$ I can’t even comprehend how or why that is! Or to pay a doctor to get a prescription if you don’t have insurance.

    Perhaps you could go work somewhere like the States for awhile (get insurance!!) and make all your money and then retire back to Belgium where all the social safety net perks exist?? Hehe just an idea 😀

    1. Exactly! I mentioned it to Tawcan earlier, but our social security and safety net is excellent. So I actually don’t mind the high tax rate all too much. I can’t imagine having to deal with a system like the US where you have to pay for your entire medical insurance.

      Ha, now that’s a great idea! An even better idea would be to work for the European Union, receive their lower tax rate (15%, I believe) and continue to enjoy the Belgian perks.

      Or maybe I’ll move to Canada!

      Best wishes,

  3. Another Canadian here. How is your government for managing costs and programs that your taxes go towards? I don’t mind paying higher taxes than say the U.S., if the money is well managed but sadly it seem that governments can’t manage money well with all their bureaucracy and entitlements. That’s why I prefer to have lower taxes because (which we don’t but not as high as yours) because you can’t trust ’em to manage the money. But look who’s talking, so take everything I say with a grain of salt. 😉

    P.S. I also heard you have some kind of program there where the government pays you to retire because my boss is retiring this fall because of this and he is Belgian. Did I tell you that before? Small world, ay. From Antwerp.

    1. Seriously, what’s up with all you Canadians lately? You guys rock!

      In general I think our government – that should be plural actually – runs most programs and policies quite well. Of course there will always be some waste of money, but that always happens when you run a big ‘business’.

      We also have excellent social security, medical insurance and other types of safety nets. While they don’t warrant the high tax rate completely in my case, I think they are still worth it.

      I’m not sure what you mean by “they pay you to retire”, but he’s probably entitled to early retirement from 56 onwards? Or do you mean he’s getting his normal pension?

      You never mentioned you had a Belgian co-worker! Antwerp isn’t too far from here. If you ever visit him here let me know!

      Best wishes,

    1. We have excellent health care, social security and other safety nets. That’s why our tax rate is so high. And it goes down really quickly once you start having kids.

      65% isn’t too bad, depending on how much you earn!


  4. my GOD that is super high tax… but don’t confuse ‘going to uni for free’ with ‘going to uni for free at the point of access’. SORRY, I’ve just got a bee in my bonnet about this. It is not free and it never will be, you and every other Belgian have paid for it through your extortionately high tax rate. I would much rather prefer to pay less tax and then have more choice. The benefits of a free at the point of access health care system are peace of mind if something horrible goes wrong, but to be honest, I rarely use the NHS here in the UK. If I get sick, I sort myself out because most Dr.’s generally just offer antobiotics and send you home. They have little holistic knowledge and the whole industry is severely compromised by big pharma…

    oo sorry I don’t want to rant! I just hate taxes being so high! Governments are notoriously bad at managing money and let’s face it, do they really know what’s best for you? No, they do what’s best for them i.e. to keep them in cushy jobs that enjoy perks that the average citizen doesn’t get with their job…

    boo to high taxes!

    1. M,

      Of course there’s no such thing as a free lunch. University never is really free, but when you’re only paying about €600 and it costs the government €12.000 in subsidies to universities for one academic year that counts as something.

      Less tax sounds great, but I’d much rather have cheaper schooling. It’s an investment in the whole of society; everyone can profit from an educated work force.

      I guess our health care works differently than yours. We can choose any doctor or hospital, and receive almost everything we owe them back from both insurance companies and the state.

      Don’t worry, sometimes you need a good rant! 🙂 Be careful though what you say to someone who works in government! 😉 No, seriously, I get why you feel that high taxes are often a waste of money… Until you run into the situation that you need the support or that a new policy greatly benefits you in some area of your life.

      Still, low taxes any day over high taxes!

      Thanks for visiting,

    1. Geblin,

      I read about it two days ago! Great news!
      Although I’m not sure how they will put the tax break on dividends and interests from bonds into practice. Seems like an enormous hassle.

      We’ll see what our politicians come up with!

  5. Wow, that’s a high tax rate! It’s interesting that your employer pays for your commute, though. I guess sometimes the benefits outweigh the negatives. I hope you can manage a decent savings rate; that’s a lot of pressure to keep everything low in favor of early retirement. I definitely wouldn’t count on a pension so far away, just in case.

    1. Hey Erin,

      Most large corporations pay public transport to and from work for their employees. I think it’s a great system to motivate everyone to take the train or bus to work.

      My savings rate should still be good since I don’t need much on my own, but we’ll se in a couple of days! I’m also not counting on the pension in its current form. The chance of there not being anything is really slim, but the current payments are just way too high to keep up for future generations.

      Thanks for stopping by,

  6. That is quite the tax burden you have. I pay about 33% tax on my income but that only apply to 10 1/2 months of the year. How do you even manage a 76% savings rate even if you lived with your parrents

    1. Thanks for stopping by, Sindre,

      Why do you only pay taxes for 10.5 months? Are you a teacher?

      76% when living with your parents isn’t unheard of, but it still requires a frugal mindset. On the one hand, I earn quite a lot for my age, so that makes saving a lot easier, of course. On the other, the basic cost of living isn’t too high in Belgium: housing is rather expensive, but food really isn’t, unless you eat tons of meat. So unless you have a car, eat out a lot, buy lots of gadgets, etc. having a decent savings rate is possible!

      Have a great weekend,

      1. In Norway you get paid vacation money in July based on the salary you made the year before. Also the tax is calculated over the year so you pay 50% on what you usually pay in November to offset the cost of Christmas.

  7. Well, if you decide to move to the US, let me know and we can get some nachos or something. But 55% sounds insane to me. The benefits are also pretty gnarly though. I think you’re going at it in a smart way, as I don’t really trust government benefits to be enough to support anything I want to do, if they are still around. But as long as you’re working towards FI and relying on yourself, I think in any industrialized first world nation, wealth is by no means impossible to come by.

    1. Deal! 🙂

      The benefits are much better than they sound and I didn’t even talk about the overall benefits of our social security, education, etc. Even when I’m unemployed I benefit from these policies.

      Wealth is definitely not impossible to come by. In the end it all depends on your savings rate and not really on how much you make. If you earn over €100,000 and spend it all you’ll still be behind someone who earns €20,000 and lives on €10,000!

  8. That is pretty steep tax rate. But the grass is always greener on the other side. Im in Canada and wish my rate was lower like the US. Then if u r in the US u want your taxes lower like costa rica and then the cycle never ends. I guess we all gottta shut up and pay the Man or get the hell out. I for one dont want to move. The price we pay!!!!

    1. You’re absolutely right! Like I mentioned above, I don’t mind the high taxes all too much. We get great benefits and government services in return for them.

      If I didn’t like Belgium enough or hated the taxes so much, I would have moved a long time ago!

      Have a great weekend,

  9. WOW that is a serious tax rate.. I’ve actually never thought about how tax rate affects your financial independence. At the end of the day managing your money means managing what you have… or what’s left over after the government takes their cut =\ haha

    Granted, when you don’t have to pay out of pocket for high costs like education and healthcare because of your taxes, it means the money you do have is essentially all disposable. As a Canadian I’m often shocked by how much more Americans pay for these things than I do — I’ll take the higher taxes in Canada any day!

    1. Bridget,

      That’s actually a neat way to look at things: my income is indeed almost completely disposable!

      In the end, it’s not really your tax rate that affects financial independence, but rather your savings rate. Of course, it’s easier to save a lot when your take home pay is higher after taxes.

      Thanks for visiting!

  10. Interesting! I didn’t realize the tax rate was so high in Belgium. But, you’re wise to consider the fringe benefits of health care, etc. Makes your savings rate all the more impressive, my friend!

    1. It’s notoriously high, especially for singles. When you get married and your spouse doesn’t have an income or when you have children it quickly drops to about 30% or even lower. I guess the idea is to subsidize reproduction! 🙂

      Thanks for the kind words, Mrs. Frugalwoods!

  11. Relying on a government pension many decades from now is a personal decision. I guess it basically comes down to how secure you think it is. My preference is to have a safety factor built in so I am assuming I will not receive a government pension in the future (US Social Security). Anything I do receive will just be a nice bonus.

    1. You’re absolutely right, Jake! I’m not to keen on relying on the government pension, although I’m fairly sure that it will still be there by the time I’m eligible.

      I’d rather save the money now and have the pension as a nice bonus on top!

      Thanks for stopping by,

  12. Coming late to the discussion – is that 55% rate the base rate for taxes(i.e flat), or the marginal rate?
    Many of my fellow Canucks have commented and mentioned 31% (and progressively more as income increases hitting just below 50% depending on which province you reside in) – well that is true for income earned above level determined after deductions and credits and it also depends on the type of income – for example the tax rate on dividend income from Canadian sources is much lower than “earned” income (i.e. as an employee) and you allowed to shelter saving for retirement (RRSPs) which also reduce immediate taxes (note: taxes are deferred until retirement they don not disappear unfortunately)

    personally by carefully structuring where my income comes from (mainly dividends) I can have an income of almost $40K and pay a minimal tax on it (<$500 total)
    – however, as a very simple example, as soon as that $40K threshold is exceeded the MARGINAL tax rate on the amount after the 40K climbs to ~31% ( ) – for example if my income is $50K then the tax owing would be ~ $3,100 for an overall effective tax rate of ~6% (3100/50000) – its actually a bit more complicated than that as taxes are applied to "taxable income" which is not the same as "earned income" – simply stated the gross income amount is NOT what is taxed rather a calculated amount which varies widely for each individual depending on how they make the income.

    many folks fall into the 31% marginal tax bracket but their effective tax rates are usually much lower after personal deductions and such – quick personal rant here – I would much rather see a totally FLAT tax (say10-15%) applied to ALL income with no deductions and special incentives however this will remain fantasy as the multi-billion dollar personal tax accounting industry (and probably 100,000 jobs) would be very negatively affected and the politicians would not be able to tinker with incentives, etc. – benefit would be very simple tax calculation for everyone and a much reduced bureaucracy to collect taxes – end of rant

    so is that 55% applied to ALL of your income or only to the last euro?
    or if, for example, you earn 30,000 euros is the final tax bill 16,500 euros or something less?
    if it is something less then the 55% is a marginal rate and not a flat rate.
    also you mention your employer pays for certain things (e.g. transit) – is this taxed too? at the same rate? (I like really like the idea btw to encourage transit use but first we'd have to get a good transit system – another story)

    as to the government pension you pay into is it "pay as you go" or "funded"?

    "pay as you go" means the govt. is paying pensions out of current revenues (and as you note the boomers are going to make a huge dent along with a decreasing number of workers to tax)

    "funded" would have the pension funds segregated from general govt. funds and managed solely to provide for pension outflows – usually these types of pensions can be considered secure while the "pay as you go" are not
    using Canada for example – we have 3 types of govt. pension (I use the label loosely) CPP (Canada Pension Plan ) which is funded and OAS (Old Age Security) and GIS (Guaranted Income supplement) which are "pay as you go"
    because CPP is funded te amount you receive is based on the amount contributed and it seems to be very stable
    OAS is pay as you go and is subject to govt. whims (not without peril to the govt. in power)
    GIS is income tested and basically is a handout to those who have no income

    your pension sounds a little to god to be true (75% of last 10 years income – is there a cap? ) so you might be right to question its existence when you go to claim it

    personally I ignored any govt. pension as a potential income source and provided for my wife and myself to sustain our lifestyle from personal savings and investments – any govt. $ is purely a bonus (unfortunately taxable 🙁 ) – I look at it as beer money.

    btw your savings rate is impressive no matter what ! 🙂

    1. Gcai,

      That’s a whole lot of questions! I’ll try to address all of them. Sorry if I skip any.

      1. The OECD measured the difference between labour costs of the employer and the net take-home pay of the employee. As such, the 55% is a flat rate.Our income tax system is set up progressively though.

      2. Income from anything else than labour can never be combined with your income tax, which seems to be the case in Canada (if I understood your example correctly). Dividend income is always taxed at 25%, irrespective of how much you receive. There’s also no way to shelter that income.

      3. I’m with you on the simplification of tax systems; there are way too many exceptions. Actually, I pretty much like your way of doing it: combine all income and tax the total amount instead of taxing the income sources differently. Keeping taxation progressive is a must for me though.

      4. Some employer benefits are taxed (lower rate than usual though), but providing free public transit to and from work is not taxed if I’m not mistaken since it’s a cheap way for the government to subsidize the use of trains and busses.

      5. Government pensions are set up differently for some people. Mostly it’s pay as you go. For me (civil servant) it’s a combination of pay as you go and funded. A certain percentage of my gross income goes directly into a government fund, which then pays current retirees. Anything left over is used for later payments.

      6. My pension is extremely generous indeed, but that’s because civil servants earn less than their private sector counterparts. A larger portion of my gross income goes to the pension fund mentioned above. Remember that I only receive 75% if I do the standard 45-year, otherwise the percentage is lower.

      7. I’m also ignoring government income during retirement. It’s a nice bonus on top of having my own funds. Beer money! 🙂

      I hope this answered most of your questions. Feel free to ask if you have more!

      1. thank you for the speed and detailed reply – I didn’t mean to ask that many questions ! 🙂

        So just to clarify by example, if you earn you earn 30,000 euros is the final tax bill 16,500 euros? and you go home with 13,500 euros? if that’s the case OUCH!!! you’re working over 50% of the time for the MAN! double ouch! hurry up with that retirement 🙂

        we’ll have to agree to disagree about the fantasy flat tax being progressive – imo as soon as you start creating boundaries/ limits/whatever there is strong disincentive to earn the next unit of income and all sorts of strategies get employed to avoid the next level/limit including hiding income (black market) not to mention political lobbying resulting in an ever more complex tax system along with the bureaucracy to administer it.
        As an aside a few years ago there was a new system proposed in Canada for a simplified tax return :
        line 1 how much did you make last year ? :
        line 2 how is left ?:
        line3 : send it in
        (joke 🙂 )

        I forgot early to mention the tax system employed in Bermuda – nice place to visit btw – there is no income tax what so ever. The government fills its coffers solely by tariffs/duty placed on imported goods and in the case of Bermuda EVERYTHING is imported as the only items produced on the island are rum (Gold Seal – an excellent rum btw) and a few vegetables – if you want a car it is taxed, if I remember correctly, @ 100%, clothes are 50% and so on every darn thing coming in – it is also in effect a pure consumption tax in that if you consume little or selectively you pay little tax and if you’re a spendthrift you get taxed more. Not an inexpensive place to live but because it is so small physically and in population with a reasonably hands off govt. everything seems to work. Cannot see that system working in Canada – the border is much to long

        thanks again for the insight and discussion !

        1. Gcai,

          No problem! Love the interaction!

          Gross income and taxes work a little different in Belgium. A paycheck statement would be 38.000 gross, then about 25.000 net, which is only about 35% of taxes. On top of the gross number there are some employer contributions which don’t show on your paycheck. The employer contributions would amount to about 12.000. In total I’d be earning the equivalent of 50.000 euros, which is then taxed at about 50 to 55%.

          Also, don’t forget that we have a progressive tax system. The less you earn, the lower your tax rate.

          Bermuda sounds like a dream for FI seekers! You’d be able to earn tons and not spend much through frugality. When you’ve amassed enough wealth, you’d just bail and move back to your home country. 🙂


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