Personally, I’m looking to retire in Norway (not a huge shocker as I’m Norwegian). In this article, I’ll tell you exactly what you need in order to do so. I’ll lay down my personal plans, and how much money I will need to retire in Norway.
The minimum amount you need to retire in Norway is $800,000. This gives a “wage” of $40,000 per year at a 5% withdrawal rate. To live with a median Norwegian wage, and have a 4% withdrawal rate, you need $1.75 million.
Now, this question deserves a detailed and nuanced answer. After all, deciding to retire is not something you do without thinking long and hard about it.
PS: I’m not a financial advisor. Nothing in this article is financial advice. Do your own research. I take no responsibility for what you decide to do.
Let’s get into the details, and run some numbers!
How Much Money To Retire In Norway:
To figure this out, I’ll use the median wage and the 4% rule. The 4% rule is the traditional “safe withdrawal rate”: basically, it tells you that taking out 4% of your nest egg every year is safe.
We can divide the median wage by 4% to figure out how much money we need to retire.
The median wage in Norway is roughly $70,000/year. The calculation is therefore:
$70,000 / 4% = $1,750,000
To live with an average lifestyle in Norway after retiring, you need $1.75 million saved up and invested, according to the 4% rule.
Assuming you’ll get a 7% return on the 1.75 million bucks every year (by investing in index funds), you’ll have a pre-tax return of:
$1,750,000 * 0.07 = $122,500
This is almost twice that of the median wage of $70K, giving you a nice buffer. Assuming you don’t take out more than $70K the nest egg will actually grow through your retirement years.
This is the beauty of the 4% rule: You end up with more than you need! This is actually necessary, as inflation and taxes make a big dent in your purchasing power.
If you have a nest egg that returns $70K per year, and you take out $70K per year, your nest egg will stay constant. But, you’ll have to pay taxes, and your purchasing power will decrease due to inflation.
Therefore, if your nest egg doesn’t grow every year, the “real” return is actually negative, even though the number of dollars stays the same.
Think about it like this:
Inflation makes prices go up, and therefore your expenses higher. In order to stay retired you therefore, need to increase the amount you take out of your nest egg every year. This makes an ever-growing nest egg necessary for retiring.
In fact, your nest egg needs to grow at the same pace, or faster, than inflation (2-5% per year).
How To Save Up The Conservative Retire Amount:
I’ll give you an example to illustrate the time it will take. I’ll calculate the number of years you’ll have to save $1000 a month with a $50,000 initial investment in order to reach $1.75 million:
After 33 years of saving $1000/month and initially investing $50,000, you’ll reach $1.75 million.
“But I want to retire early! I can’t wait 33 years and save 1.75 million bucks…”
No problem. The numbers above are the “conservative” numbers and are based on the median wage. Let’s play with them, and see what the minimum numbers amount of money you need to retire in Norway are:
Minimum Amount Of Money To Retire In Norway:
As seen in the calculations above, there are two factors in the equation: The money you need to take out of your nest egg every year, and the “safe withdrawal rate”.
In the “conservative” example, we used $70K per year and a 4% withdrawal rate.
In many cases, you’re can make it just fine by increasing the withdrawal rate to 5%. This makes the necessary nest egg smaller, as you divide by a number closer to one.
Also, if you can cut down on expenses and live off less money you can decrease the amount you need to withdrawal every year.
Let’s say you’re able to cut down on the two biggest expenses: Housing and commuting.
This is actually not that hard: You downsize your house or move out of the city, and since you’re retired you don’t have to drive to work.
It’s not unrealistic that you can cut your expenses down from $70K per year to $50K by those two changes alone.
In addition, you’re not going to save or invest money anymore. This “expense” is often 10%-15% of your salary, but you’ll no longer have to do this. By stopping the investing/saving of, let’s say 15% of the median salary of $70K per year, you cut down roughly $10K.
After decreasing the spending on housing and commuting, and stopping the saving/investing, we’re down to $40K – almost half of the $70K we used in the “conservative” example.
Let’s now use the new numbers to calculate the minimum amount of money we need to retire (comfortably) in Norway:
$40,000 / 5% = $800,000
To live a comfortable lifestyle in Norway after retiring, you need $800,000 saved up and invested, with a safe withdrawal rate of 5%.
Assuming you’ll get a 7% return on the 800,000 bucks every year (by investing in index funds), you’ll have a pre-tax return of:
$800,000 * 0.07 = $56,000
That’s 40% more than the $40,000 you’ll be taking out to live on every year. In other words, you got some money left to keep the nest egg growing.
How To Save Up The Minimum Retire Amount:
I’ll give you an example to illustrate the time it will take. I’ll calculate the number of years you’ll have to save $1000 a month with a $50,000 initial investment in order to reach $800,000:
After 23 years of saving $1000/month and initially investing $50,000, you’ll reach $800,000.
Is retiering In Norway A Good Idea?
There are pros and cons of retiring in Norway. The most obvious con is the high cost of living. It costs about 40% more to live in Norway compared to the general cost of living in Europe:
One of the biggest benefits is the stability of the country and the fact that health care is basically free. You have to pay a small fee for going to the doctor or using health care services like scans and stuff, but after you’ve paid a total of roughly $250 you get something called “frikort” (free-card).
A free-card makes the rest of the year free of charge. You can go to the doctor, to a psychologist, use radiology services, do laboratory tests and more for free for the remainder of the year. (source)
This is especially beneficial for older people, as healthcare-related expenses usually grow quickly when you get past 80 years of age.
Other benefits making Norway a great place to retire are the stability of the political landscape, the strong economy of Norway, and all the consequences of Norway being a welfare state.
Conclusion: You Need $800,000 to $1.75 million To Safely Retire in Norway
Given a 7% return on your portfolio, you need at least $800,000 to retire in Norway, but $1.75 million using conservative numbers (median wage and 4% rule).
You can find your retirement number by the same calculations as used in this article. Just pick a yearly sum of money you want to live on and divide it by the withdrawal rate you feel comfortable with.
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