39, Is semi-retirement in 10-12 years possible?

[KYDL21]

Age: 39
Spouse’s/Partner's age: 38

Annual gross income from employment or profession: 63,000
Annual gross income of spouse: 80,000

Monthly take-home pay: ~7,300

Type of employment:
Me: public servant (10 years service)
Spouse: Multinational

In general are you:
Saving

Rough estimate of value of home: 380,000
Amount outstanding on your mortgage: 77,000
What interest rate are you paying? 3.9% (fixed for one more year)

Other borrowings – None but will need a new car in the next year

Do you pay off your full credit card balance each month? Yes


Savings and investments: 48,000 in low interest saving accounts
company shares currently worth 30,000

Do you have a pension scheme?
Me: Yes - public sector scheme (not paying AVCs)
Spouse: None

Do you own any investment or other property? No

Ages of children: None

Life insurance: None


What specific question do you have or what issues are of concern to you?
We currently work in Dublin and do not see ourselves staying here long term. We would like to move in the next 10-12 years and wondering how we can make this a possibility? My family own land on the North West coast and we would like to start building a house there to move to in the future. We were thinking we can start this now and use the next 10-12 years to pay down the mortgage and use it as a holiday rental for some of the time. The hope is we keep our Dublin property and that the rent would help towards monthly living expenses. I suppose we are hoping to semi retire at that stage (wishful thinking perhaps??). Unfortunately, my career is very specific and only Dublin based. My spouse is in IT so working remotely or consultancy work is a possibility. I am just wondering what is the best use of our current finances to allow this to happen. Should we be paying of the mortgage (or mortgages), paying into AVCs while we are both in the higher tax bracket, or investing? Any advice will be greatly appreciated. We are good savers we just not sure how best to use it.

 

[Sarenco]

To fully retire at 50 you would, in effect, have to "pre-fund" around 35-40 years of living expenses.

So, if you currently spend, say, €40k per annum in today's money terms that means you need a pot of between €1.4m and €1.6m (depending on how conservative you want to be). Obviously you would include the capitalised value of your accrued pension entitlements as savings for this purpose.

If you expect to have a reduced income for at least part of your (semi-)retirement then deduct that amount (allowing for taxes) from your projected expenditure and run the numbers again.

We can argue around the fringes about the "best" investment strategies to maintain (and hopefully grow) the real value of your savings but ultimately you need to save (or inherit) a serious amount of money to even consider retiring at 50.

By owning your own home, you effectively pre-fund your accommodation costs - but you can't eat a house! There are a large number of other future expenses to consider (food, healthcare, transport, etc.).

I hope that doesn't sound overly pessimistic but I think it's important to be realistic. The dream of eventually (semi-)retiring to a self-build house in the north west looks entirely achievable based on what you have told us. You just need to be patient.

I personally wouldn't build a holiday let with a view to converting it into your home on (semi-)retirement. To many expenses involved in maintaining two houses, too much risk of things going awry.

Incidentally, I think you have done great so far financially. If I was in your shoes, I would apply your savings in the following order of priority:-

1. Retain around six months of your typical expenses in a savings account as an emergency buffer;
2. Get your husband to start a pension - I would be surprised if his employer doesn't offer one - and max out his contributions;
3. Pay down your mortgage ahead of schedule - and refinance to a lower rate in the meantime!

Hopefully somebody else will chime in on the wisdom of making AVCs - public sector pensions are most definitely a specialised subject!

Hope that's of some benefit and don't give up on the dream house! You'll get there...

 

[Steven Barrett]

It all depends on what form your semi retirement takes. What are you going to do when you get out of Dublin? Would you like to travel the world for 6 months and stay at home for the other 6? Do you want to give up work completely? If your husband is going to work remotely, how many days is he going to work? From working with IT consultants, they are all pretty full on at the moment. Will he be able to work 3 days or will it be project work where he works full time for a number of months and then takes a few months off?

You seem in pretty good shape financially and both of you are on good salaries, so I would say it would come down to how much you want it and how prepared you are to go without now (I'm not talking about living like paupers) so you can get the opportunity of taking a foot off the gas in 12 years?


Steven
www.bluewaterfp.ie