40s, no mortgage, interested in FIRE, any feedback welcome

[charliebear]

Age: 45
Spouse’s/Partner's age: 48

Annual gross income from employment or profession: 83k (part-time so 0.8 of 105k salary). I intend to reduce my hours further in the next year so will go down to 52k but can supplement with some self-employed income.

Annual gross income of spouse: 65k salary plus self-employed income approx. 20k

Monthly take-home pay: from both salaries combined 6800 plus self-employed approx. 1k

Type of employment: e.g. Civil Servant, self-employed: Both public sector salaries with a smaller amount of self-employed income

In general are you:
saving: Until recently we overpaid a large amount on our mortgage plus paid towards home renovations. Now our mortgage is basically paid off and we are unsure where to save/invest our additional income each month.

Rough estimate of value of home: 350k

Amount outstanding on your mortgage: 5k- we have retained this amount as the interest and payments are tiny and we get fee-free banking on our current account with the same provider.
What interest rate are you paying: 2.75%

Other borrowings – car loans/personal loans etc: Partner recently took out a car loan of 22k and plans to pay off as much as possible from separate self-employed income plus 500 per month from main earnings. In retrospect we should have self-funded the car rather than paying off as much of the mortgage but the car purchase wasn’t planned at that time.

Do you pay off your full credit card balance each month? We have no credit cards.

Savings and investments: 10k in cash savings, 13k in prize bonds, 20k in an post child saver from child benefit.

Do you have a pension scheme: We are both in public sector Single Scheme (most recent and less favourable version). My spouse has an AVC linked to Single Scheme pension but I do not. We previously lived abroad and I have previous public sector pension contributions that I can take from age 60, worth about 7k per year. We are continuing to pay UK NI contributions and both should have enough for full UK pensions by retirement as well as a decent proportion of the Irish state pension.

Do you own any investment or other property?
We have no other investments and this is an area where we would love to hear any/ all ideas. We have thought about buying another property but from researching it, it just doesn’t seem worth the potential hassle. With the mortgage paid off we are interested in investing but this is a new area for us.

Ages of children: 13

Life insurance: We still have our mortgage protection policy and based on the original mortgage it would pay out about 150k today if the worst happened. We have no other life insurance policies other than some survivor benefits linked to our pensions.

What specific question do you have or what issues are of concern to you?
We are higher rate tax payers but have not been availing of the maximum tax breaks from additional pension contributions, particularly from my salary. The main reason is that if I get an AVC, the retirement age will be linked to that of my main Single Scheme pension, which is itself linked to the state retirement age, which will likely end up being 68. I am reluctant to lock away any investment until I am aged 68 and we have a fair amount of pension provision from that age anyway.

We are interested in early retirement and investing for that and traditional pension schemes don’t seem to be the way to go for this. We have become relatively high earners after many years on lower incomes and over the past few years prioritised paying off our mortgage as part of planning for early retirement/ semi-retirement. Despite our incomes we live fairly simply so don’t anticipate needing a high income in our later years and would prioritise time over money.

Where should we start with an investment strategy? Any thoughts on our pension situation? Any ideas or input on any of the above are welcome!

 

[Horatio]

I've looked at the FIRE concept previously and backed away from it.

All your personal details above aside I'd caution people when it comes to FIRE.You really need to plan out what you'll be doing in your retirement and not just attaining FI early.

Having disposable income and an abundance of time without a solid plan of how you'll occupy yourself for say the next 50 year without formal work is not for everyone.

I hope everything works out for you, just ensure you attend to the occupation of your time aspect and not just the accumulation of sufficient wealth to enable FIRE.

 

[charliebear]

Hi Horatio and thanks for your comment. It's a fair point and the goal is not to accumulate money then sit idle but rather to have a lot more flexibility in terms of how and where we spend our time and what we spend it doing. We both have lots of interests and plan to always work in some capacity but in a way that is not tied to the 9 to 5 year round situation. I think in our case we really do have a good plan in terms of things we would do and how we would spend the time so it is feedback on the financial aspects that we are really looking for.

 

[ClubMan]

Amount outstanding on your mortgage: 5k- we have retained this amount as the interest and payments are tiny and we get fee-free banking on our current account with the same provider.
What interest rate are you paying: 2.75%

So you're paying c. €140 p.a. for fee-free banking?

Other borrowings – car loans/personal loans etc: Partner recently took out a car loan of 22k

Seems odd to borrow when there's €43k available? You're effectively borrowing at car loan rates (probably c. 8%?) to save at c. 0% net.

Savings and investments: 10k in cash savings, 13k in prize bonds, 20k in an post child saver from child benefit.

Do you own any investment or other property?
We have no other investments and this is an area where we would love to hear any/ all ideas. We have thought about buying another property but from researching it, it just doesn’t seem worth the potential hassle. With the mortgage paid off we are interested in investing but this is a new area for us.

You've already got a significant investment in domestic Irish property. If you're looking to invest in the future you should probably diversify.

What specific question do you have or what issues are of concern to you?
We are higher rate tax payers but have not been availing of the maximum tax breaks from additional pension contributions, particularly from my salary. The main reason is that if I get an AVC, the retirement age will be linked to that of my main Single Scheme pension, which is itself linked to the state retirement age, which will likely end up being 68. I am reluctant to lock away any investment until I am aged 68 and we have a fair amount of pension provision from that age anyway.

I can't remember but I presume that a non AVC PRSA isn't an option here such that it's not linked to the occupational scheme?

My impression of FIRE is that it's a bit cult like and for zealots - even if some of the ideas may be prudent and practical (others, maybe not so much). Better to forget about trends like that and just take an objective look at your own situation, finances, goals etc. and make appropriate plans accordingly.

 

[cremeegg]

You should be able to fund a separate pension from the self employed income.

Your savings are not huge given your incomes, I see this is because you have paid down your mortgage, but I would see no issue letting them grow a little more.

Will you have 3rd level costs in a few years.

I think the whole concept of FIRE is a bit out there, are you really looking for something very speculative.

Can you invest in the self-employed income. Maybe you could even recruit a person to work in that for you.

 

[charliebear]

So you're paying c. €140 p.a. for fee-free banking?

Seems odd to borrow when there's €43k available? You're effectively borrowing at car loan rates (probably c. 8%?) to save at c. 0% net.



You've already got a significant investment in domestic Irish property. If you're looking to invest in the future you should probably diversify.

I can't remember but I presume that a non AVC PRSA isn't an option here such that it's not linked to the occupational scheme?

My impression of FIRE is that it's a bit cult like and for zealots - even if some of the ideas may be prudent and practical (others, maybe not so much). Better to forget about trends like that and just take an objective look at your own situation, finances, goals etc. and make appropriate plans accordingly.

We get a fee-free current account through having the mortgage and without it, we would pay what we currently pay in interest but in current account fees. So it's basically the same cost whatever we do.

I agree re: diversification and for that reason, as well as potential hassle of being landlords, we are veering away from that idea.

You're correct re: the borrowing but the child saver is where we save child benefit for college costs/ fees. The 10k is a rainy day fund and the 13k in prize bonds have paid us not a single euro and I'm reluctant to cash them out just yet. I did state in my post that the car finance was a bad idea and words have been exchanged about this but it was not really a planned purchase as the car gave up sooner than we had expected.

 

[charliebear]

I should also add, I'm not obsessed with FIRE as in the whole movement though I have read a bit about it. It's more the general concept of earlier retirement and increasing flexibility as we get older that appeals, rather than a literal state of passive income and being fully retired at a very young age.

 

[charliebear]

You should be able to fund a separate pension from the self employed income.

Your savings are not huge given your incomes, I see this is because you have paid down your mortgage, but I would see no issue letting them grow a little more.

Will you have 3rd level costs in a few years.

I think the whole concept of FIRE is a bit out there, are you really looking for something very speculative.

Can you invest in the self-employed income. Maybe you could even recruit a person to work in that for you.

The self-employed income is an area where there is definitely potential for growth. I looked at this pre-covid and then got held back by covid itself but there should be more opportunity going forward. The issue with funding pensions from self-employed income is that to date that has been a small percentage of our earnings. And my ambivalence of locking money away until the very late retirement age of 68. A number of people in the generation above me in my family have not made that or just about made it past that age in recent years and it has made me think.

 

[NoRegretsCoyote]

the 13k in prize bonds have paid us not a single euro and I'm reluctant to cash them out just yet.

That has zero impact on the probability of a future win.

It's a whole other thread but I see zero reason for anyone to hold prize bonds.

It's more the general concept of earlier retirement and increasing flexibility as we get older that appeals,

2x PS occupational pensions and 2x UK pensions is a pretty good baseline from 65/68-ish. Your issue is more how to bridge the decade or so before that if you want to retire early.

 

[ClubMan]

We get a fee-free current account through having the mortgage and without it, we would pay what we currently pay in interest but in current account fees. So it's basically the same cost whatever we do.

But you seemed to imply that you retained this small amount on the mortgage mainly or solely to benefit from fee-free banking.

You're correct re: the borrowing but the child saver is where we save child benefit for college costs/ fees. The 10k is a rainy day fund and the 13k in prize bonds have paid us not a single euro and I'm reluctant to cash them out just yet.

That's a sunk cost fallacy. Prize Bonds are a ticket to a raffle that are refundable at their nominal value. Not an investment. I have some myself, but only a tiny portion of my overall net worth.

I did state in my post that the car finance was a bad idea and words have been exchanged about this but it was not really a planned purchase as the car gave up sooner than we had expected.

You're still borrowing at car loan rates to save at practically 0%. It doesn't make sense. I'm always amazed at the number of people who can't see this sort of thing but want to pursue fads like FIRE.

 

[charliebear]

That has zero impact on the probability of a future win.

It's a whole other thread but I see zero reason for anyone to hold prize bonds.



2x PS occupational pensions and 2x UK pensions is a pretty good baseline from 65/68-ish. Your issue is more how to bridge the decade or so before that if you want to retire early.

You’re absolutely correct. Saving/ investing for the decade before is exactly what we’re looking for ideas about on here.

 

[charliebear]

But you seemed to imply that you retained this small amount on the mortgage mainly or solely to benefit from fee-free banking.

That's a sunk cost fallacy. Prize Bonds are a ticket to a raffle that are refundable at their nominal value. Not an investment. I have some myself, but only a tiny portion of my overall net worth.

You're still borrowing at car loan rates to save at practically 0%. It doesn't make sense. I'm always amazed at the number of people who can't see this sort of thing but want to pursue fads like FIRE.

I have said three times now that I know the car loan doesn’t make sense financially. That wasn’t what I came asking for feedback on, or the ins and outs of whether I should spend 20 euros a month on either current account fees or mortgage interest. If I paid off the mortgage tomorrow I would spend 20 euros a month on account fees. While I have the mortgage I spend 20 euros a month on interest so there’s no particular incentive to clear the last 5k of mortgage. Since I’m basically mortgage free that wasn’t what I was seeking advice on.

 

[NoRegretsCoyote]

Partner

With your level of wealth you are looking at a big CAT bill if either of you passes away. Marriage is a very cheap tax avoidance strategy.

The main reason is that if I get an AVC, the retirement age will be linked to that of my main Single Scheme pension, which is itself linked to the state retirement age, which will likely end up being 68. I am reluctant to lock away any investment until I am aged 68 and we have a fair amount of pension provision from that age anyway.

You can invest after-tax income in ETFs with a deemed disposal tax of 41% after eight years. It would be much more tax-efficient to make AVCs of course but if you want access to capital at any point then ETFs are probably better.

Annual gross income from employment or profession: 83k (part-time so 0.8 of 105k salary). I intend to reduce my hours further in the next year so will go down to 52k but can supplement with some self-employed income.

I'm guessing you are medical professionals if you can have this kind of balance of public and private income. I'm still a bit unsure as to what semi-retirement means and when exactly you'd want to start. If you are happy with a low level of self-employed income then maybe an actuarially-reduced PS pension from mid-50s might be the thing for you.

You'd need to see what the adjustment factors are, how it would interact with potential to draw down AVC-based pension, etc, but this to me would seem the best way to bridge the gap to late 60s when the UK and IRL state pensions kick in.

 

[interested21]

Unless I've missed it, you don't mention your expenses. This is key to determining if and when you can FIRE. You could have a full pension pot but unless you have an understanding of and control on your spending it won't be enough. Especially when your child will be going to college when you're in your mid-fifties. Not exactly ideal for "retiring early".

 

[NoRegretsCoyote]

Unless I've missed it, you don't mention your expenses. This is key to determining if and when you can FIRE.

I disagree.

There is a certain level of basic expenditure necessary to support a family and a socially normal lifestyle.

You can pare this back to the bone but it's not going to give more than two years of potential retirement income.

In the OP's circumstances I think there's a lot more scope for needing to take the right decisions today on investment strategy and what mix of public/private work to undertake. These have more potential to pay off in 15 years or so.

 

[ClubMan]

I have said three times now that I know the car loan doesn’t make sense financially. That wasn’t what I came asking for feedback on, or the ins and outs of whether I should spend 20 euros a month on either current account fees or mortgage interest. If I paid off the mortgage tomorrow I would spend 20 euros a month on account fees. While I have the mortgage I spend 20 euros a month on interest so there’s no particular incentive to clear the last 5k of mortgage. Since I’m basically mortgage free that wasn’t what I was seeking advice on.

Then why post details about it?

 

[ClubMan]

Unless I've missed it, you don't mention your expenses. This is key to determining if and when you can FIRE.

Never mind FIRE, that's basic budgeting.
But lots of (most?) people don't do it.

 

[RonnieShinbal88]

You’re absolutely correct. Saving/ investing for the decade before is exactly what we’re looking for ideas about on here.

It sounds like simple saving would work for you, you can probably save 4k a month with no mortgage to pay?
Do that for 10 years and you have 480k, that will pay you 4k a month for the next 10 years until your pension kicks in.

Add in some low-risk investment yield on that, you can get 3% now on deposit accounts, and some self employed income and you are well set.

Unless I'm missing something you don't need any high yield/high risk investing, you have a 10 year investment horizon which is very short, pension funds normally move away from high risk investments as they get toward retirement date, which in your case is just 10 years.

 

[Steven Barrett]

You should be able to fund a separate pension from the self employed income.

Only after the AVC's into the public sector scheme are maximised. Once they are maxed out, contributions may be made to a personal pension in relation to the self employed income.


Being a member of the public service doesn't go well with retiring early...unless there is a possibility to get a package. For most, their pension is their biggest source of income in retirement. Those in defined contribution schemes can access their work pensions from age 50. Even if in a defined benefit scheme, you can take a transfer value and access it that way. But for public servants, there is no transfer value and if you aren't offered a package, you have to wait.

So you will need to find alternative funding for early retirement and that is saving and investing.

To start, I would clear your debts and redirect that money into investing. Your "free banking", as already has been pointed out, is actually a cost. I pay €6 a month with Bank of Ireland, nowhere near the €20 a month you mentioned. Just clear it.

Prize bonds are a waste of time. Cash them in. Get your money working for you.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

 

[fistophobia]

It sounds like simple saving would work for you, you can probably save 4k a month with no mortgage to pay?
Do that for 10 years and you have 480k, that will pay you 4k a month for the next 10 years until your pension kicks in.

Add in some low-risk investment yield on that, you can get 3% now on deposit accounts, and some self employed income and you are well set.

Unless I'm missing something you don't need any high yield/high risk investing, you have a 10 year investment horizon which is very short, pension funds normally move away from high risk investments as they get toward retirement date, which in your case is just 10 years.

Surveys show that only 20% of people are passionate about their job.
Theres a lot more to life than giving your time / energy in exchange for money.
Being a FIRE-man (person), I am biased towards early retirement planning.

I would go further on the above savings idea...
leaving investment ideas aside, if you could put away a similar amount each month, then plan on drawing down 2K per month.
Thats 20 years of freedom you are buying. A lot of people live quite well on this amount and less per month.
I did not allow "whataboutery" to derail my plans.
I would focus on the large and controllable expenses first. Dont think of expenses as ... its only 35 EUR per month.
Annualize or exponent an expense. Example = TV licence. 1600 EUR over 10 years. No thanks. Get a projector and a blank wall.
For every 1K annual saving you make to recurring expenses, thats 25K less you need in the pot using a 4% withdrawal rate.