Goal to retire early

[Brendan Burgess]

You simply don't know at age 40 whether you will be able to retire in your mid 50s.
Nor do you know whether you will even want to retire in your mid 50s.

So, it's an academic argument.

What you need to do now is to get the balance right between preserving and maximising your wealth so that you will have the flexibility to do as you please.

So don't make any high risk gambles such as borrowing to invest in a buy to let. Sure, it might work out. But it might also greatly reduce your wealth and delay your retirement.

We dont currentky have specific ring fenced fund for this. Should we? I always thought best to treat income as 1 pot and then spend, save, invest holistically from that.

Absolutely do not ring-fence any money for education. You should have one pot which you can use to feed your pension, educate your children or finance your life in retirement.

You will reach your mid 50s with a good income and no mortgage. You will be able to finance education costs from your incomes.

Do not borrow to invest. So while you have a mortgage on your home, you should not invest in shares or property or anything else.
Max your pension contributions as you are doing.

Keep the cash you need to buy your new car or do up your house, but after that, the right overall strategy is to clear your mortgage. There might be a tactical reason to keep a mortgage if you have a low fixed rate while deposit rates after tax are higher, and that is fine. But if your mortgage rate exceeds your deposit rate, then clear the mortgage.

After you have cleared the mortgage and maximised your pension, build up your savings in a diversified portfolio of shares. They are liquid which means that if you need money at short notice you can get it by selling part of your portfolio. If you have €300k tied up in an investment property, and you need €60k, you can't sell 20% of your investment property.

If your kids go to college away from home, then it might make sense to buy a property for them while they are in college. Again, if you own an investment property in the wrong place, then you won't be able to do that. Well you will, but the cost and hassle of selling the property might make it difficult.

Being mortgage-free, with a well funded pension, and a diverse portfolio of shares, gives you the flexibility to deal with the uncertainties any family of 6 faces over the next 20 years.

Brendan

 

[Dr Strangelove]

You simply don't know at age 40 whether you will be able to retire in your mid 50s.
Nor do you know whether you will even want to retire in your mid 50s.

So, it's an academic argument.

Cannot agree more.

I don’t know why people pick numbers like 55 or 60 out of their head and fixate on them. Many things financial and non-financial could happen in between.

Likewise retirement can be a process rather than an event. I know “retired” people in their 70s doing a bit of paid work stillbecause they like it.

In the OP’s shoes all you can do is turn the dial a bit between saving and spending.

 

[Farma1]

Brendan's advice is sound so i won't repeat it. I am a few years ahead of you but have done what you are dreaming of and here's the key bits i can add:

• You can live nicely as the kids get older (but still dependent on you) on 75k per year spending + mortgage (I only have 3 though!)
• You can live well but if your goal is to retire early you also need to be frugal where there is no real value in spending more - e.g. 45k to change a car maybe 15k more than you probably need to spend?
• With that and an estimate as to what you will be earning you know how much you have left each year to invest in early mortgage payments, pension and other investments
• Build your cash flow spreadsheet by year from now to 2060 with your starting assets, your forecast spending rising for inflation and your forecast investments rising with inflation (we can argue over numbers but I use 3% for inflation and 5% for pension growth etc). As well as the 75k per year spending (or whatever you choose to assume) build the extra "one off" spending on top that you envisage (e.g. I built 15k per year for 4 years for each child between 18 and 22 - yes it may cost me more than that but at least I have something in there so i'm not surprised. I also need a new flat roof in a few years time...) For your income you can play with this - e.g. putting it in until you are 55, 60, 65 etc. If done properly this will help you understand the ball park years in which the numbers are safe enough for you to retire (ie what if investments fall 10% after you've retired, what if inflation rises)
• As others have said no plan survives 1st contact with the enemy, but it feels nice to know you have a plan and the big thing is putting the money in the right places in the right order as per Brendans post.
• You may get some big one offs good and bad that change the plan - most people do in the period from 40 to 55 with 4 kids.
• The dream of retiring changes as soon as you can afford to do it and its a possibility. At this point work becomes a lot more enjoyable as you can say what you think, and have choice over the work you do.
• I had a plan like yours and when I got there what I really wanted was a change in control and balance rather than a hard stop of not working. I went from 5 days at work and 2 days of weekend, to 2 days at work and 5 days of weekend, and ensured I can do those 2 days from anywhere in the world. I have the balance I need now and now I'm full in control I have no desire at all to give up work completely.
• The above point makes a big difference - even if you and your wife work part time and earn todays equivalent of 50k between you by the time you are 55 - you will make a big lifestyle difference and the gap between your income and spending will require far less cash to achieve the change. It's also very tax efficient - we take on enough work that between us that we pay very little 40% tax on our income post pension contributions.

 

[joe sod]

I'm on holidays in Greece and I met a guy looks like late 50s from Ireland, he said he was there for a few weeks holidays, staying in budget accommodation. I asked but what about job, do you not have a job to go back to?, he said his job ended during covid and he never went back working again. Obviously this is by choice since there are loads of other jobs.
But it's seems to be a phenomenon, people deciding that they don't want to work anymore, however how sustainable is it. Obviously the more people that decide they don't want work anymore reduces the number of people working therefore production is reduced, however these people still demand services and goods ,maybe even more so as their time is not taken up with work. That inevitably leads to increased prices for everything and is obviously a factor in the inflationary pressures over last few years. But if prices rise alot that reduces the buying power of a person's savings and pushes them back into work force again

 

[Allpartied]

I'm on holidays in Greece and I met a guy looks like late 50s from Ireland, he said he was there for a few weeks holidays, staying in budget accommodation. I asked but what about job, do you not have a job to go back to?, he said his job ended during covid and he never went back working again. Obviously this is by choice since there are loads of other jobs.
But it's seems to be a phenomenon, people deciding that they don't want to work anymore, however how sustainable is it. Obviously the more people that decide they don't want work anymore reduces the number of people working therefore production is reduced, however these people still demand services and goods ,maybe even more so as their time is not taken up with work. That inevitably leads to increased prices for everything and is obviously a factor in the inflationary pressures over last few years. But if prices rise alot that reduces the buying power of a person's savings and pushes them back into work force again

So, this guy, probably, has some sort of early retirement scheme, or savings, or some income stream which allows him to spend several weeks in Greece. He can't be on Jobseekers, because they only allow 2 weeks per year and they are pretty strict about it.
If he is late 50's , then he has, most probably, been working since he was 17 or 18, maybe earlier. He's done 40 years in a factory, or warehouse, or driving, or whatever. I don't think society is going to collapse, because a few people decide to take early retirement and live a, relatively, frugal lifestyle on whatever modest means they may have accumulated over their working life.

 

[presidenttttt]

I am not sure why so many of you are negative towards an objective of retiring early?

Retiring early doesn't mean planning to sit in a rocking chair bored. It is about planning to hit 50/55/60 and have freedom and choice - be it to pack in a career, go part-time, or pick up a low stress low hour job or volunteer work, or just mind the grandchildren and garden, whatever!

With another few years wealth accumulation I will be striving to define the earliest possible age I can declare "true freedom" or "retirement" too.

I am following the thread with interest as my kids are young, and my assumption is costs as teenagers and for university will be painful. I would like to know more about how to plan for this, what assumptions to make, as it seems to me this will be the cost that will turn the dial on "early retirement".

Farma, do you have a copy of your cashflow to retirement model, or can recommend one? I have done annual budgets, but not projected many years ahead, would be interesting.