Discussion in 'Money makeover' started by teaandbiscuits, Mar 14, 2017.
This post saved me typing
I would also question the wisdom of retiring at 50.
Money is not the be all and end all. The people I know who enjoy the healthiest and most "successful" retirements still work a little.
If I may ask the OP, what hobbies do you have. A bit off topic
After your pension contribution @ 25% you have k70 + spouses income of k 100 = k170 to live on.
I assume ? you will need a similar lifestyle ?
1. Have k120 left of the k170 after tax ,less savings k50 each month = k70 left to spend
It seems you require a net k70 per year to maintain life style.
2. Hold circa k900 twix savings and pensions .
Future save k50 + 25% pension on your salary = k30 == total saving of k80 per year.
After 9 years you will have K900 + more saved of 80@9 years = k720. + some growth.
That equals k1620 to be divided over another 25 years from age 50 = k65 per annum.
So if my simple assumptions are your general thoughts = you are close.
Also after 68 add in state contributory pensions of % of years contributions , I guess k6 each
This post is a month old, but after reading through it, especially the last page above, am I right to say that saving all your money into tax-advantaged pension funds while having a goal to retire early don't mix well, considering you can't access the pensions until well after 50 in virtually all cases?
I set the goal about 10 years ago of financial independence rather than specifically early retirement. I wanted to have the OPTION to not work if I wanted to. I have a small pension from years ago, but that's it, about 4-5% of net worth.
I achieved financial independence last year and left my job. I didn't hate it, I really enjoyed it, but I had the option to reduce my stress level and I chose to. At 38, I'm taking time off 9-5 work, investigating some new business ideas, which may happen soon (and put me back to work), but mainly playing golf, meeting people, exercising, walking the local beach and being a full time parent to an 8 and 10 yo. I'm testing what true early retirement might be like in years to come. My passive income requires a few hours per week, but that's it.
Some personal views:
- I can't see the point of including any normal 2/3/4-bed family home in a measure of net worth, even if it's paid off. I don't believe many reputable surveys of household wealth do either (net worth = INVESTABLE assets, minus all debt. It's not an investable asset). Downsizing is something a few % of households will do in retirement. Use it as contingency if you wish, but I wouldn't have it as a cornerstone of any retirement plan.
- The 4% SWR is risky advice for any person intending to retire early (40-60 years of retirement). A more recent large study found its closer to 3% or perhaps 3.5% at most. The sequencing of return risk is too high. Yes, you can adjust the SWR if you hit a bad few years, but have you planned for that?
see the success rate table half way down with various withdrawal rates.
- reducing you lifestyle costs are just as important as saving
Using a 3% withdrawal rate, the difference between a consistent lifestyle cost of €39k pa versus €45k is over €200k less to save. €1.3m v €1.5m.
- do a dry-run year of retirement. See if you can live the lifestyle on the costs you've planned, while you're still working. Crucially, don't assume that you'll save lots by not working (fuel, tolls, food, coffees etc). You'll still drive places, meet people for lunch and do other things & hobbies, never mind perks like a work mobile phone perhaps and of course funding your own VHI (both of those will easily add €2k pa to your lifestyle costs). Take account of every single cent. Go line by line in your credit card bill and current a/c.
- dont plan to retire early while servicing any debt of any kind. Likewise with over €1-1.5m of net assets and a low cost of living, you don't need life assurance either.
- inflation. It's an invisible tax on all assets and something you should never ever ignore.
I read somewhere: Plan your retirement with a micrometer, measure it with a ruler, so that you can execute the plan with an axe
One niggle - the linked study on SWRs only references US securities, assumes a wafer thin 0.05% expense drag and ignores taxes completely.
100% agree and funnily enough i was going to say that last night - almost everything related to SWR is US based and not applicable in a European/Irish context. Personally I use 3% as my own guide, simply because my lifestyle is adjustable if I need to (€3-3.5k monthly, including plenty travel).
At the moment, even reliably beating inflation isn't a certainty.
Its nice to see a similar ER person on here like myself. Maybe we should compare notes.
Most people would include their house in calculations of net worth. To me this is delusional.
Unless you can sell and downsize in the future.
Like yourself, I am not counting it. I do not consider my house to be an investment asset.
It attracts expenses, it does not provide an income, unless you rent it out.
Net worth to me is investible assets, that achieve income or capital growth.
I still believe in the 4% SWR - although I am only selling to rebalance, based on my IPS.
Retiring early is not so much a risk as you would think. I agree, its all about expense control.
I don't have a car, so that rules out a lot of recurring expenses.
If I was doing this again, I would have retired earlier. Even forgetting about investing the money, a high savings rate would do it in 5 years.
You might find this recent article of interest -
The bottom line is the so-called "4% rule" would not have worked in the vast majority of developed economies.
Again, I would stress that these studies don't take account of investment expenses and, critically, taxes.
Agreed, it's incredibly dangerous advice and post tax/expenses are the only returns that matter.
Ive avoided the SWR conundrum by aiming for financial independence rather than early retirement - I still technically work for my living, mainly as a landlord, which I quite enjoy (while providing cover for all the usual pitfalls) and equally will probably return to some form of full time work, working for myself.
Also my other half still works and is younger, so there isn't really any early retiring going on - it just feels like that after 16 years of solid graft and suddenly have a lot of time back to fill with things that I'm happy to be doing.
It's very interesting to see peoples different opinions on what "retirement" , and specifically "early retirement" actually is.. Paddyd - you say you are retired, but some people look at being a landlord as working, albeit for yourself. I agree with you.
When I mention early retirement to some people, I get the response, that at 51 I am too young to retire. I assume their view of retirement is sitting by the fire with the rug over them, and getting the odd visit from the (adult) children. Me, I am actively putting other things in place so I will have a lot to do, some of which will bring in a modicum of income. So maybe "retirement" could be defined as not working a 9-5 for someone else. Even moving from a full-time job to something two days a week could be viewed as retirement.
And I also agree with you on no debt as being a key factor.
Lol - I say I'm financially independent - I don't say I'm retired
Agree with you otherwise
Interesting stuff, Paddy
Of course, in my day, safe withdrawal was more a family (rather than financial) planning concept.
Arguably, I suppose, both concepts were/are (to a greater or lesser extent) inter-connected.
Ah yes, like the Billings method, favoured by the catholic church
The old joke "What do you call people who use the Billings Method?.............Parents!"
article in today's Journal related to our conversation why a family home isn't an investable asset in terms of net worth, with 25% of adults in an 'unsuitable' home and unable to afford to move: http://www.thejournal.ie/housing-ireland-3420157-Jun2017/
The main financial benefits of a PPR are
no rent to pay
any increase in value is CGT free
But I agree most people dont downsize even if they talk about it (know area, costs involved, etc.)
Is there a market for equity release products ?
I would argue that's exactly what the HSE Fair Deal program is
If your family home has a mortgage, as 70% do, then it's a cost, not an asset. Even with the mortgage paid off, it's more of a security or a contingency, than an asset.
Well, there are costs (insurance, LPT, maintenance) that come with owning a property whether or not you have a mortgage on that property.
I don't see how you could argue that home equity is not an asset or that it doesn't form part of your net worth.
However, I agree that it's not an investment any more than a car or any other asset that can be rented is an investment. It's a consumption item.
Whether it makes sense to own, as opposed to rent, your home is another matter entirely.
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