We're in a very similar situation with a similar goal of early / semi-retirement. A few years ahead of you. Similarly to you, we started to entertain the idea of early retirement about 10 years ahead of time. And we're now about 5 years away and well on track (assuming we don't see a dotcom bubble-style crash and stagnation. It's a possibility and would delay us for a few years).
Given your finances, investments and goals, I assume that you're familiar with how investment and pensions work in Ireland.
I also assume that you're happy to take higher risks than most people would in order to reach your semi-retirement goal (if you're a bit lucky). And I assume that you're comfortable with the idea of having to work for several more years than you hoped for if you get unlucky (e.g. in that dotcom bubble-style crash and stagnation scenario).
Your financial situation is looking solid to me. A good bit better than ours was 5 years ago TBH.
Nitpicks
- A bit odd to see a car loan in there when you're sitting on €450k+ of cash and liquid investment. I assume it's a 0% loan? If not, I'd personally pay it off straight away as it doesn't make sense to pay interest on a loan when you're most likely earning less from your cash savings.
- €20k of vested shares in your employer's company doesn't make sense. You're already massively over-exposed to your employer through your employment income and your €90k of unvested shares. In the grand scheme of things, €20k won't break you even if your employer goes through a bad time. But it still doesn't make sense. Sell them and always sell vested shares the moment that they vest.
- Seeing individual shares in your investments portfolio makes me nervous. If it's a small amount of gambling money, why not. But if a significant part of your financial plan is concentrated in shares of a handful of companies, that's a massive risk IMO.
- Pensions: I assume that you're maxing out your pension contributions (i.e. 20% up to €23k / year in your age group). The numbers you provided make it look like you're not quite maxing out but I assume it's just because of approximations / rounding. Or maybe one of you is earning more than the €115k limit while the other is earning less. But if you're not maxing out, then max out.
- €100k of cash savings is 1.5 years of living expenses. That's a lot. There could be a reason for this (e.g. you both work for the same employer, could be made redundant simultaneously and would need 6-12 months to find jobs at a similar level of income). But unless there's a good reason, it feels like a wasted growth opportunity. If you're shooting for an ambitious early retirement date, 6 to 9 months worth of living expenses would be more than enough and the rest can earn more invested.
- You didn't mention what your pensions are invested into. Given that you're 11 to 14 years away from the earliest time you could access them, and given that you're trying for an ambitious early-retirement, I'd have them fully invested in whatever global equity fund the pension provider provides instead of their default pension fund.
Other than that, quite frankly, it's a case of continuing to max out pensions, invest the rest in globally diversified equity and hope for a bit of luck.
Family home
I'm stating the obvious but your decision to invest €300k+ in a better family home (going from a home worth €700k to €1m) is adding a huge risk to your early-retirement plan. Should your investments not go according to plan or should you be hit by redundancy and not able to find another job with the same level of income, that decision means that you may have to work for several years more than anticipated as the cash you could have used to bridge the gap will be tied up in your family home.
Also keep in mind that a bigger, nicer home may also mean higher running and maintenance costs.
I assume you've both thought that through carefully and are happy with that compromise. It's probably one of the most impactful decisions you'll be making here.
(FWIW, we make the opposite decision and scaled back our renovation plans after taking a long hard look at what we actually enjoyed in life and realising that it was largely based around the outdoors and traveling).
Future expenses
Trying to predict your expenses in 10 years time is a game of "how long is a piece of string".
But there are a few that are worth considering now. The biggest one is the decision around the kid's education. Are you planning to send them to fee-paying schools at some point? You could definitely afford fee-paying schools - but that's unlikely to work with early-retirement.
Future income
Just like expenses, it's a case of "how long is a piece of string" when you're 10 years out. Still worth starting to think about though. You've already mentioned possible part-time / contract work and possible investment property.
I'd like to add another two ideas worth thinking about:
- Pensions
- You may be able to access your pension pots from age 50. In 10 years time, you'll be 1 to 4 years away from this. It doesn't mean that you have to dip into them obviously. But in the context of semi-retirement, it's a good way to be able to flex your income when needed.
- Leave pensions untouched when your other income streams are sufficient. But it's there when you need it. Just need to plan carefully so you don't run out of money when you're fully retired obviously.
- Rent-a-room
- You mentioned investment property. An alternative is rent-a-room. You could make the same income (after costs and tax) from renting a single room in your home as you would renting an entire property - without the large upfront capital investment or maintenance, admin and regulatory burden.
- In the context of semi-retirement, it's another lever that allows you to very quickly flex your income up or down when needed.
- I realize that many people may not even entertain the idea of having a random stranger live in your family home (especially when you have kids). And we were the same. But there are ways to make it work (happy to expand how how we've made it work for us with young kids in the house). Making it work is a significant way to reduce risk of semi/early retirement.
- The reason I'm mentioning that is that:
- Depending on what your house is like now, you could perhaps make it work now and speed up your semi-retirement readiness.
- If your current house doesn't make it possible but you're dead set on buying a new family home, I'd really keep rent-a-room in mind when looking for that house. It will help de-risk your plans.
A simple trick that helped us keep sane
It's impossible to predict what the next 10 years will look like for you. Our last 5 years were certainly nothing like what we imagined they would be. From unexpected redundancies, to complete career changes to covid plus a whole bunch of other unexpected event coming out of the blue, nothing went according to plan.
What has been very helpful to keep us sane is an Excel spreadsheet we created when we were 10 years out of our planned early retirement year.
It has one row per year for the next 15 years. Each row has our expected pension contribution, employer contribution, pension growth, investment contributions and investment growth after tax for that year. And then total expected pensions and investments at EoY.
Every year, at the end of the year, we go there and add our actual pension and investment amounts next to the values we predicted years ago. That allows us to see how far ahead or behind of schedule we are.
When the redundancy year hit, despite that year being an almost complete write-off from a pension and investment contribution PoV, the sheet showed us that we were, in fact, still exactly on-track for our early retirement plans - almost to the cent - as we had done better than anticipated the 2 years before.
Right now, we're a good bit ahead of plan. If another lost year happened, we'd still be ahead of plan. If markets crashed by 50% tomorrow, we'd be 3 years behind schedule. No big deal.
This massively helps put things into perspective and avoid over-dramatizing life events and market swings.
Finally, as someone else said, focus on wellness and happiness today too. Whether or not semi-retirement can actually happen in 10 years time, no-one knows. But the best situation you can be in is that it doesn't matter because you found a place where you're happy either way.
