MM - Aiming for early retirement, but how?

[lessobviousname]

Age: 42
Spouse’s/Partner's age: 40

Annual gross income from employment or profession:
€56k

Annual gross income of spouse:
€88k

Combined monthly take-home pay
€7,900

Type of employment:
Both (spouse & I) work for private companies

In general are you:
(a) spending more than you earn, or
(b) saving?
(b) We’re able to save around €1,000 a month now when earnings from rental income are included.
Bulk of costs are €1,700 for childcare in Dublin (two kids) and €1,300 mortgage on home. Early repayment on the mortgage has left four years on it before it’s finished.
Most of the savings are being ring-fenced for kids education and some (foreseeable and expected) medical expenses.

Rough estimate of value of home
€1,150,000

Amount outstanding on your mortgage:
€60,000

What interest rate are you paying?
2.85% with four years left on the term of this mortgage.

Other borrowings – car loans/personal loans etc
None

Do you pay off your full credit card balance each month?
Don’t have a credit card

Savings and investments:
€60k in cash savings in current accounts
€61k in a Synergy Buy-Out bond from moving a pension from UK to Ireland
Currently selling a property in the UK. Should net approximately €300k from the sale after CGT.


Do you have a pension scheme?
I don’t since the transfer of my pension from the UK when I finished working with my previous company. The value of the pension is €61k and is now in a Synergy Buy-Out bond as noted above.

My spouse only started one last year at her current employer.

Do you own any investment or other property?
Own a rental property worth about €550k with a mortgage of approx. €360k. The rental income is €2,700 a month and the mortgage is around €1,700/month. With deductible expenses, it earns around €8k a year (after tax). There’s 22 more years left on this mortgage.

Ages of children: 4 & 6 (€1,700 a month on childcare is a big monthly expense)

Life insurance: €300k (for whichever one doesn’t pop their clogs first)


We’re in a good position in terms of the assets we own (i.e. home we live in and property in Dublin we currently rent out).

As a couple, we’re keen to financially retire early (mid/late-50’s if possible), however, we’re the lack of decent pensions is a concern. Rental income would definitely contribute in the long-term.

With the €300k coming from the sale of the UK property we’re keen to get any advice or direction to help understand how we might be best invest this sum to help us work towards our goals.

Many thanks.

 

[NoRegretsCoyote]

Very general advice is that you are way overweight in property in your overall wealth.

As much as possible in the next decade you should try to fully avail of tax-relieved pension contributions, with a full allocation to equities.

 

[moneymakeover]

Pay off PPR 60k
Put 240k off the investment mortgage
Hope to finish this mortgage in 4 years
Start maxing your pension contributions

 

[Brendan Burgess]

Own a rental property worth about €550k with a mortgage of approx. €360k.

What is the mortgage rate on the investment property?

If it's a low interest loan - say 4% and you get tax relief, so the real cost is only 2%, I would not pay off the mortgage.


Brendan

 

[Brendan Burgess]

You can put 25% of your income into a pension fund and should do so.

€140k@25% = €35k

You have €360k in cash which is only 10 years contributions.

I would put this cash into an equity fund and take out whatever you need each year to max your pensions.

Keep it all under review.

If new legislation makes pensions less attractive, then it might make sense to clear your mortgage.

When the cash is all transferred to your pension scheme, then you decide what to do.

It may make sense at that stage to sell the investment property and feed the proceeds into your pension fund, but that is at least ten years away, so don't worry about it now.

Brendan

 

[Brendan Burgess]

Own a rental property worth about €550k with a mortgage of approx. €360k.

Very general advice is that you are way overweight in property in your overall wealth.

You are not going to sell your family home.

You can reduce your overweightedness by selling the investment property. In theory I would agree. But what would you do with the cash? You can clear your loan.

But then you will be building up lots of cash looking for a home.

You have the income and the assets to handle the risks of a major property crash, so if you are happy enough being landlords and if the return is good, then hold onto the investment property, for the moment at least.

But this could change and legislative changes may hit landlords hard so that is a risk you need to consider.

Brendan

 

[niceoneted]

With the younger of your kids I assume starting school next sept would you consider an au pair rather than childcare. You’d save on childcare.

 

[SPC100]

You can put 25% of your income into a pension fund and should do so.

€140k@25% = €35k

You have €360k in cash which is only 10 years contributions.

I would put this cash into an equity fund and take

You can also put it all in pension now (or as much of it you like), and claim the relief against your income each year too. You would benefit from tax free growth in the pension. You would have a bit more hassle on getting your tax certs and returns done. You would lose flexibility on access to the money.

If you have cheap passive funds in your pension it probably makes send to prefer investing there vs outside.

 

[lessobviousname]

Firstly, thank you to all who have given their advice here. Really appreciate it.

What is the mortgage rate on the investment property?

If it's a low interest loan - say 4% and you get tax relief, so the real cost is only 2%, I would not pay off the mortgage.


Brendan

Interest rate is 2.65%. The tax relief benefit is notable as the interest charged at this stage of the mortgage is significant enough to make it a decent offset. I use a management company at the moment to take the admin pain out of managing it.
Savings to be made there if I managed it myself, but life/work/kids are all busy enough at the moment not to wish to add this to the list.
Appreciate that future legislation might make renting property a lot less desirable, but for now it's a paying off the mortgage and contributing beyond that in earnings too.

With the younger of your kids I assume starting school next sept would you consider an au pair rather than childcare. You’d save on childcare.

Kids are happy where they are now. The au pair (and other alternatives) have been considered, but the flexibility of childcare with respect to after-school (eldest) is very helpful.

You can put 25% of your income into a pension fund and should do so.

€140k@25% = €35k

You have €360k in cash which is only 10 years contributions.

I would put this cash into an equity fund and take out whatever you need each year to max your pensions.

Keep it all under review.

If new legislation makes pensions less attractive, then it might make sense to clear your mortgage.

When the cash is all transferred to your pension scheme, then you decide what to do.

It may make sense at that stage to sell the investment property and feed the proceeds into your pension fund, but that is at least ten years away, so don't worry about it now.

Brendan

You can also put it all in pension now (or as much of it you like), and claim the relief against your income each year too. You would benefit from tax free growth in the pension. You would have a bit more hassle on getting your tax certs and returns done. You would lose flexibility on access to the money.

If you have cheap passive funds in your pension it probably makes send to prefer investing there vs outside.

In terms of access to the funds, this is something which is important at this time. With a large percentage of our wealth being tied up in property I'd be reluctant to put it all somewhere that I couldn't access. Aging parents and other unknowns makes me reluctant to tie it up completely, but I do fully appreciate the need to build up pensions asap.

To be honest, the whole world of pensions feels very abstract to me. It's a bit deflating to look at the rough figures which need to be invested monthly to build up a decent pot (I've seen the 70% of your wage as a target quoted in many places) considering we're starting this so late. Obviously this isn't a reason not to start it now, but I'd welcome any recommendations for professional advice to help map out what I need to be doing now to achieve the goals in the future (not sure if that's something which can be sought on this forum... sorry, if not).

Thanks again for the help and advice.

 

[newirishman]

You can put 25% of your income into a pension fund and should do so.

€140k@25% = €35k

Reminder that you will only get income tax relief up to 25% of €115k

 

[Freelance]

Reminder that you will only get income tax relief up to 25% of €115k

Two incomes, both less than €125k, and both taxpayers are aged in their 40s, so both will receive full relief up to 25%.

 

[DublinHead54]

Question I have, is how did you end up with a 60k mortgage on a 1.15m house on your salaries, whilst also having a 360k mortgage on a rental property and having propery in the UK? I assume there was a lump sum / investment proceeds from something at some point?

In order to retire early you need to figure out how much money you need monthly to live. So at a very simple level you currently live on 3,900p, (46,800 a year), I based this on take home pay net of childcare, savings, mortgage. Lets assume throughout your retirement you can draw down 5% and the market will return 5% so that you replenish your assets.

In your case 5% = 46,800 which would mean you need a pot of 936,000 to be able to retire mid 50s. There are obviously lots of variables e.g. if you decide you only need 30k to live of, then there are one of costs (kids weddings, financial support etc).

I would start looking at how you can get there, one option could be to move to a cheaper house and bank the difference, aggressive pension savings using tax breaks, change lifestyle and save more etc.

 

[lessobviousname]

Question I have, is how did you end up with a 60k mortgage on a 1.15m house on your salaries, whilst also having a 360k mortgage on a rental property and having propery in the UK? I assume there was a lump sum / investment proceeds from something at some point?

In order to retire early you need to figure out how much money you need monthly to live. So at a very simple level you currently live on 3,900p, (46,800 a year), I based this on take home pay net of childcare, savings, mortgage. Lets assume throughout your retirement you can draw down 5% and the market will return 5% so that you replenish your assets.

In your case 5% = 46,800 which would mean you need a pot of 936,000 to be able to retire mid 50s. There are obviously lots of variables e.g. if you decide you only need 30k to live of, then there are one of costs (kids weddings, financial support etc).

I would start looking at how you can get there, one option could be to move to a cheaper house and bank the difference, aggressive pension savings using tax breaks, change lifestyle and save more etc.

You're right, it was a lump sum from a company sale which I had shares in which allowed us purchase the 1.15m house (865k at time of purchase) while retaining the previous home which is now rented. Had a €250k mortgage on my home and sold other shares in a different company to reduce it down to €60k now.
Hindsight may've meant this early repayment may've been spent better elsewhere, but I'm really uncomfortable with debt and keen to own the house I live in.

The wages look a bit odd infairness, as I used to earn twice what I'm on now, but have moved to a new company which I get a lot more satisfaction from, but also equity which might be worth more in time versus the drop in wages (no guarantees there of course).
Also, both my wife and I work four day weeks as well, which has reduced our wages, but the quality of life since then far exceeds the cost of loss in earnings.

I'm currently looking at monthly expenses to see where there can be lifestyle changes to address costs which we don't really need. Moving to a cheaper home might be an option in the future, but my wife isn't considering that as an option in the near future (i.e. 5 - 10 years).

Appreciate the workings on the pension pot. It's useful to see it mapped out like that.

 

[DublinHead54]

but have moved to a new company which I get a lot more satisfaction from, but also equity which might be worth more in time versus the drop in wages (no guarantees there of course).

Also, both my wife and I work four day weeks as well,

Why do you want to retire earlier?! My next point was going to be look at a job that has more fulfillment or move to reduced hours!

A point to make is that you say your wife isn't considering an option of downsizing the house in the next 5-10 years, yet you are are trying to plan out your entire retirement of 30+ years (fingers crossed). Make prudent financial decisions, live your life, enjoy your success and enjoy your family.

The future is a mystery, the past is history, the now is a gift, that's why its called the present.

 

[Rasputin]

Why do you want to retire earlier?!

This always seems to get asked on these kinds of threads. Why on earth would you not want to retire early ??! I'm not being flippant, but genuinely curious as I would ditch work tomorrow if I could afford to. What is all the working for if you can't get some time to enjoy yourself towards the back end of your life.
Personally, I would much rather spend the limited time I have on this planet doing things that I want to do, rather than what I need to do. It's something not many people get to do, but something that I, and a lot of people aspire to. Most people don't have a vocation, and having to do assigned chores 10 hours a day plus, 5-6 days a week, only being able to book time off and go away when it suits other people, endless stress, dealing with difficult people, I'd be out at the drop of a hat. Some people would rather continue working full time even if they could afford not to - that is an anathema to me.

 

[lessobviousname]

Why do you want to retire earlier?! My next point was going to be look at a job that has more fulfillment or move to reduced hours!

I'm really enjoying the job I have today, but I'm not sure about how I (or my wife) will feel in around 15 years. The last job was very intense and I shifted to a four day week to try and get a balance. It wasn't enough and I left it, but saw the value of a four day week so that was a prerequisite for the new role.

I guess it might be more accurate to say I'd like to put ourselves in a position to "financially retire" and have the option of stepping away from the roles we are working when we reach a certain age (mid/late 50's). If we love the jobs we do then we'll no doubt continue to do them beyond that point, or at least look for more flexibility at that point to enjoy more things outside of work.

A point to make is that you say your wife isn't considering an option of downsizing the house in the next 5-10 years, yet you are are trying to plan out your entire retirement of 30+ years (fingers crossed).

Fair point. Presently we are trying to plan without factoring in the need to sell our home. It'll probably make sense at some point in the future to do so (but might much further into the future... 25 years+). I'd rather try and find ways of achieving our goals without neccessarily having to rely on this.

 

[DublinHead54]

This always seems to get asked on these kinds of threads. Why on earth would you not want to retire early ??! I'm not being flippant, but genuinely curious as I would ditch work tomorrow if I could afford to. What is all the working for if you can't get some time to enjoy yourself towards the back end of your life.
Personally, I would much rather spend the limited time I have on this planet doing things that I want to do, rather than what I need to do. It's something not many people get to do, but something that I, and a lot of people aspire to. Most people don't have a vocation, and having to do assigned chores 10 hours a day plus, 5-6 days a week, only being able to book time off and go away when it suits other people, endless stress, dealing with difficult people, I'd be out at the drop of a hat. Some people would rather continue working full time even if they could afford not to - that is an anathema to me.

I 100% agree with what you are saying, but there is always the saying of the grass is greener on the otherside, and retiring isn't always the solution to the problem. There is a good thread on AAM about retirement and how people transition and fill their days.

The reason I asked that question and the point I was making is that the desire to retire early is often driven by not being happy in their current employment for the reasons you point out. Finding a job that offers a better work life balance and fulfillment can help solve this issue rather than wishing away the present.

In addition, I am believer of living in the present and whilst it would be great to retire early, I am not a big believer in making sacrifices that impact how I live in the present. That doesn't mean not planning for the future, but rather not going on a last minute trip to see friends because I need to save that money to retire a year earlier etc. There are many things I dislike about my job, but I also don't think we should just think of life as work until you're 65 then go of to the golf course.

In the context of the Op, he has cut his work down to 4 days a week, says the job offers more fulfillment, so maybe he doesn't need to retire early.

 

[DublinHead54]

I'm really enjoying the job I have today, but I'm not sure about how I (or my wife) will feel in around 15 years. The last job was very intense and I shifted to a four day week to try and get a balance. It wasn't enough and I left it, but saw the value of a four day week so that was a prerequisite for the new role.

I guess it might be more accurate to say I'd like to put ourselves in a position to "financially retire" and have the option of stepping away from the roles we are working when we reach a certain age (mid/late 50's). If we love the jobs we do then we'll no doubt continue to do them beyond that point, or at least look for more flexibility at that point to enjoy more things outside of work.



Fair point. Presently we are trying to plan without factoring in the need to sell our home. It'll probably make sense at some point in the future to do so (but might much further into the future... 25 years+). I'd rather try and find ways of achieving our goals without neccessarily having to rely on this.

I really think that without a big lump sum or selling your house, you won't really have that complete financial freedom for both of you in by mid 15s. However, you should start investing use tax breaks in the pension, that will get you on path towards that goal.

The other way to look at is, you can both afford to live your current lifestyle on 4 day week salary...so effectively you have taken early retirement one day a week, so you're a 5th of the way there .