Enjoy life now not in 15/20 years

[JJ0040]

Hi all
I'd like to be in a position by time I'm 55/56 to be financially comfortable to work part time maybe 6 months a year contracts and interested to hear opinions advice on how to achieve this.
By the way after many years of hassle being a landlord they are now more or less taking care of themselves so really don't want to sell unless I need. I think long term property not bad investment.

Age: 48
Spouse’s/Partner's age: 45

Annual gross income from employment or profession: €110k
Annual gross income of spouse: €0

Monthly take-home pay Approx €5,400

Type of employment: e.g. Civil Servant, self-employed : Multi National

In general are you: probably spending more
(a) spending more than you earn, or
(b) saving?

Rough estimate of value of home €400k
Amount outstanding on your mortgage: €250k
What interest rate are you paying?
Tracker mortgage

Other borrowings – car loans/personal loans etc
No car or personal loans

Do you pay off your full credit card balance each month? Yes
If not, what is the balance on your credit card?

Savings and investments: approx €80k

Do you have a pension scheme? Yes two schemes. First from previous job latest value €275k. Second from current job value €30k. Employers and AVC monthly approx €2k

Do you own any investment or other property?
Yes own 2 investment properties. Value of both approx €475k. Mortgages remaining for both approx €450k with another 25 years. Interest rate 4.9 %

Ages of children: 22, 20 and 10. Two oldest in full time college

Life insurance: Yes.

 

[Joe_90]

Ok so fast forward 10 years.

How much is your mortgage and how much are the monthly repayments?

How much is owed on the rental properties? How much is the annual tax bill?

Would you make 55k working 6 months per year.

 

[gnf_ireland]

Hi OP
Looking at the figures, I am not sure they will add up to financial freedom by the age of 55 or so if I am being honest. This is only 7/8 years away, and you are still carrying a reasonable amount of debt. You will not be able to access your pension until you are 60 (in most cases) so you will have to live off your savings/income until then. Even then, the pension pot is likely to be around 500k or so by 55 - which would equate to 125k tax free and about 15k a year (using the 4% rule approximately). This appears to be a pretty big drop for you.

The two investment mortgages have still considerable debt attached to them. Are they 'washing their face' today and paying for themselves once you factor in taxation on the rental income. If not, they will continue to be a drain on your income for years to come. 48+25 =73 before you are mortgage free on them. I am not sure at what stage in that term they will actually give you a positive return after mortgage repayments, expenses and tax. But you do need to understand this? Where do they contribute positively to your cash-flow?

Same applies to your home - there is still a relative high debt on that. I think to seriously consider financial freedom, you do need to be mortgage free, or at least very close to it. I don't see this in your case with a mortgage of 250k, but no idea the term left on it. Even if you target 8 years, this is high monthly repayments to get there.

Finally, you need to consider the 10 year old and funding of their college years. I assume there is financial support for the older two in college, so the younger one will expect the same, or at least something. Will you be able to afford this at that time?

The plan appears to be hinged on the prospect of working 6 month contracts. I assume you are IT based, or at least in an industry that supports contracting easily enough. From my experience, 6 month contracts and leaving is rare enough, and know very few scenarios where someone would be hired for 6 months only. Most would only be getting up to speed at that time, unless they bring a very specialised skill to the table. If you were a SAP BW programmer or something (or the equivalent in 8 years time), then maybe this would be possible.
I have been contracting for over 15 years, and I would also be slow to hire someone who is coming onto their first contract in their mid-50's, especially if they were working for the same company for ~20 years before that (no idea how long you have been in your current company). Would you be willing to be truly internationally mobile or would you like to remain in Ireland. How easy is it to contact in your area and how niche a market is it? How strong is your network and how realistic is 6 months a year contacting? Have you ever contracted before and how have you found it?


I will add, that personally I have a 'notion' that once I get to 60 and my girls have left college, I like the idea of semi-retiring and doing some ad-hoc consulting from time to time. In my area, this would be possible, and I have spent a decade consulting internationally in the past. I have always maintained solid relationships with the various niche consulting companies and specialist recruitment agencies in this area, and try meet up with them at least once a year to maintain this relationship at conferences or whenever they are in town. That said, it would very much depend on what the niche market is like then and may require me to consider joining a 'main stream' consulting company for 8-10 odd years in advance of that to broaden my skillset and strengthen my contacts ! However, 6 months on/6 months off is unlikely and would more likely be either short term roles (say 3 months to help with an evaluation process) or 3 weeks every 3 months acting as an auditor/overseer on a major programme. I could also envisage working for 18 months contract and then taking 6 plus months off. But all of those scenarios require true global mobility at the best of times. Does that make sense?

 

[JJ0040]

Thank you for the replies. I did leave something and obviously significant.
I have no brothers and sisters one parent passed away while my mother isn't in great help (don't mean that to sound heartless).
My mother has a home worth around €450k so eventually hopefully not for a long time though that will come to me.
As for my pensions my first one would be available by age 55 to draw down if needed while €2k per month into another scheme and hopefully continue to increase that amount over the years by time I'm 60 (ok 55/56 a dream) I hopefully will be in a comfortable position. Yes I'm in IT but you are right looking to contract for first time at 55+ and only for 6 months a year likely difficult.
I guess my main point is we work hard invest in different areas whether property and / or pensions and if everything goes to plan investment wish by time we hit 60-65 our children are gone our mortgage cleared and we have potential €1 million plus in the pot to play with. I know if that happens it's a good thing I can decide do I want to continue working or retire early. Thanks again

 

[Gordon Gekko]

What's your target income in retirement?

 

[Brendan Burgess]

First of all, it's very difficult to predict what age someone will be financially independent at. From a quick look at your figures, it's unlikely to be in 7 or 8 years. You may be able to reduce to part-time work at that stage,but you will have an 18 year old kid and maybe you will want to help your older children buy houses. And maybe your mother's home will be eaten up by care costs.

So all you can really do at this stage, is make the best decisions today to maximise your wealth while minimising your risk.

Let's start here:

Yes own 2 investment properties. Value of both approx €475k. Mortgages remaining for both approx €450k with another 25 years. Interest rate 4.9 %

Savings and investments: approx €80k

It makes no sense to have €80k of savings on which you are probably earning a net return after tax of 0.5% while paying about 3% after tax on your borrowings. That is costing you about €2,000 a year in net cash. So pay the bulk of your savings off your investment properties.

Keep aside whatever you will need in the next year or two, but no more.

You should review whether it is wise to have €875k of properties. The cheap tracker loan makes the home very affordable.

But I think you should divest yourself of at least one of the investment properties.

If prices rise, you will do well anyway.

If prices fall, you will be glad you cut your exposure.

Rather than paying down an expensive mortgage, you might be better off at your age to be diverting your equity and savings to maximising your pension contributions. You get tax relief on the way in. You will probably get around 25% tax-free on the way out. You are not close to the €800k ceiling on which you get the 25% tax-free.

As I write this, I feel fairly sure that the right thing to do is to pay down your investment mortgage immediately, and put both properties on the market as soon as possible. Then put the equity released into your pension fund.

That will be the best combination of return and risk.

Brendan

 

[Sarenco]

In my opinion, it's probably not wise to formulate any financial plan on the basis of a hoped for inheritance.

Your mother may yet require long term medical care or she may decide to leave her entire estate to her favourite charity - there's no guarantee that you will receive anything at all.

Are you absolutely sure your rentals are washing their faces? I would be stunned of they are not significantly cash-flow negative on an after-tax basis given those horrible mortgage rates.

 

[JJ0040]

Thanks for the advice Brendan

 

[aristotle]

Would there be inheritance tax due on your mothers home if it is left to you?

But yes as mentioned you need assume you won't get a lot of inheritance if your mother needs care in her last few years.

 

[gnf_ireland]

As for my pensions my first one would be available by age 55 to draw down if needed while €2k per month into another scheme and hopefully continue to increase that amount over the years by time I'm 60 (ok 55/56 a dream) I hopefully will be in a comfortable position.

Sorry I dont understand this bit. Why would you draw down one pension while contributing to another? Or maybe I have picked it up wrong. If there is something there, I would suggest potentially merging them into a single pension if it makes sense

Yes I'm in IT but you are right looking to contract for first time at 55+ and only for 6 months a year likely difficult.

I think if this genuinely is your plan you need to consider how this would work, what type of jobs you would get for shorter periods and where they would be located? You may need to consider how you get certain qualifications to make you more attractive for these roles etc. You also need to focus on 'brand you' and ensure you have a profile about you so that if someone google's you they see someone they want to hire. You need to determine what your unique selling point is that will make you the ideal candidate for a contracting job at ~60.

I guess my main point is we work hard invest in different areas whether property and / or pensions and if everything goes to plan investment wish by time we hit 60-65 our children are gone our mortgage cleared and we have potential €1 million plus in the pot to play with.

I am struggling on this one. Your property investments are not mortgage free until 73, so struggle to see how you can bring them in by ~13 years. Unless you end up with a sizeable inheritance which allows you pay down your expensive investment mortgages immediately, and therefore have a solid income stream. That said, with the taxation element I am not sure it would be enough to finance you in retirement.

As I write this, I feel fairly sure that the right thing to do is to pay down your investment mortgage immediately, and put both properties on the market as soon as possible. Then put the equity released into your pension fund.

I am concerned about the 25 years remaining on these properties and when they will become cash-flow positive. I think we need more details on them including the rental income, whether they are in a rental pressure zone etc before making a call on what to do with them. I do struggle to see how they can be cash flow positive at 4.9% interest. If they are not cash flow positive, 25 years is a long time to be funding them. I think you seriously need to consider whether these rental properties are a good investment for your particular plan. Paying the money into a pension fund may be a better option in medium term.

Your mother may yet require long term medical care or she may decide to leave her entire estate to her favourite charity - there's no guarantee that you will receive anything at all.

This is a very fair statement and one I think you cannot really ignore.

 

[Gordon Gekko]

Sorry, but I don't think that your plan is in any way doable.

You're carrying a large amount of debt, and expensive debt at that. You only have one income and your pension is arguably behind where it should be. Looking at your balance sheet (property, pensions, cash, etc), it's "only" positive to the tune of circa €550k.

 

[Bronte]

I don't understand why the investment mortgage term ends when you are 73?

How much is your rents and how much are the mortgages?

Is there a possibility of your spouse working for 10 years to help get the debt down?

 

[mtk]

Sorry, but I don't think that your plan is in any way doable.

You're carrying a large amount of debt, and expensive debt at that. You only have one income and your pension is arguably behind where it should be. Looking at your balance sheet (property, pensions, cash, etc), it's "only" positive to the tune of circa €550k.

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