# A passive investment plan for €700k assets aged 35



## CoaxMetal (3 Oct 2018)

_Split from another post - Moderator _

After sale of my business next year my CASH worth should be around total 700,000 euro. (200k saved currently in cash deposits, 500k from property/business).

I do not include my personal primary residence in this figure, it is fully paid off, and I have no debt. I have a small amount (maybe 60k) already in a private pension fund which I do not include in this figure, I would only withdraw moneys from my pension fund when age appropriate and no penalty.

I am ~35 years old, married and do not have children currently. We may have some in the future. Our yearly spend (minus mortgage) for the last 5 years is consistently @17k per year (I know this is low, but we do not scrimp or deny ourselves anything, it's simply we have always enjoyed a less materialistic style of life, and I don't see this changing).

I've been recently reading about early retirement, FIRE and websites like MrMoneyMustache and I found the idea of early retirement extremely appealing and suited to my personality, but I've also read that the investing rules they use in US/Canada are not quite as easy or applicable to Ireland due to our heavier tax/fees.

*My main question was how likely is it that I can invest this cash lump sum in some sort of ''passive investment'', living in Ireland, and withdraw lets say increasing my yearly spending to 20k/annum and still live off the interest generated.* I would only be interested in doing so keeping it as ''passive'' as possible using (correct me if terminology is wrong, I have no financial skill-set) something similar to index funds or similar to Vanguard (this particular company unavailable in Ireland from what I've read?).

Now I know ''emergency fund'' etc, but when I say retirement, well to be honest I would look at it more like extended career break. If we needed money, we could always go back into the workforce at a later date. It is appealing to me to have the middle section of our lives with passive investment, and if we need a cash boost my plan is we can pretty easily go back part time, or later in life.

I'm a bit of sponge when it comes to reading through scenarios, retirement calculators etc online, but at the end of the day I need to run this past someone in ''real life'' to see is that plan possible. Thus i'm hoping to go to a financial adviser soon and* my second question would be is a FA going to laugh at my face for this plan*, and secondly since I envision this having a fairly complex set up, but then basically very little ''steering'', would someone who works to set up for a flat fee be appropriate, rather than commission? Does the FA also typically ''set up'' the investment, or do they guide/advise and the person does it themselves, using degiro or similar?

Third question is that the TAX implications of this seem complex in Ireland in particular, my goal since my yearly spending is low is to keep my ''income'' from these investments as low as possible and thus have a low tax bill for my ''working life''. I currently use a professional accountant, and I imagine I would need to retain him yearly, perhaps at a different rate, but does a financial planner also include tax implications or is this the realm purely of the accountant, and how do the two professions typically interact with eachother?

Thanks if ye take the time to respond, first time I've actually put this potential plan down on ''paper''


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## Blackrock1 (3 Oct 2018)

am i correct in saying you are looking to generate a return of circa 3% per year (non compounding as you will need the return for living expenses) after tax and associated fees etc?

There is no provision for a pension as such and you are exposed to inflation as well as you are effectively taking the growth out every year to fund your admittedly frugal life style.


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## CoaxMetal (3 Oct 2018)

Yeah 3-4% would seem to be enough from what I have read but in fairness, that's only in theory and i've no financial know how to be honest, it's uncharted waters for me. Is it a possibility?


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## Blackrock1 (3 Oct 2018)

well it depends, of you are earning 3% net of costs, taxes etc and inflating is running at 2.5%....


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## panindub (3 Oct 2018)

Fairplay to you CoaxMetal, your doing well. 
I'm also dreaming of FIRE, but longer off than you.
3% (I'd recommend this more conservative figure than 4% rule)return on 700,000 wil give you €21k. This on paper covers you annual expenses.
Just run the calc on the taxes due on €21k, which will bring it down somewhat. 

I can't advise on the investment, some people go all in 100% equites, as you can recover over long time a market dip. But others go 50%/50% equities/bond split.
Dividends from equities is around 2%, so you will have to go for high yeild equities or mixture of equities/bonds if you want to keep you initial capitial intact. 
Might want to factor in emergency fund (1yr annual expenses) so you don't have to cash out investment in a market downturn.


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## Sarenco (3 Oct 2018)

Let's say the OP expects to live to 85 and he invests his money in a portfolio of stocks and bonds so that he is confident that it will maintain its real (after-inflation) value over the next 50 years, after all taxes and investment costs.

Starting with a pot of €700k, that allows for an annual spend of only €14k per annum.

Maybe the portfolio will grow by more than the rate of inflation; maybe it won't.


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## CoaxMetal (3 Oct 2018)

Hi Sarenco,

Thanks for the reply. This is exactly the kind of response I was looking for, the internet has a habit of exaggerating the ease of this stuff. 

So if I understand right you divided 700k by 50 years and got 14k. This is to assume that the investment makes exactly  equal to inflation and charges and tax. Is that scenario unrealistic, where it is equal, or is it impossible to know?

My understanding was that long term (20 year+) investments typically do better than inflation + costs/fees. If that wasn't the case, why would anyone invest? I'm probably asking how long is a piece of string sorry.

I see earlier someone said inflation is 2.5%, where do ye guys get that figure? When I google say inflation in Ireland currently it says it is .8%. Can ye help me understand where ye get the figures from?


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## steviesteiner22 (3 Oct 2018)

I'm new to FIRE, my general concern is CGT or exit tax, never quite understood how it works in Ireland but the general point Irish people we're outlining was that its too high and not worth doing. Alot of Americans add ETF's their pension plan to apply tax relief. Not sure how these conditions are in here.


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## Blackrock1 (3 Oct 2018)

CoaxMetal said:


> Hi Sarenco,
> 
> Thanks for the reply. This is exactly the kind of response I was looking for, the internet has a habit of exaggerating the ease of this stuff.
> 
> ...



i wasnt saying inflation was 2.5%, i was more suggesting if it was 2.5%


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## Jimmy Dee (4 Oct 2018)

Hi there,
there is only one key subject relating to investments from the domicile of Ireland (which is undoubtedly one of the most investor unfriendly locations in the entire western world), and that's your TAX position.
By the way, is the 700K post tax to start with?
If you look to build a portfolio of sensible index investing across the usual asset classes you will very quickly find out that the Irish tax treatment of Irish tax residents is neanderthal.
ETF's (UCITS Irish domicilied, EU/EAA) are taxed at 41% within an 8 year timeline. Lots of information here on that. (No tax write offs viable).
You can use an non regulated offshore Jersey based fund if you prefer which is treated like a share for taxation purposes. (personal tax rate + PRSI + USC).
Trying to build up your own individual share portfolio requires patience, a lot of know how and will involve increased risk until you have a large representative folio which will in any case be more risky relative to any decent index fund.
There are no easy solutions for bond investments in Ireland that I can find. Buy the right UCITs fund and pay the tax. Maybe just deposit the money to be allocated for fixed income in various accounts and try and build a ladder of sorts to suit your age and requirements. You are forced to consider what are poor returning assets for base parts of your portfolio such as Irish government bonds and the like with lower returns but on the other hand with government backing and no taxation.
The possibility of earning anything from bank deposits is next to nil.
Good luck and in my opinion I would avoid like the plague any funds or investment houses here in Ireland. Just investigate their costs and the lack of transparency.
Best solution in my mind is to emigrate if you are intent upon building a portfolio and improving your tax liability.
One other thing, you should avail of any pension contributions that you can make under a recognised scheme.
Jimmy


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## zephyro (4 Oct 2018)

I'm in a not too dissimilar position @CoaxMetal and what I did was divide my assets mainly between euro stocks, US stocks and a domestic rented property which give me annual yields on investment of 6%, 4% and 9% respectively at present. (Most of these were bought some time ago at what turned out to be good prices though and you obviously couldn't get these same yields now.) An annual passive dividend/rental income of around the SRCOP (€34550) results in tax of €5920 (tax rate = 17%) and net income of €28630. Asset value appreciation has so far greatly exceeded inflation including all taxes/costs. None of this was particularly complex and don't see why you'd need to get professional advice tbh once you've done your research.


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## fistophobia (4 Oct 2018)

Firstly, I am FIRED. I am a Mustachian, and theres 7 of us who meet every few months as a support group.

Congrats to the OP, your sum accumulated is quite an achievement for such a young age.

I will give it to you straight;

They dont want people retiring early - Revenue and Government. Be a good little citizen - they want people toiling, spending their money, generating tax revenue - or go on social welfare. Anything in-between, you will be treated with suspicion. Pension and property are the vehicles for retirement investing in Ireland.

If I were you, I would stay away from IFA / QFA people - you said you want a passive approach. You are going to need to skill up in the knowledge of financial products. If you stay away from the "bad ETFs" aka UCITS, you will be pushed towards US funds.


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## Sarenco (4 Oct 2018)

fistophobia said:


> If you stay away from the "bad ETFs" aka UCITS, you will be pushed towards US funds.


Which can no longer be distributed to retail investors in the EU without a KID...

TBH, I think the whole self-styled “FIRE movement” is a bit of a sham that’s based on an a false degree of certainty regarding the future.  Websites like “Mr Money Mustache” should be treated with extreme caution, IMO, particularly in an Irish context given our tax code.


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## CoaxMetal (5 Oct 2018)

fistophobia said:


> If you stay away from the "bad ETFs" aka UCITS, you will be pushed towards US funds.



Thanks for the discussion so far, obviously more than one perspective here which is just what I was looking for, it can become quite the filter bubble online. I'm at a bit of a crossroads in terms of direction to go in, and my current thought is to try out a few avenues at a smaller scale before committing heavily.

As a follow up, are the UCITS ''bad'' because of what the previous poster mentioned, i.e. the 41% tax rate and the lack of tax write off available?

Are the government 10 year ''solidarity bond 1.5% AER nil tax'' a terrible option for some portion of a fund?


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## Jimmy Dee (5 Oct 2018)

CoaxMetal said:


> As a follow up, are the UCITS ''bad'' because of what the previous poster mentioned, i.e. the 41% tax rate and the lack of tax write off available?



yes, in my opinion the UCITs ETF's aren't optimal due to the nutty tax. (In my opinion go for non regulated Jersey fund as an alternative).



CoaxMetal said:


> Are the government 10 year ''solidarity bond 1.5% AER nil tax'' a terrible option for some portion of a fund?


I think that this isn't the worst option as your return is effectively greater than 1.5% due to 0% tax (and its guaranteed by the Irish Govt for what that's worth). I would try and have a look at a crude "ladder" to include Government Solidarity Bonds kept for 1 year, 3 years and 10 years for instance. If someone has a fixed income alternative to UCIT Bond ETF's I would love to know.


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## Sarenco (5 Oct 2018)

Here’s a good guide to the taxation of ETFs depending on their domicile. 

https://www.charteredaccountants.ie...Latest-News/taxation-of-exchange-traded-funds

10-year Solidarity Bonds wouldn’t be a terrible option for a portion of your savings, provided you hold to term.


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## The Ghoul (21 Oct 2018)

I'm in a pretty similar position to poster Coaxmetal. Am age 40, frugal lifestyle, no debt and have approx 860k with about 800k of that in State Savings such as the 10 year bond that was mentioned. I also have the "crude ladder" of state savings products that was suggested. For several years I have been trying to come up with a plan (taking into account taxes, risks, fees etc. in the Irish context) to use this money to generate a regular income which would enable me to retire in my 40s - but have failed to come up with such a plan. Hopefully this thread keeps going and Coaxmetal can update it with his thoughts.


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## noproblem (21 Oct 2018)

How have you €800k in the state savings products with there being a limit on the amount you can invest?


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## The Ghoul (21 Oct 2018)

noproblem said:


> How have you €800k in the state savings products with there being a limit on the amount you can invest?


Limits are per product, per issue. E.g for the 10 year bond issue 6 (the current one), the max holding is 120k. But the max holding is also 120k or 250k for each previous issue. It is possible to have over 1 million in 10 year bonds alone and then there's the 3 year, 4 year and 5 year products, all of which have had multiple issues in the last few years.


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## Marc (21 Oct 2018)

Here’s a completely unscientific take on part of this question.

In a sample of 12 Qualified Financial Advisers most specifically deal with pension advice. In terms of investment advice, most would use life wrapped investment solutions (subject to flat rate exit tax of 41%) and potentially unsuitable for lower rate tax payers who could take advantage of the annual CGT exemption and the lower rate of capital gains tax.

In a similar sized sample of accountants, most don’t have a detailed and specialist knowledge of fund taxation.

Under those conditions it’s hardly surprising that it’s hard to find good advice on investing in Ireland.


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## noproblem (21 Oct 2018)

The Ghoul said:


> Limits are per product, per issue. E.g for the 10 year bond issue 6 (the current one), the max holding is 120k. But the max holding is also 120k or 250k for each previous issue. It is possible to have over 1 million in 10 year bonds alone and then there's the 3 year, 4 year and 5 year products, all of which have had multiple issues in the last few years.



Thanks for that info, never knew that. Going back a few years some people would have done good out of these products and probably missed out by not knowing what you've just told me.


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## moneymakeover (21 Oct 2018)

If US interest rates are now 3% what about putting 700k into certificate deposits



Obviously exchange rate risk but dollar is getting stronger


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## North Star (22 Oct 2018)

I would make a couple if suggestions here if I were in your shoes. These are important decisions and your future financial security may be dependant on the outcomes.  So I would do every thing I could to make sure I had all the information needed to allow me to make an informed decision as to what plan of action was in my best interests. If it makes  sense to pay for some advice if required, then not do so could be a false economy.

To start with, the first question is "Do I have enough money?". We do this type of analysis regularly for clients and it is always surprising  just how much money you need as a lump sum to replace a working life of earned income. This plan would incorporate all the current expenditure and assets/liabilities under assumed rates of return for the assets. You should also factor in different scenarios e.g part time work  or perhaps factor in additional costs for children if that is something you are considering.  Look at potential negative scenarios e.g large market fall etc and see just how robust your finances are over the long term. This should give you clarity as to whether or not you currently have enough money to last your lifetime and also quantify the required rate of return. Ps also look at the options of receiving the state  contributory pension or not, as this may influence you thinking. You should also ask for this analysis to be modelled on both CGT and Exit tax treatment for your investments.

Secondly look specifically at the investment options and tax treatment, knowing what rate of return you will require. I suspect that the CGT option will be materially better for you. The Irish tax treatment of investments is problematical but there are options which can provide a CGT vehicle for you.

A good adviser can do all of the above for you on a fixed fee basis, ( so no product sell )and can outline all the tax issues that need to be addressed. I suspect that you will need some assistance from an accountant/tax adviser re annual tax computations but again this can be easily achieved. We work with several firms whom we refer clients on to for the specific tax advice and cost is rarely if ever an issue.

AAM is an excellent resource, but for such a big decision I would want the comfort of professional advice even if only to challenge my assumptions.

All the best. Vincent


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## NoRegretsCoyote (22 Dec 2018)

I have no investment advice. I would make two points about your lifestyle:

1) You will struggle to keep your annual living expenses to €17k if you have one child, never mind more. Even social welfare gives a family of two adults and two children more than this
2) If you finish work at your age you will get a very limited state pension, and not until you are 68 at the earliest. It makes sense to keep up a low level of work - even a little self employment - so that you are maintaining a PRSI presence. A full contributory state pension of €12k a year is incredibly good value for someone on a low income making low PRSI contributions.


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## PencilPlate (27 May 2019)

moneymakeover said:


> If US interest rates are now 3% what about putting 700k into certificate deposits
> 
> 
> 
> Obviously exchange rate risk but dollar is getting stronger


How can you do that without a US tax number or being a US resident?


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