# Looking for suggestions on how to retire early.



## richtea (3 Mar 2021)

Looking for suggestions on how to retire early.

Questionnaire:

*Age:* 43
*Spouse’s/Partner's age:* 44

*Annual gross income from employment or profession:* 75,000
*Annual gross income of spouse:* 35,000

*Monthly take-home pay:* ~ 4,500 (after some deductions, AVCs, pension contributions, overpaying mortgage by 10%, max amount allowed by KBC)
*Type of employment: *Both in private sector PAYE

*In general are you: *saving - 2,300 pcm

*Rough estimate of value of home:* 240,000
*Amount outstanding on your mortgage:* 195,000
*What interest rate are you paying:* KBC bank 3.35% fixed for 5yrs, currently on year 3.

*Other borrowings – car loans/personal loans etc:* None
*Do you pay off your full credit card balance each month:* N/A don't have one.


*Savings and investments
Cash: *45,000 savings account
*Stocks (employer shares) :* 5,000

*Do you have a pension scheme? *Yes
*Mine:* 85,000 (employer contributes 6% and I pay max 25% for age)
*Spouse:* 17,000

*Do you own any investment or other property?* None

*Ages of children: *None
*Life insurance:* employer provides 4x our base salaries

*What specific question do you have or what issues are of concern to you?*

Looking for suggestions on how to retire early if possible.
Unsure if we should invest in ETFs and/or overpay our mortgage in 2yrs once fixed period ends.

Thanks a lot!!


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## _OkGo_ (3 Mar 2021)

Start with requesting a break fee from KBC. If no break fee applies then you should break and switch to a better rate now.

If a break fee applies, it may be too high to break the full amount to justify switching but you should still consider making a lump sum payment now. You could comfortably make a €20k lump sum payment so request the break fee for this amount. By not making this payment now, you will pay  €1,340 (2yrs x 3.35% = 6.7%) in interest on that sum over 2 years. The break fee will be likely be a lot less than that so even though you pay a fee, it is still cheaper than continuing without making the lumpsum payment.

You can probably do better with allocating/sharing tax credits/bands between you and your spouse. There are other examples on AAM about this so do some digging but essentially, your spouse can transfer some or all of the 20% tax band to you meaning they pay more tax at 40% and you pay less at 40%. What this allows is for your spouse to benefit from 40% tax relief on pension contributions 






						Joint assessment
					

This page outlines joint assessment.




					www.revenue.ie


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## elcato (3 Mar 2021)

_OkGo_ said:


> By not making this payment now, you will pay €1,340 (2yrs x 3.35% = 6.7%) in interest on that sum over 2 years.


Just to point out, no matter how unlikely, rates could change in the next two years


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## _OkGo_ (3 Mar 2021)

elcato said:


> Just to point out, no matter how unlikely, rates could change in the next two years


It is a fixed rate so the OP will definitely pay €1,340 on €20k over 2 years.

Yes it is possible that wholesale rates could change and result in a zero break fee in 6 months time. However, every month that the OP does not make that payment costs ~€56 so in the 6 months, they will have paid €335 in additional interest. 

Waiting in the hope of getting a zero break fee costs you money so it is nearly always better to just pay it now and accept the break fee. That said, if the current break fee is close to the €1,340 I wouldn't make the lump sum payment. In that situation, it is worth waiting.


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## Jim2007 (3 Mar 2021)

Start with a calculation of how much you need to finance your early retirement.  Generally speaking people find it difficult to live the live they live in less than about 40% - 60% of their current income.  So maybe you have sufficient funds to finance a year or two of early retirement.

Buying ETFs or playing around with the mortgage is not going to make much difference.....


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## NoRegretsCoyote (4 Mar 2021)

richtea said:


> Looking for suggestions on how to retire early if possible.



I don't think this is feasible.

Your combined savings and pension funds are only a bit more than twice your net income. You have an 80% LTV mortgage. Neither of these is very low for a couple in their mid-40s.

You are saving a lot, and don't have dependents, but I don't think you can shave much off the next 20 years of pension accumulation you'll need for a comfortable retirement.

There are a few small things you can and should do like move to a cheaper mortgage and your spouse could max out pension contributions. But these aren't going to let you retire in your 50s.


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## 50andOut (4 Mar 2021)

Depends on what early retirement means for you - if you are thinking thats @60 then I would say it is achievable.

Your first step is to track expenses completely over a year and estimate what your future annual costs will be - factor in private medical care to be paid directly by you instead of employer, annual insurances, repair bills, holidays etc etc. Be realistic and not optimistic

(I am not clear what your monthly spending is - 4500 + saving 2300 = 2200pm expenses? I assume the mortgage was already deducted from the income figure. so potentially an annual spend of €30k once mortgage is cleared?)

Once you have this figure you can start to estimate where your private pension will be in 10/15/20 years time and what income that might give you and for how long vs the time when you start to receive the state pension.  A simple calc - adding €20k p.a to the pension at 5% annual increase would bring it to €700k at 60. at which point you could retire on 30k per year (reducing drawdown to 15k at pension age)

Just keep the pension contributions maxed and let it ride + time the mortgage to be cleared by the point you think makes sense to retire. Spend the rest and enjoy life

50+O


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## 50andOut (4 Mar 2021)

Separately look at where your pension is invested, plenty of advice / comments elsewhere here suggesting to keep in a global equity fund over long term horizons.


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## NoRegretsCoyote (4 Mar 2021)

50andOut said:


> Depends on what early retirement means for you - if you are thinking thats @60 then I would say it is achievable.


Really?

Out of a gross income  of €120k they are making cash and pension savings of €50k a year. This is huge. But even €50k a year for the next 16 years might get them to a joint pension pot of €1.2m at age 60 assuming a reasonable return.

At 60 a man is expected to life to 82, a woman to 85. And from their pension pot that they have to bridge the gap to state pension at 67 or 68.

That's nearly half a century of life expectancy to be funded for a couple. And getting to €1.2m means extremely high level of savings along the way and no interruption to income.

It's feasible, but I think they should budget on the basis of having to work until their mid-60s.


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## Steven Barrett (4 Mar 2021)

NoRegretsCoyote said:


> I don't think this is feasible.
> 
> Your combined savings and pension funds are only a bit more than twice your net income. You have an 80% LTV mortgage. Neither of these is very low for a couple in their mid-40s.
> 
> ...



At first glance and without doing any calculations I thought the same. Pensions are behind the curve, high LTV on mortgage, not large cash reserves, especially for a couple with no kids. If you want to retire early, save as much money you can and invest it in capital markets. Over pay your mortgage as much as you can to get it paid off asap. 

But when I see posts from people in their 40's looking to retire asap I always wonder what they do? The working world has changed a huge amount over time and more and more people are happy with their work and want to continue doing something. So what are these people doing that they want to stop working as soon as they can? Is there something else that they would love to do instead? If so, why not focus on making a transition into that area instead of continuing to do something you hate? 

Steven
www.bluewaterfp.ie


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## 50andOut (4 Mar 2021)

NoRegretsCoyote said:


> Really?
> 
> Out of a gross income  of €120k they are making cash and pension savings of €50k a year. This is huge. But even €50k a year for the next 16 years might get them to a joint pension pot of €1.2m at age 60 assuming a reasonable return.
> 
> ...



Definitely achievable for a couple with no kids, an an annual expense of 30k, and saving a healthy amount into a pension to retire in 17+ years at 60 having paid off their mortgage. As I said it depends what they view as early retirement. It certainly becomes a different equation if they wanted to move it forward to 55 or 50.

Based on the assumption that OP needs €30k per annum, retiring at 60. that's drawing down €30k from 60-69 and around 10k p.a. thereafter (taking into account state pensions), they would not need anywhere near €1.2m to achieve that. 

Regardless, they can at least set their own desired target pension figure which would provide for their needs and estimate when they would get there.

50+O


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## NoRegretsCoyote (4 Mar 2021)

50andOut said:


> Based on the assumption that OP needs €30k per annum, retiring at 60. that's drawing down €30k from 60-69 and around 10k p.a. thereafter (taking into account state pensions), they would not need anywhere near €1.2m to achieve that.



It depends on good investment returns, no interruption to their income, and a pretty heavy savings schedule in the meantime.

There is a fair bit of downside risk. I would target mid-60s for comfort and if all goes really well retire earlier.


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## _OkGo_ (4 Mar 2021)

50andOut said:


> Definitely achievable for a couple with no kids, an an annual expense of 30k, and saving a healthy amount into a pension to retire in 17+ years at 60 having paid off their mortgage.


In isolation, I would say this statement is true but in the OP's case, I think looking back is a good indicator for looking forward. 

The OP has wealth of €45k equity in PPR, €50k cash and €100k in pension. For a pretty good income of €110k, that is not a lot of wealth to have built in the past 17 years (lets say they really started earning in their late 20's) so it suggests to me that their living expenses are a lot more than €30k/yr and that the savings figure of €2.3k/m is inflated due to lockdown or is mostly budgeting for cars/holidays i.e. it is not real savings, it is just budgeting for lifestyle. 

The pension figure of €85k and contribution of 25%+6% suggests OP only started contributing to it in the past ~4years. It is great they are now doing this but it also begs the question as to where the money went before this.

I would be more inclined to agree with @NoRegretsCoyote that 'early retirement' for the OP would be more comfortable in mid-60s. But there is nothing wrong with having aspirations for it to be a bit earlier as long as they understand it will take a lot of hard saving for the next 17 years


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## 50andOut (4 Mar 2021)

NoRegretsCoyote said:


> It depends on good investment returns, no interruption to their income, and a pretty heavy savings schedule in the meantime.
> 
> There is a fair bit of downside risk. I would target mid-60s for comfort and if all goes really well retire earlier.



Assuming an average investment return and no interuption to the income is a pretty standard assumption - where is the aggressive savings? 

In context of the op original question the advise was simple - .
1. Max yr pension contributions and pay down yr mortgage (ideally by the timeline set in point 2)
2. Work out your annual expenses and then set a pension target that will provide for those expenses.

Obviously if there's any change in circumstances the plan needs adjusting, but its just a plan. The back of the envelop calculation of target pension based on a guestimate of expenses was for an example and highlighting 60 is feasible in answer to the question more to guide the op to make their own assessment.


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## NoRegretsCoyote (4 Mar 2021)

50andOut said:


> where is the aggressive savings



OP claims to be:

Saving €2.3k a month, presumably cash, or €28k a year
Contributing 25% of gross €75k salary to pension, €18k
Paying 3.35% on a €180k mortgage which is about €12k a year over 16 years.
So savings+mortgage of €58k.

This is on a gross income of €110k which with those contributions looks like take-home pay of a little under €70k.

A couple on €110k gross leaving themselves with €1k a month to live on excluding housing is aggressively saving.


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## 50andOut (4 Mar 2021)

Now you are comparing apples and oranges - the op's initial claims vs my suggestion.  

It is to my suggestion which you are replying to saying its relying on aggressive savings this is incorrect, I have advised only the continuation of pension and mortgage payments. With 17 years to clear the mortgage and build a pension pot to €700k +. Which will provide enough to retire at 60 (should the required expenses actually be 30k). 

So Ignore point 1 as it wasn't relevant or included in my suggestion 
Point 2 and 3 are already happening and the mortgage rate can be improved further as already advised.



NoRegretsCoyote said:


> A couple on €110k gross leaving themselves with €1k a month to live on excluding housing is aggressively saving.



You are double counting the pension contribution. Net income post pension would be around €5500 p.m which leaves the income at €4500 p.m. net of mortgage, in line with original post. So there is plenty of scope to add to the savings pile from the €4,500 if they felt like it, I suggested they spend it.

The first question was and still is required to clarify - how much does OP expect to spend in retirement.


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## NoRegretsCoyote (4 Mar 2021)

50andOut said:


> You are double counting the pension contribution.


You are indeed correct. My bad.

After everything left over it's about €2k a month ex housing which is a comfortable life for a couple but very little fancy.


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