Money Makeover - How can I plan to retire in my 50s?

[alternate]

Personal details

Your age: 34
Your spouse's age: 33

Number and age of children: 2 under 3


Income and expenditure
Annual gross income from employment or profession: €134k base + €170k RSU (they are doing well) + €20k bonus = ~€324k
Annual gross income of spouse/partner: €55k part-time through contracting (using our joint limited company)

Joint Monthly take-home pay: ~€8,000

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

I'm maxing out my pension for my age (20% + 9% employer contributions at the maximum €110k.

My partner has a non-standard PRSA as a director and paying €2k per month from contracting work. We are both directors of the company, but I take 0 pay.

Summary of Assets and Liabilities
Family home value: €900k
Mortgage on family home: €600k
Net equity: €300k

Cash: €200k (hoping to do a house project in the next 3-4 years
Defined Contribution pension fund: €300k for me / €100k for my partner
Shares: €60k
No BTL properties

Total net assets: €900k


Family home mortgage information
Lender: BOI
Interest rate: 3% fixed for 4 more years


Remaining term: 33yr
Monthly repayment: €2,500

No other borrowings.

Do you pay off your full credit card balance each month? Paid off in full monthly

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

1) Myself and my partner are keen to retire early but also have a decent lifestyle in the early retirement years. I'm trying to work out how comfortable we will be financially if we stop working at 55 or so. Is there anything we could be doing better to help maximise our retirement fund?

 

[Sarenco]

I'm maxing out my pension for my age (20% + 9% employer contributions at the maximum €110k.

Small point but it’s 20% of €115k - not €110k.

You are obviously doing exceptionally well for yourselves.

At a high level, I think -

1. You should both continue to maximise your pension contributions and invest your pensions 100% in global equities for the time being; and

2. Once you’ve completed the home improvement project, throw any after-tax savings at your mortgage.

Also, make sure you have appropriate life and income protection policies in place.

And make sure you enjoy the ride! 20 years will fly by.

 

[Zion2022]

Personal details

Your age: 34
Your spouse's age: 33

Number and age of children: 2 under 3


Income and expenditure
Annual gross income from employment or profession: €134k base + €170k RSU (they are doing well) + €20k bonus = ~€324k
Annual gross income of spouse/partner: €55k part-time through contracting (using our joint limited company)

Joint Monthly take-home pay: ~€8,000

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

I'm maxing out my pension for my age (20% + 9% employer contributions at the maximum €110k.

My partner has a non-standard PRSA as a director and paying €2k per month from contracting work. We are both directors of the company, but I take 0 pay.

Summary of Assets and Liabilities
Family home value: €900k
Mortgage on family home: €600k
Net equity: €300k

Cash: €200k (hoping to do a house project in the next 3-4 years
Defined Contribution pension fund: €300k for me / €100k for my partner
Shares: €60k
No BTL properties

Total net assets: €900k


Family home mortgage information
Lender: BOI
Interest rate: 3% fixed for 4 more years


Remaining term: 33yr
Monthly repayment: €2,500

No other borrowings.

Do you pay off your full credit card balance each month? Paid off in full monthly

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

1) Myself and my partner are keen to retire early but also have a decent lifestyle in the early retirement years. I'm trying to work out how comfortable we will be financially if we stop working at 55 or so. Is there anything we could be doing better to help maximise our retirement fund?

When you say “RSU 170k (they are doing well)” does that mean this is the market value of awards to vest this year after significant appreciation?

For future planning I would only consider the annual RSU award at the award value as any increase in share price may or may not be repeated.

 

[alternate]

When you say “RSU 170k (they are doing well)” does that mean this is the market value of awards to vest this year after significant appreciation?

For future planning I would only consider the annual RSU award at the award value as any increase in share price may or may not be repeated.

Yes, it is the current market value of the shares that will best this year.

I am in a lucky position and know the RSUs are not guaranteed.

 

[Zion2022]

Yes, it is the current market value of the shares that will best this year.

I am in a lucky position and know the RSUs are not guaranteed.

To help people give informed responses I’d probably update the opening post to quote the initial award value/average year award value rather than current market value of awards vesting this year - assuming those numbers are materially different.

The vesting value this year is a nice bonus but not that relevant to planning for retirement if it’s not likely to repeat every year.

 

[Boyddbookman]

I retired at 52. Single earner with stay at home spouse. We jointly decided early on, that it was more important for her to be a full time mom which in turn allowed me to dedicate more time for a demanding (albeit highly paid) PAYE role. Early retirement for us was achived through continuous diversified investments worked over a 25 year period. My personal view of the information you provided is that you are exceptionally exposed to the whim of your current employer and are carrying a very large amount of unproductive debt on your PPR. For me, there is too much risk and exposure with your current situation.

 

[KOW]

Personal details

Your age: 34
Your spouse's age: 33

Number and age of children: 2 under 3


Income and expenditure
Annual gross income from employment or profession: €134k base + €170k RSU (they are doing well) + €20k bonus = ~€324k
Annual gross income of spouse/partner: €55k part-time through contracting (using our joint limited company)

Joint Monthly take-home pay: ~€8,000

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

I'm maxing out my pension for my age (20% + 9% employer contributions at the maximum €110k.

My partner has a non-standard PRSA as a director and paying €2k per month from contracting work. We are both directors of the company, but I take 0 pay.

Summary of Assets and Liabilities
Family home value: €900k
Mortgage on family home: €600k
Net equity: €300k

Cash: €200k (hoping to do a house project in the next 3-4 years
Defined Contribution pension fund: €300k for me / €100k for my partner
Shares: €60k
No BTL properties

Total net assets: €900k


Family home mortgage information
Lender: BOI
Interest rate: 3% fixed for 4 more years


Remaining term: 33yr
Monthly repayment: €2,500

No other borrowings.

Do you pay off your full credit card balance each month? Paid off in full monthly

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

1) Myself and my partner are keen to retire early but also have a decent lifestyle in the early retirement years. I'm trying to work out how comfortable we will be financially if we stop working at 55 or so. Is there anything we could be doing better to help maximise our retirement fund?

Retired at 57.
do not consider
If I read correctly you have 200k set aside to do work on your property so in real terms that money will be used up.
You have great income.

When you say “RSU 170k (they are doing well)” does that mean this is the market value of awards to vest this year after significant appreciation?

For future planning I would only consider the annual RSU award at the award value as any increase in share price may or may not be repeated.

Hi there.
Retired at 56.
You are doing well and earning good money and unless you do something crazy looking good.
Few observations/comment.

1. I was able to clear all debt before 40.
2. I have never and now retired do not consider my home a net asset. We need a place to live.
3. Reading your post the 200k seems to be for house upgrade so in real terms I would not consider this as a net asset in my calculations.

Max both pensions out to the last and put in a direct debit paying extra off your home loan.
Emergency fund and life assurance.
Do no more. Live and in ten years time you should have things in good shape and in a position to push for your goals.

 

[dublinbay24]

Personally I would use RSU's to pay down mortgage, keep maxing AVCs and enjoy life a little. if you are getting anywhere between 50-100k annually in RSUs you could quickly pay off your mortgage, then that free cashflow will quickly accumulate to support your early retirement.

 

[Axlmac2]

I retired at 52. Single earner with stay at home spouse. We jointly decided early on, that it was more important for her to be a full time mom which in turn allowed me to dedicate more time for a demanding (albeit highly paid) PAYE role. Early retirement for us was achived through continuous diversified investments worked over a 25 year period. My personal view of the information you provided is that you are exceptionally exposed to the whim of your current employer and are carrying a very large amount of unproductive debt on your PPR. For me, there is too much risk and exposure with your current situation.

Could you possibly do a post on how you approached your planning, impact of stay at home spouse and what type of retirement you have? 52 is seriously impressive for single earner with kid(s)!

 

[Boyddbookman]

This post is not financial or investment advice. I am not a financial advisor, nor am I a qualified accountant or tax professional.

From the age of 18 or so, I couldn’t understand why anyone would need to work a PAYE role beyond age 45 if they invested in appreciating and income producing assets. Rather naïve, but always thought I would reach a position by 45 to retire from a PAYE job.

Saved a 10% deposit for my first house between the age of 21 when I first started working, and 25 years of age. A combination of initially living at home with little expense, and then renting in shared accommodation and saving enabled me to do this (no mobile phone bills, no Netflix, broadband or expensive gym membership fees, life was simpler and maybe we were “hungy-er”).

Raised a mortgage by the skin of my teeth for the remaining 90%. Couldn’t really afford furniture, but made do. Didn’t have much by the way of lifestyle or luxuries for the first couple of years.

Made a number of career moves and took on additional work during weekends and evenings. Saved enough for a deposit for my first BTL apartment within 2 years. Did the same to purchase another BTL property again 2 years after that.

Completed a number of night courses to develop my regular PAYE career skills. Moved jobs ( and locations) to continue to build and apply newly learned skillsets. Joined a couple of start ups with equity schemes, neither of which came to anything unfortunately.

Worked evenings and weekends to maintain and improve BTL properties. Sold and bought and again sold a number of other investment properties in poor condition which gave scope to improve and add value.

Dabbled in shares and trading more out of interest than anything else. Won some, lost some.

Completed a 2 year masters part time while continuing to dedicate myself to climbing the corporate career ladder with modest success. Invested in a good corporate pension, but always viewed this as a safety net. Always observed many of my colleagues and seniors, earning far more than my own healthy paycheck, but these people were mostly afraid to say “boo” in case they were “worked out” or let go. These were intelligent people, far brighter than me, more dedicated, more ruthless but yet were (a) developing an increasing dependency on their corporate masters and (b) working for “free” for 6 months of every year. What I mean by this last statement is that ~50% of their earnings were taxed. Long, stressful hours, evenings, weekends, missed family events and family holidays for the sake of that extra bonus, to which the tax-man would take ~50%. Intelligent individuals, but not necessarily clever.

I observed and learned from this behavior for years, and saw some of these colleagues ruthlessly axed as they became too expensive or too much of a threat to their manager. This was a real motivator to ensure that I did not develop a financial dependency on any corporate organization. However, one cannot expect to break the mold and retire early if you continue to follow the regularised system. Instead, I sought and took calculated risks, focusing on buying low, selling high ensuring I always had a margin over the money cost. I aggressively paid down personal debt (including personal mortgage). I never have and never will view any PPR as an asset. A PPR is a liability from a cost perspective. I was fortunate enough to earn an annual bonus which I used (in the main part) to pay down personal debt over a number of years.

Over 20 years, I was still reasonably comfortable with the thought of servicing ~€700k - €800K of debt, but only against income earning assets. During this time I continued to buy and sell BTL properties both within and outside of Ireland, equities and even some art works. While I have made a number of financial losses and have missed opportunities, I have thankfully made more than I have lost.

We had built and retained a very modest BTL portfolio of 5 properties in Ireland (each of which had some debt leverage). A few years ago, I sat down with my accountant in preparation for my annual returns. As he also ran a tax consultancy business I asked him if there was anything I could do to reduce the amount of tax I was paying each year here in Ireland. His response was simple, work less.

I considered this response over the next 1-2 years and the significant disincentive proffered by the Irish tax system for corporate PAYE workers like myself regularly putting in 60+ hours a week for 40+ years. (Thank you in no small part to MrsBoyddbookman's unwavering support). It no longer made sense financially to remain in the PAYE system in Ireland, even as a relatively highly paid worker. Gross pay is pretty much meaningless to my mind in Ireland. Its the net spending power that really matters.

So, we engaged a financial advisor (retained each year since) to critically stress our numbers. He agreed, I was working primarily to satisfy the tax-man’s appetite. Decision made. I took an additional year to let the dust settle before leaving the corporate PAYE environment.

The constantly changing legislative environment with increasing rent controls coupled with rising costs for owning and managing BTLs with the vitriolic media backdrop set against small and part time landlords, the decision was easy. We decided to sell up our small portfolio in Ireland. Four of these have been sold to date with one remaining (due to a difficulty in the last long term tenant finding suitable alternate accommodation). Net of capital gains tax there are sufficient funds available to find (a) a nice beach somewhere or (b) alternative revenue producing investments abroad. We will continue to spend more and more time abroad and eventually will have fully unwound to become tax resident outside of Ireland.

My retirement from the PAYE system in Ireland has been very busy with various responsibilities for aging parents and I still remain a boardmember with a charitable organisation working to ensure kids from an under-privileged background have opportunity to reach their own full potential. This takes up a fair amount of my time as does various sporting activities and hobbies.

 

[Dr Strangelove]

We had built and retained a very modest BTL portfolio of 5 properties in Ireland

Out of curiosity, when did you make those purchases and how much leverage did you use?

I ask because I feel the appreciation in Irish house prices 1995-2005 was a unique event, and lenders are more reluctant to land against BTLs today than in the past.

 

[OEP1990]

This post is not financial or investment advice. I am not a financial advisor, nor am I a qualified accountant or tax professional.

From the age of 18 or so, I couldn’t understand why anyone would need to work a PAYE role beyond age 45 if they invested in appreciating and income producing assets. Rather naïve, but always thought I would reach a position by 45 to retire from a PAYE job.

Saved a 10% deposit for my first house between the age of 21 when I first started working, and 25 years of age. A combination of initially living at home with little expense, and then renting in shared accommodation and saving enabled me to do this (no mobile phone bills, no Netflix, broadband or expensive gym membership fees, life was simpler and maybe we were “hungy-er”).

Raised a mortgage by the skin of my teeth for the remaining 90%. Couldn’t really afford furniture, but made do. Didn’t have much by the way of lifestyle or luxuries for the first couple of years.

Made a number of career moves and took on additional work during weekends and evenings. Saved enough for a deposit for my first BTL apartment within 2 years. Did the same to purchase another BTL property again 2 years after that.

Completed a number of night courses to develop my regular PAYE career skills. Moved jobs ( and locations) to continue to build and apply newly learned skillsets. Joined a couple of start ups with equity schemes, neither of which came to anything unfortunately.

Worked evenings and weekends to maintain and improve BTL properties. Sold and bought and again sold a number of other investment properties in poor condition which gave scope to improve and add value.

Dabbled in shares and trading more out of interest than anything else. Won some, lost some.

Completed a 2 year masters part time while continuing to dedicate myself to climbing the corporate career ladder with modest success. Invested in a good corporate pension, but always viewed this as a safety net. Always observed many of my colleagues and seniors, earning far more than my own healthy paycheck, but these people were mostly afraid to say “boo” in case they were “worked out” or let go. These were intelligent people, far brighter than me, more dedicated, more ruthless but yet were (a) developing an increasing dependency on their corporate masters and (b) working for “free” for 6 months of every year. What I mean by this last statement is that ~50% of their earnings were taxed. Long, stressful hours, evenings, weekends, missed family events and family holidays for the sake of that extra bonus, to which the tax-man would take ~50%. Intelligent individuals, but not necessarily clever.

I observed and learned from this behavior for years, and saw some of these colleagues ruthlessly axed as they became too expensive or too much of a threat to their manager. This was a real motivator to ensure that I did not develop a financial dependency on any corporate organization. However, one cannot expect to break the mold and retire early if you continue to follow the regularised system. Instead, I sought and took calculated risks, focusing on buying low, selling high ensuring I always had a margin over the money cost. I aggressively paid down personal debt (including personal mortgage). I never have and never will view any PPR as an asset. A PPR is a liability from a cost perspective. I was fortunate enough to earn an annual bonus which I used (in the main part) to pay down personal debt over a number of years.

Over 20 years, I was still reasonably comfortable with the thought of servicing ~€700k - €800K of debt, but only against income earning assets. During this time I continued to buy and sell BTL properties both within and outside of Ireland, equities and even some art works. While I have made a number of financial losses and have missed opportunities, I have thankfully made more than I have lost.

We had built and retained a very modest BTL portfolio of 5 properties in Ireland (each of which had some debt leverage). A few years ago, I sat down with my accountant in preparation for my annual returns. As he also ran a tax consultancy business I asked him if there was anything I could do to reduce the amount of tax I was paying each year here in Ireland. His response was simple, work less.

I considered this response over the next 1-2 years and the significant disincentive proffered by the Irish tax system for corporate PAYE workers like myself regularly putting in 60+ hours a week for 40+ years. (Thank you in no small part to MrsBoyddbookman's unwavering support). It no longer made sense financially to remain in the PAYE system in Ireland, even as a relatively highly paid worker. Gross pay is pretty much meaningless to my mind in Ireland. Its the net spending power that really matters.

So, we engaged a financial advisor (retained each year since) to critically stress our numbers. He agreed, I was working primarily to satisfy the tax-man’s appetite. Decision made. I took an additional year to let the dust settle before leaving the corporate PAYE environment.

The constantly changing legislative environment with increasing rent controls coupled with rising costs for owning and managing BTLs with the vitriolic media backdrop set against small and part time landlords, the decision was easy. We decided to sell up our small portfolio in Ireland. Four of these have been sold to date with one remaining (due to a difficulty in the last long term tenant finding suitable alternate accommodation). Net of capital gains tax there are sufficient funds available to find (a) a nice beach somewhere or (b) alternative revenue producing investments abroad. We will continue to spend more and more time abroad and eventually will have fully unwound to become tax resident outside of Ireland.

My retirement from the PAYE system in Ireland has been very busy with various responsibilities for aging parents and I still remain a boardmember with a charitable organisation working to ensure kids from an under-privileged background have opportunity to reach their own full potential. This takes up a fair amount of my time as does various sporting activities and hobbies.

How old are you?

 

[goingforgold]

I never have and never will view any PPR as an asset. A PPR is a liability from a cost perspective.

2. I have never and now retired do not consider my home a net asset. We need a place to live.

I honestly will never understand how PPR would not be considered an asset, or included in net worth

1. It's a very tax efficient way of building wealth
2. If you take a person with a net worth of 1m euro broken down by PPR 300k, savings 400k and pension 300k, are you really trying to say that they are somehow worse off than someone with a PPR of 800k and pension/savings of 200k?

The PPR can be sold, very tax efficiently, and downsized to free up wealth.

 

[arbitron]

These were intelligent people, far brighter than me, more dedicated, more ruthless but yet were (a) developing an increasing dependency on their corporate masters and (b) working for “free” for 6 months of every year. What I mean by this last statement is that ~50% of their earnings were taxed. Long, stressful hours, evenings, weekends, missed family events and family holidays for the sake of that extra bonus, to which the tax-man would take ~50%. Intelligent individuals, but not necessarily clever.

This thinking makes no sense, especially when you later say:

Gross pay is pretty much meaningless to my mind in Ireland. Its the net spending power that really matters.

Gross pay is important when applying for a mortgage but otherwise I can't think of any other situations where it has made a difference in my life.

If I want/need to earn €100k to fund my lifestyle, does it matter if I am (A) on 0% income tax being paid €100k gross and receiving €100k net or (B) on 50% income tax on €200k gross and receiving €100k net? I am still getting the same amount of money to spend...?

It no longer made sense financially to remain in the PAYE system in Ireland, even as a relatively highly paid worker.

So, we engaged a financial advisor (retained each year since) to critically stress our numbers. He agreed, I was working primarily to satisfy the tax-man’s appetite.

Can you give a worked example of how earning, say, €100k PAYE would not make financial sense? And how would it be mainly for Revenue's benefit? No-one is talking about political/philosophical issues with tax here, so I am struggling to understand.

 

[arbitron]

I honestly will never understand how PPR would not be considered an asset, or included in net worth

1. It's a very tax efficient way of building wealth
2. If you take a person with a net worth of 1m euro broken down by PPR 300k, savings 400k and pension 300k, are you really trying to say that they are somehow worse off than someone with a PPR of 800k and pension/savings of 200k?

The PPR can be sold, very tax efficiently, and downsized to free up wealth.

It's not a particularly liquid asset and if you have a mortgage then you have a concurrent liability. Worse again, you could be in negative equity.

You always need somewhere to live, so even if you realise the value of your PPR, you will automatically have a new cost/liability in the form of rent or a house purchase (although purchasing a new house could then be an asset).

In our household budgeting, we include the mortgage as a liability and we do not include our PPR as an asset.

 

[Dr Strangelove]

The PPR can be sold, very tax efficiently, and downsized to free up wealth.

In theory, yes.

I personally know exactly zero Irish people who have ever done this.

 

[Sarenco]

I personally know exactly zero Irish people who have ever done this.

Really?

I know at least a dozen folks that have downsized in recent years to release funds in retirement.

I would have thought it was pretty common, at least in our cities.

 

[Boyddbookman]

Out of curiosity, when did you make those purchases and how much leverage did you use?

I ask because I feel the appreciation in Irish house prices 1995-2005 was a unique event, and lenders are more reluctant to land against BTLs today than in the past.

While we "carried" 5 BTLs in later years, we regularly traded, upsized and downsized the BTL portfolio.... perhaps 12-13 transactions since 1995 in Ireland. The most we ever held at any one time was 9. We also bought, managed and sold residential units outside of Ireland during this time, but only 4 units.

 

[Boyddbookman]

How old are you?

56... and counting.

 

[Boyddbookman]

This thinking makes no sense, especially when you later say:



Gross pay is important when applying for a mortgage but otherwise I can't think of any other situations where it has made a difference in my life.

If I want/need to earn €100k to fund my lifestyle, does it matter if I am (A) on 0% income tax being paid €100k gross and receiving €100k net or (B) on 50% income tax on €200k gross and receiving €100k net? I am still getting the same amount of money to spend...?






Can you give a worked example of how earning, say, €100k PAYE would not make financial sense? And how would it be mainly for Revenue's benefit? No-one is talking about political/philosophical issues with tax here, so I am struggling to understand.

I could, but I won't.

As per the original request to which I responded, in my experience, 99.9% of people will not become wealthy from wihtin the PAYE system especially when considering the extortionate PAYE rates. That is the context of the point I made.