Plan to retire early- am I crazy

D

dublinire

Registered User
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1
Age:
45
Spouse’s/Partner's age:
44

Annual gross income from employment or profession:
E130,000
Annual gross income spouse:
E65,000

Type of employment:
Both private sector employees

Expenditure pattern:
We are both generally 'savers'

Rough estimate of value of home
E650,000
Mortgage on home
E180,000
Mortgage provider:
AIB
Type of mortgage: Tracker, interest only, fixed rate
Fixed
Interest rate
2.14% fixed interest will finish in 2028.

Other borrowings – car loans/personal loans etc
None

Do you pay off your full credit card balance each month?
Yes

Savings and investments:
E50,000 savings in anpost 5 year bonds . E50,000 saving 2 years in raisin . This money reserve for kid education.
E22,000 for emergency fund, E15,000 credit union savings.

My take home salary E5,400 after tax
Spouse take home salary is E3600.

We save nearly E5,500 every month and year end pay the AVCs and claim tax.

Do you have a pension scheme?
Yes, i am max out my pension and 10% employer is putting.
My company pension fund is E280,000 i also have PRSI pension which worth E65,000

Spouse, Yes, max out her pension and 5% employer is putting
Spouse has company pension E80,000

Do you own any investment or other property?
Yes. 3 bedroom house in Dublin
current market value is E350,000 and mortgage free.

Ages of children:
One

Life insurance:
Yes. 3.5 times salary which employer is providing, E200,000 life insurance till the age of 55 for both.

Income protection
Yes, Employer is paying as part of package
we both have illness benefits

Other information which might be relevant :

Our investment property has no mortgage and it is rented to family . monthly rent is E1,920.
We both paying for illness benefits and life insurance till the age of 55 . Company is providing some share options for the last 3 years worth of E10,000 each year but only cash out after 4 years. Honestly i don't know how this work.

we try to spend money within a budget and it roughly E3,700 which include kid private school fee. E6,000 yearly for 2 short trips to abroad.

I started my work life in 2006 and spouse started her job from 2006. We are paying tax and prsi last 19 years. Not sure how many years we have to pay PRSI to get full pension.
What specific question do you have or what issues are of concern to you?

I am planning to retire at the age of 55 and spouse planning to take part time job from 55 (max 2 days in a week) . I am thinking yearly income of E36,000(todays money). I am not sure this money is enough for 2 people with quit life.

I am not sure how much pension pot is needed for this type of income from age of 55 onwards, i like to keep rented property so rental income can also consider for yearly targeted amount. we coming from different place and no idea whether it is achievable or am crazy. Please advice me what steps i have to take to reach this point at the age of 55 or this is not realistic .

Thanks.
 
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You will get more detailed responses from others, but I'd start by saying that I don't think you are at all crazy to be asking this now. 55 is certainly early to retire, but it is achievable. You have the advantage of a good combined income and from what you have told us you appear to be organised and disciplined where your finances are concerned. A lot may change for you in the next 10 years, but you should certainly continue to focus and work towards your goal. Most important point is probably to continue putting as much as possible into your pension (without compromising your quality of life too much) and monitor the performance of your pension regularly. Don't be afraid to get some good professional advice along the way.

Regarding the State pension, to get the maximum payment you will require 40 years contributions (that can be a mix of paid and credited contributions). The Contributory State Pension currently becomes payable at 66 (it can be deferred for up to four years). This means that for at least the period from 55-66 you will have to fund yourselves from your occupational pension/s and any part time work. Thereafter you will have to use your occupational pension to make up the difference between the state pension and your expenditure. The date at which you can draw down your occupational pension depends on the scheme rules.

You can apply for a copy of your Social Contributions record online from mywelfare.ie at any time and I suggest you both do this now and at regular intervals in the future to ensure that your contributions are in order.

Well done on getting yourselves to a good place, and best of luck planning for the future.
 
dublinire said:
What specific question do you have or what issues are of concern to you?

I am planning to retire at the age of 55 and spouse planning to take part time job from 55 (max 2 days in a week) . I am thinking yearly income of E36,000(todays money). I am not sure this money is enough for 2 people with quit life.

I am not sure how much pension pot is needed for this type of income from age of 55 onwards, i like to keep rented property so rental income can also consider for yearly targeted amount. we coming from different place and no idea whether it is achievable or am crazy. Please advice me what steps i have to take to reach this point at the age of 55 or this is not realistic .
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One thing that jumps out at me is a lack of investments apart from your pension and rental property. Most of your money is in likely low interest accounts barely beating inflation. You are planning for a thirty year retirement so you might want to consider moving some of those savings into the market to generate a return to fund your retirement.

Regarding the pension, is your fund still the default lifestyle pension meaning you will move into bonds the closer you get to retirement? If so, are you sure this what you want?

Here is one way to set yourself up for early retirement:-

Bucket 1: Two years or 72k in cash in easily accessed accounts, hopefully earning some interest to protect your money against inflation. 36k is your yearly living expenses while the remaining 36k is your peace of mind money for emergencies that let you sleep better at night.

Bucket 2: Even the worst market crashes tend not to last more than five years so the target is three to five years of living expenses outside the market. These are generally bonds and dividends but the OP has an income of 23k per year from the rental property. There's taxes to pay on the rental income, property tax, repair work so we'll be conservative and assume 10k net per year rental income, leaving 26k shortfall per year for three years, giving a target of 78k in bonds. This is your emergency-emergency fund to draw upon. It's not as liquid as bucket 1 cash but it's accessible in a few days and it's paying you an income. You can further reduce the 78k in bonds once you receive the state pension.

So that's five years of living expenses. The next five years should be in stocks or 180k worth net of taxes.

Bucket 3: Everything else. Long term stocks. 100%.

The way this system works is every quarter or every year, whatever are you comfortable with, you review your stocks. If the market has increased more than inflation, you refill your daily living expenses in bucket 1 by selling stocks. If the market is down you have options: sell the bonds or do nothing and live on your cash reserves until the market increases then rebalance by selling stocks.

Note you have between five to seven years of living expenses in cash and low risk bonds for peace of mind and emergencies while your investments generate an additional income.

With your income, I would treat the penions as bucket 3 and not drawdown until age 65 or 67 to allow the tax free compounding of your investments to grow as much as possible. The only thing you are really missing is the stock allocation and you have ten years to build up that position and pay down the mortgage .

The Pension Countil suggests 43k for a couple for a comfortable retirement. I would push that 36k to 43k to be honest esp as you both like to travel.
 
Ask your employer about deducting AVC’s monthly via payroll. It’s better to dollar cost average into a pension than save cash over 12 months before paying in a lump sum - you’re missing out on potentially significant growth.

Generally speaking, your investment property offers you fixed income and diversification, so your pensions should be 100% in world equities - you don’t need bond exposure.

Agree with others above that 36k might be a bit tight for a couple to live on. Taking the pension council’s 43k suggestion, and assuming you’ll get 28/40 of state pension (10k or so) while your partner gets the full amount of 15k from age 67 plus your rental income less costs of about 30k (conservative figure), to retire at 55 I'd personally be aiming for a pension pot of… less than you currently have… you’ll have plenty at age 55 once your PPR mortgage is clear and assuming you continue paying AVC’s (you could probably even stop doing so, although I would not recommend you do that).

Tbh, the main thing I would consider right now is whether that 36k number you have in mind really is sufficient.
 
conor_mc said:
and assuming you’ll get 28/40 of state pension (10k or so) while your partner gets the full amount of 15k from age 67
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66?

Applying for the State Pension (Contributory)

From 1 January 2025, if you apply for the State Pension (Contributory), there is a new way of calculating your rate of payment.
www.citizensinformation.ie www.citizensinformation.ie
You can get the State Pension (Contributory) from the age of 66 if you have enough social insurance (PRSI) contributions.
Click to expand...
 
I was in a similar position to yourself and succeeded to quit employment at 55, and so far it's been a good decision (a few years ago). I hope I could give a few reflections on that, some random thoughts:
  • My goal from earlier in life was subtly different, not simply "retire at 55", but "put myself in a position by 55 where I could cease full-time employment if I chose to do so". Circumstances change. I first delayed my plans when Covid hit (investments were impacted), then moved ahead with my plan as covid receded, only for Russia to invade Ukraine a short time later (investments again impacted)... what this showed me is that you need to have a large buffer in your savings and investments.
  • Therefore I fully concur with TheObserver's advice about Buckets of investments. This matches what I have, and what my financial advisor recommends.
  • I transitioned first to part-time work for a few years, which worked out very well for myself and my employer, I probably achieved as much in 3 days plus some email time, as in 5 days, and the employer had reduced costs. It also allowed me to have more free time but still get a guaranteed income.
  • You are financially very stable now, and if all goes well this will continue for next 10 years. But life can bring unexpected health issues, family issues, etc. As you get closer to your planned retirement age, you need to do modelling of the burndown of your investments (my FA did this so I cannot recommend specific software. If you have good IT/programming knowledge or strong excel skills you'd be able to make rough predictions, but software that models based on ranges of better/worse scenarios is worthwhile IMO). I can say from experience that it is a shock how fast money goes out when you have no income coming in.
  • It's worth engaging an FA to guide you, if you can find a good one whose financial advice principles are in line with your goals and isn't just after commissions. (There's a book I want to recommend but I can't find it now. Will post the title in a few days. Look for a FA whose advice matches the book's advice if it makes sense to you).
  • How do you visualize your "retirement years" and what level of lifestyle you need to accumulate for, especially during the period 55-70+ when you will be hopefully healthy and still very active.
  • You need a goal in life in retirement, especially if you retire at 55. I ended up setting up a small part-time enterprise of my own. It's not about the money. It's about keeping your brain active (keep dementia at bay for one thing). 10 years away for you, but keep it in mind.
  • Your 1-year old child is a wild-card. Great you are saving for education, but it's completely unpredictable how long they will be your dependent, what costs will be in 20 years from now. If they go to univ, count with 4 year bachelors, 1-2 year masters, and after that, who knows. Will they need support with their rent for many years after graduation (by today's standards, count on it).
 
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On the surface you look to be in a very enviable position financially. very well done on that.

Here are a few thoughts. I took the leap last November aged 56 to early retire. Was over 25 years with the one corporate and had my fill with all the BS that comes with that and the bloody mad Dublin traffic. I would say from your overview that I was not in half the good position as you. I did go to a professional financial adviser. (the more effort you put into these meetings the more you get out) He say based I the info I gave i was financially independent and could do it. (I drive a 2014 car and live in a 3 bedroom house in North Dublin and have 2 kids and a wife) This was all the encouragement I needed and took the jump.

Best decision ever. dont know where I ever found time to work!! Cant believe it is March already. Not setting the alarm on a Sunday is great!! multiply this by a thousand the night before going back after the xmas break. have gone from €125 per week on petrol to €50 every 2 weeks.

from you figures as above I would look at moving some of your money into funds investments with the 60/40 split. try and get some passive income coming in from these. again a good financial planner can advise.


you can check your prsi contributions here

Contribution Statement

<p>Request a statement of your history and record of contributions paid</p>
services.mywelfare.ie services.mywelfare.ie
 
theObserver said:
Here is one way to set yourself up for early retirement:-

Bucket 1: Two years or 72k in cash in easily accessed accounts, hopefully earning some interest to protect your money against inflation. 36k is your yearly living expenses while the remaining 36k is your peace of mind money for emergencies that let you sleep better at night.

Bucket 2: Even the worst market crashes tend not to last more than five years so the target is three to five years of living expenses outside the market. These are generally bonds and dividends but the OP has an income of 23k per year from the rental property. There's taxes to pay on the rental income, property tax, repair work so we'll be conservative and assume 10k net per year rental income, leaving 26k shortfall per year for three years, giving a target of 78k in bonds. This is your emergency-emergency fund to draw upon. It's not as liquid as bucket 1 cash but it's accessible in a few days and it's paying you an income. You can further reduce the 78k in bonds once you receive the state pension.

So that's five years of living expenses. The next five years should be in stocks or 180k worth net of taxes.

Bucket 3: Everything else. Long term stocks. 100%.
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There is complexity to consider with the bucket strategy. This guy describes it well.
 
nest egg said:
There is complexity to consider with the bucket strategy. This guy describes it well.
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I've watched a lot of Robs videos but, while I agree two vs three buckets are different systems, Rob isn't living in a financial backward country like Ireland where the only tax efficent accounts is our pension account. It is the presence of a pension account that drives three buckets rather than a two or a 60/40 system. Once the pension is drawn down, I agree a two bucket or a 60/40 strategy makes more sense.

I wrote more on the bucket strategy (mostly based on Rob video) here: https://www.askaboutmoney.com/threads/thoughts-on-the-three-bucket-strategy.236445/
 
anyone thinking about it should check out the book called How to Have an Epic Retirement by Bec Wilson. She is Australian so of course would focus on the Australian system. In saying that a good chunk of the advice is relatable here. She has a FB group also which a huge amount of Irish/english and americans get involved in.
 
They might be a gateway. Hear about something like FIRE or a guru via mainstream or social media and them head off to design your own version of things.
 
Be interesting to hear about those that retired early a decade ago, how are they doing now?
I doubt they factored in the big inflation we have had since covid, prices of everything are radically different today than a decade ago, nobody foresaw the big upsurge in inflation, they were still talking about deflation back then and need for negative interest rates. Probably their investment funds were overweight in bonds which was the prevailing investment theme back then, a bad investment for the inflation environment that subsequently happened
 
joe sod said:
I doubt they factored in the big inflation we have had since covid, prices of everything are radically different today than a decade ago
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Pretty much everything has outpaced inflation over the period.

Wages (if they’re on a public sector pension)
Rents
House prices
Stock market

The only people struggling would be those with their pension in cash, which is frankly kinda insane with any sort of time horizon.
 
jim said:
Sounds like rebalancing > buckets
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Can’t speak for others but that’s not the point that I’m making and I wouldn’t intend anyone to get the wrong end of the stick.

In the OP’s case, they have significant fixed income from their investment property that covers 40-60% of their income needs. They do not need bond exposure as well as rental income, so their pensions should be 100% in a passive world equity fund.

Even if they only had pension assets for retirement, I’m sorta on the fence about rebalancing versus bucket strategy where a couple has 2x COAP…. again, that’s ~50% of your needs in inflation adjusted fixed income so not much need for bonds. Retiring early and bridging to the COAP and/or retiring when equities are very expensive are probably the only situations where I think a bond/equities split is really necessary, and even then I would recommend a reverse glide path, ie have bond exposure to mitigate sequence of returns risk early in retirement, then gradually over ~10 years increase equity exposure back up to 100%. I think people underestimate the risk of running short on money due to insufficient equity exposure over the retirement timeframe. I blame the pensions industry and their “lifestyle” de-risking during the late accumulation phase.
 
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