Thinking of leaving the rat race

bubonicus

Hi,

Not sure what i'm looking for here, some advice or just to be told i am mad and it will never work.

I am thinking of packing it all in a retiring to Spain, but I am only 32.

So this is what i was looking at.

I own a house in Ireland worth 380,000 euros, my mortgage on this is only 145,000. If I sell this house i will have 235,000 euros less fees+taxes. So lets say I have 220,000 left.

I also have a property in Spain left to me by my parents. The only charge here is local rates and electricity, say 3,000(max) euros a year.

Now i also have some other monies put away and savings say 30,000. let's call it a rainy day fund. Don't really want to touch this.

So my plan was to sell my house in Ireland, pay of the mortgage and live in Spain, Living of the interest of 6% on my 220,000. This rate was offered to me by my bank in Spain.

Now I've done spreadsheets for monthly expenses and I still clear 2-4000 euros a year. So all this looks to good to be true. And when something looks to good it usually is.

Can anybody see any pitfalls or personal experience at doing something like this?

Thanks for listening,
Bub.

is_that_so

Sounds like something we'd all love to do. My only thought is your age. What are you going to do for the next 40 odd years?

bubonicus

is_that_so wrote:

Sounds like something we'd all love to do. My only thought is your age. What are you going to do for the next 40 odd years?

do what i do on my day's off, NOTHING , play PC games, listen to music, swim in my pool, tend to the orange trees.

all the things we all love to do:) , work does not interest me one bit.

daveirl

This post has been deleted.

bubonicus

daveirl wrote:

This post has been deleted.

no, I only came up with this idea last week. How does that work so?

P.S. , I had a quick google, Spain's Inflation is about 3-3.5% per year at the moment, so what would be a realistic option then?

eclectichoney

basically it means that you can buy less for your €220k with every year that passes (technically every day - but i'm looking at it in rough terms!). With 3% inflation, it would mean your €220k would need to be €226,600 the following year to be able to buy the same 'basket of goods' - in other words €6,600 of your interest earned would actually be eaten up by inflation/price rises. By spending all the interest, your original principal will gradually be eaten up so that in 40 years €220k might only be worth around €70-100k in real terms (depending on the inflation rate over the period) Also don't forget that you may not be able to get 6% interest forever - it could go up or down, especially over the medium term.

bubonicus

eclectichoney wrote:

basically it means that you can buy less for your €220k with every year that passes (technically every day - but i'm looking at it in rough terms!). With 3% inflation, it would mean your €220k would need to be €226,600 the following year to be able to buy the same 'basket of goods' - in other words €6,600 of your interest earned would actually be eaten up by inflation/price rises. By spending all the interest, your original principal will gradually be eaten up so that in 40 years €220k might only be worth around €70-100k in real terms (depending on the inflation rate over the period) Also don't forget that you may not be able to get 6% interest forever - it could go up or down, especially over the medium term.

Sounds bad. So is there any other way of investing 220,000 to get bigger returns over a longer term, say 10-20-30 years?

And why would people bother investing like this if you return is nulled by inflation?

eclectichoney

There are alternative investments e.g. property and equities which typically give a better return over the longer run. For example you could invest in an index tracker and maybe get 7-8% a year over ten or fifteen years. People generally save in deposit accounts because of the security (i.e. the only risk to your initial sum is inflation, and a lot of people probably don't understand this risk - it's called money illusion)

bubonicus

eclectichoney wrote:

There are alternative investments e.g. property and equities which typically give a better return over the longer run. For example you could invest in an index tracker and maybe get 7-8% a year over ten or fifteen years. People generally save in deposit accounts because of the security (i.e. the only risk to your initial sum is inflation, and a lot of people probably don't understand this risk - it's called money illusion)

So if i invest in an index tracker , could I still take some of the interest every year to spend or is it locked. even 7-8% is not great with inflation 3.5+% percent.

Is the tracker tied to inflation?

eclectichoney

The rate with an index tracker would not be guaranteed - it depends on the performance of the stock markets. Some years it may go down, some years it may go up 20% - what I meant was, on average it would typically rise by 7%-ish per annum over the long term. Your principle would also be at risk e.g. the value of your investment may fall to €200k, and then recover to €230 and vice versa. You would need to look into professional advice really with a sum as large as you are talking about.

bubonicus

eclectichoney wrote:

The rate with an index tracker would not be guaranteed - it depends on the performance of the stock markets. Some years it may go down, some years it may go up 20% - what I meant was, on average it would typically rise by 7%-ish per annum over the long term. Your principle would also be at risk e.g. the value of your investment may fall to €200k, and then recover to €230 and vice versa. You would need to look into professional advice really with a sum as large as you are talking about.

Thanks, must talk to a broker i guess.

A Random Walk

Look up "Safe withdrawal rates" SWR on google.

This estimates how much of a lump sum you can safely withdraw each year without ever running the risk of it running out. Typically it's about 4%, including all fees.

You'd also need to have invested in an appropriate portfolio. Just leaving it in the bank barely keeps pace with inflation, you'll need to mix in equities.

If you can live on about 8k a year it may be possible, but I don't see how you could live on so little.

Afuera

A Random Walk wrote:

If you can live on about 8k a year it may be possible, but I don't see how you could live on so little.

He has no rent/mortgage since his parents left him a property in Spain. Wages are still very low over there (minimum wage would barely give you 600 or 700 per month) so it could be done, but obviously without too much splashing out.

WHIP IT!

Maybe I'm stating the all-too-obvious here... but, to negate the tight margins and the effects of inflation... Wouldn't it be easier and more sensible (and beneficial for you sanity) to just work a month here and there of the year...

A bit of general labour say on three individual months of the year? Keep the wolf from the door?

GUIGuy

A question do you speak Spanish? :-)
Another question, what happens if you meet a wonderful spanish girl and you decide to get married/have kids?
Another question, what happens when you get old an have medical expences?
Another question, what happens if you get bored of the easy life? Should you get off the horse its very difficult to get back on again!

Well these are big questions. I've thought about it too...

I'm, 33 have been working every hour God gives for the past 10 and I'm tired!
I've 2 Irish properties worth about 380k each (at the moment dunno for how long!!) about 60k in cash about the same in pension fund so far.

So if I sold one property to pay off the other and moved to Malaysia (fiancee from Sabah) I'd have about 150k euro in my pocket. On exchange rates alone that has buying power of about 700,000 Ringgit. My fiancee has land over there and you'd build a 5000sqft mansion with swimming pool for 500,000 Ringgit (I've been searching for property over there every time I've been over)

I'd still have one property renting here... giving us an income of circa 15k a year that would go up roughly in line with inflation.
That would give us a buying power of 70k a year over there (if no major euro devaluation) and a place to come back to if we decide to come back.
If I were to work 3 months a year as a contractor in Ireland I'd still keep my finger in... and not have to pay anywhere near as much tax as I'd
have to otherwise. I'd like to still have some work to do... I enjoy it and its a safety net.

Time to leave the oul' sod? :-)

fantasma

I moved here from San Francisco via London in 2002 (I left Ireland in 1996) and opened an English school. Maybe you could do the same. You would need cash to start off. You could also invest some time in doing some teaching qualifications. I would recommend a CELTA to start off. You can make a decent wage here teaching which should give you enough money to live off and pay bills etc:cool:

Mack£r

You should also consider making voluntary contributions to get the state pension at 65

See http://www.welfare.ie/topics/prsi/volcons.html

MrVostro

Dont forget there is tax to be paid on interest earned or from investment profits. I assume its like this in Spain too.
Remember when the lottery started here 1990 or thereabouts.
We all though if you won a jackpot of £250,000 we could buy a big house and retire without ever having to think about money again.
Fast forward to today and that £250,000 looks meager.

mcirl2

Why dont you invest your cash in rental real estate.

With 200k with a 20% downpayment you could buy for eg 5 units at 200k (maybe not in ireland but somewhere).

Then rent them out and you should come out with 3k-4k profit per unit per year (very conservative estimates). This profit would take into account vacancies, repairs and even property manegemnt (maybe).

The you've got 15-20k /year to live on and your assets should appreciate (long term anyway). For eg if you real estate appreciates 3% per year= 1000000*.03=30k. Also your tenants are paying the mortgage and increasing your equity. Therefore income should increase year to year.

There are no gaurantees with real estate but it's better than putting the money in the bank in my opinion.

Check http://forums.richdad.com its a site dedicated to financial freedom and passive income.

good luck

Mike

Muggy Dev

Dear O.P.,

I too am living in Spain and can offer you some insight and food for thought.

Firstly,you will need to be able to speak the language.It does´nt have to be pretty and you don´t need to be fluent but you will need to be able to be understood.The good news is that Spanish is quite easy to learn and with "Michel Thomas´s language C.D.s you should be "handy" in about 6 months.

You talk about a future without work or employment,well as beautiful as Spain is,you will still need a reason to get up in the mornings.Be forewarned though, average non-skilled labour pay rates are between 3 and 4 euros an hour.A trade,profession or skill is essential to earn even an average income.Owning a bar or a restaurant is a common fantasy amoung ex pats who move here.Invariably,this hard life turns to tears and financial ruin within a couple of years.

The good news is the cost of living.For every euro it cost me to live in Ireland it now cost me 40 cents.

Property prices here are heading south big time so investing now is not a good idea.Besides,it is inevitable that you will want the flexibilty to move to different locations within Spain during the span of your lifetime here.If you have 10K a year in your pocket to spend on rent you will quickly discover that you have real power.

As for managing your asssets,I would suggest that you talk to Davy´s or Goodbody´s regarding how to maximise your income,both present and future.They will tailor a scheme to your exact needs.

The Health system is excellent and access to it is immediate and for the most part,free.People don´t die on waiting lists here.

The weather is beautiful and the Spanish people warm to the Irish (especially if you attempt to speak their language) which is in stark contrast to the antagonism they (rightly) have for the British.Life is slower and more relaxed but like imigration to any country,it´s tough to get a foothold and the early years are very challanging.It is´nt for everyone. 80% of British expats return home within 2 years.Employment,finance,failure to learn the language and integrate or simply missing the folks back home are cited as the main reasons.

Hope the above is of some help.

TigerTim

Is this a wind up?????