Capital sum required to retire

makeorbrake

As per the thread title, what size of capital sum amount would be required to finance ones self going forward?

I know there's a subjective element but if we assume the person to be 45, no other pension, property or equity, what sum would be needed to finance the average wage..

jon1981

makeorbrake wrote: »

As per the thread title, what size of capital sum amount would be required to finance ones self going forward?

I know there's a subjective element but if we assume the person to be 45, no other pension, property or equity, what sum would be needed to finance the average wage..

Too subjective to answer. By the age of 45 each individual would have established a different standard of living. What you require may be 2x what i require due to our personal circumstances.

I guess if you can rule out mortgages (assuming you own a home), children ( assume they are self sufficient) ...etc. that would level the playing field when doing such analysis.

makeorbrake

Ok, maybe I should come at the question in a different way. What capital sum would I need to finance 60k a year (adjusted for inflation year on year)?

Stheno

makeorbrake wrote: »

Ok, maybe I should come at the question in a different way. What capital sum would I need to finance 60k a year (adjusted for inflation year on year)?

All of the pension providers have calculated that will tell you this

Just Google pension calculator

irish_investr

shot in the dark: 1.5 million

Cute Hoor

makeorbrake wrote: »

As per the thread title, what size of capital sum amount would be required to finance ones self going forward?

I know there's a subjective element but if we assume the person to be 45, no other pension, property or equity, what sum would be needed to finance the average wage..

All depends I guess on how long you plan to live, if you are going to die before retirement age you will need nothing, if you are going to live a year after retirement 50k should suffice, if you are going to live to 100 (assuming retirement age of 65) then you will probably need 50k x 35.

judeboy101

No mortgage or dependants and you could live like a king on 20k a year.

H.E. Pennypacker

Here's some food for thought:

http://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/

Like him or loathe him, what he talks about in his blog is an interesting concept in terms of retirement and the cost of one's lifestyle.

Another one to look at is a book called The Millionaire next Door by Thomas J Stanley.

While both of the above look at the issue in a U.S. context, there'a a central theme that might be worth pondering when you look at your 60k a year.

BrokenArrows

1.5 mill would give you 60k per year for 25 years without investment.

If you invest 1.5mill and get 4% per year invested it will give you 60k

4% is achievable.

cooperguy

https://www.pensionplanetinteractive.ie/prophet/ will be able to tell you what a lumpsum would generate in annual income

makeorbrake

Thanks all for the input to date. I'm working on the basis of a capital sum of 1.2million (as it stands right now...perhaps that may increase). Just as further background, I intend to 'retire' to a low cost country where the cost of living is a fraction of the cost of living here.

Thanks to those that suggested the pension calculators. However, they don't seem to be set up for my purposes - to allow me to get an accurate output from them.

I also have been paying in to a pension since 2003 - with 9% AVC's. However, if the projected figure that I see in the summary report I get each year is anything to go by, its worth diddly squat. Should I just leave this be or cash it out if I move away....??

I have a mortgage which is manageable (repayments of 400/month). There's no equity in the property - albeit its not in negative equity either. It's secured on the cheapest money I will ever see in my lifetime (ecb + 0.52% tracker) so on that basis, I'll probably hold on to it. It should wash its face if I were to move away and rent it out (probably could get family to 'manage' it whilst I'm gone).

BrokenArrows wrote:

1.5 mill would give you 60k per year for 25 years without investment.
If you invest 1.5mill and get 4% per year invested it will give you 60k
4% is achievable.

Don't mean to sound thick - but if I understand you correctly, that amount would give me 60k for 25 years if I just left the funds in the bank. You mentioned investing it - and more or less being assured of 4% return. So this will result in me getting 60k pa for how many years?

Peregrinus

Age 45 is very young to retire.

If you’re Irish, and male, and aged 46 next birthday, average life expectancy is another 35 years - i.e. on average you can expect to die in your eightieth year. (If you’re female, it’s another 38 years.) But if you’re saving for retirement, you can’t afford to plan on the basis of the average life expectancy; that gives you a 50% chance of running out of money while still alive, which is the very risk you’re trying to avoid. If you do make it to eighty, then based on standard life tables you now have another 8 years of life expectancy; if you make it to 88, you now have another 4 years of life expectancy, and so on. So you need to save to provide an income not for as long as you are likely to live, on average, but for as long as you might live, which is quite an age, and getting older all the time. If you want to retire at age 45, I’d suggest you want to be thinking of funding at least a 50-year retirement.

It helps enormously if you can be flexible in drawing on your retirement savings. People will model this on the assumption of, say, average investment return of 4%, and they calculate that if you draw 4% of your retirement fund each year this will be offset by investment growth, so the (nominal) amount of your retirement fund will remain steady.

This is a mistake. In the real world 4% might be a reasonable long-term average investment return to hope for, but returns in any year could be much higher or much lower. If in a particular year your investment return is 0% but you draw 4% anyway, your fund is now depleted to 96% of its previous value, and the long term investment return you should now be modelling is not 4% of what you originally put in, but 4% of 96% of that. A couple of years of negative investment returns, with you still drawing the same fixed income every year, will make a huge difference to the date on which your retirement savings are going to run out. And “a couple of years of negative investment returns” is something that is likely to occur more than once during your fifty-year retirement.

So your chances of managing this successfully are hugely increased if you’re in a position to be flexible, and live off a significantly reduced income for a couple of years if you have to. That, of course, depends on your circumstances. The more you have fixed obligations (like a mortgage) the harder this is.

If wild swings in income would be a problem for you, then you minimise the problem by investing in assets that generate stable, predictable income - e.g. government bonds and fixed income securities rather than shares, shares in banks and large industrials rather than cutting edge venture capital, etc. But there’s always a trade-off between risk and return; by investing in less volatile assets you tend to get a more stable, but lower, return.

The other thing, of course, is that you want your income to maintain its real value. If you start off on an income of 60k at the age of 45, and are still living on an income of 60k at 85, I can guarantee that you will be living in poverty. (Just consider the position of anyone who is trying to live now on the amount they earned in 1977.) What matters here is not the nominal investment return that your savings earn, but the real investment return - the amount by which the rate of investment return exceeds the rate of inflation. So if inflation is 4%, and your nominal investment return is 7%, your real investment return is 3%.

So, cutting through all that, you want to invest your money in a diversified portfolio of assets that is heavily weighted toward assets which generate a stable return. And you want to draw down on your money at a rate which does not exceed, or does not exceed by much, the real rate of investment return.

Within these constraints, a real rate of investment return of 2% is realistic to aspire to. So if you want to generate an income of 60k which will rise in future years to maintain its real value, and you want that income stream to continue indefinitely, you would want about 3 million. Of course, you don’t want that income stream to continue indefinitely. If you’re happy to bet that you won’t live beyond 95, then you want it to continue for 50 years. By my back-of-the-envelope calculations you’d want about 1.9 million. But note that nobody can guarantee that you will get a long-term real return of 2%; you may not. And, even if you do, you still face the issue than in particular years where your real return is less than 2% you may need to reduce your income.

KellyXX

makeorbrake wrote: »

Thanks all for the input to date. I'm working on the basis of a capital sum of 1.2million (as it stands right now...perhaps that may increase). Just as further background, I intend to 'retire' to a low cost country where the cost of living is a fraction of the cost of living here.

Thanks to those that suggested the pension calculators. However, they don't seem to be set up for my purposes - to allow me to get an accurate output from them.

I also have been paying in to a pension since 2003 - with 9% AVC's. However, if the projected figure that I see in the summary report I get each year is anything to go by, its worth diddly squat. Should I just leave this be or cash it out if I move away....??

I have a mortgage which is manageable (repayments of 400/month). There's no equity in the property - albeit its not in negative equity either. It's secured on the cheapest money I will ever see in my lifetime (ecb + 0.52% tracker) so on that basis, I'll probably hold on to it. It should wash its face if I were to move away and rent it out (probably could get family to 'manage' it whilst I'm gone).


Don't mean to sound thick - but if I understand you correctly, that amount would give me 60k for 25 years if I just left the funds in the bank. You mentioned investing it - and more or less being assured of 4% return. So this will result in me getting 60k pa for how many years?

My parents retired at 48 and 50 to live in Malaga almost 5 years ago now. Very handy holidaying for me

They budgeted that they would need 40k per year to be comfortable when they started out. I thought they were mad.
My dad told me last month that they are living on 20k a year easily.
And I can tell you they are living like lords on that 20k. Definitely wouldn't be able to do it in Ireland though.

650Ginge

Peregrinus wrote: »

Age 45 is very young to retire.

If you’re Irish, and male, and aged 46 next birthday, average life expectancy is another 35 years - i.e. on average you can expect to die in your eightieth year. (If you’re female, it’s another 38 years.) But if you’re saving for retirement, you can’t afford to plan on the basis of the average life expectancy; that gives you a 50% chance of running out of money while still alive, which is the very risk you’re trying to avoid. If you do make it to eighty, then based on standard life tables you now have another 8 years of life expectancy; if you make it to 88, you now have another 4 years of life expectancy, and so on. So you need to save to provide an income not for as long as you are likely to live, on average, but for as long as you might live, which is quite an age, and getting older all the time. If you want to retire at age 45, I’d suggest you want to be thinking of funding at least a 50-year retirement.

It helps enormously if you can be flexible in drawing on your retirement savings. People will model this on the assumption of, say, average investment return of 4%, and they calculate that if you draw 4% of your retirement fund each year this will be offset by investment growth, so the (nominal) amount of your retirement fund will remain steady.

This is a mistake. In the real world 4% might be a reasonable long-term average investment return to hope for, but returns in any year could be much higher or much lower. If in a particular year your investment return is 0% but you draw 4% anyway, your fund is now depleted to 96% of its previous value, and the long term investment return you should now be modelling is not 4% of what you originally put in, but 4% of 96% of that. A couple of years of negative investment returns, with you still drawing the same fixed income every year, will make a huge difference to the date on which your retirement savings are going to run out. And “a couple of years of negative investment returns” is something that is likely to occur more than once during your fifty-year retirement.

So your chances of managing this successfully are hugely increased if you’re in a position to be flexible, and live off a significantly reduced income for a couple of years if you have to. That, of course, depends on your circumstances. The more you have fixed obligations (like a mortgage) the harder this is.

If wild swings in income would be a problem for you, then you minimise the problem by investing in assets that generate stable, predictable income - e.g. government bonds and fixed income securities rather than shares, shares in banks and large industrials rather than cutting edge venture capital, etc. But there’s always a trade-off between risk and return; by investing in less volatile assets you tend to get a more stable, but lower, return.

The other thing, of course, is that you want your income to maintain its real value. If you start off on an income of 60k at the age of 45, and are still living on an income of 60k at 85, I can guarantee that you will be living in poverty. (Just consider the position of anyone who is trying to live now on the amount they earned in 1977.) What matters here is not the nominal investment return that your savings earn, but the real investment return - the amount by which the rate of investment return exceeds the rate of inflation. So if inflation is 4%, and your nominal investment return is 7%, your real investment return is 3%.

So, cutting through all that, you want to invest your money in a diversified portfolio of assets that is heavily weighted toward assets which generate a stable return. And you want to draw down on your money at a rate which does not exceed, or does not exceed by much, the real rate of investment return.

Within these constraints, a real rate of investment return of 2% is realistic to aspire to. So if you want to generate an income of 60k which will rise in future years to maintain its real value, and you want that income stream to continue indefinitely, you would want about 3 million. Of course, you don’t want that income stream to continue indefinitely. If you’re happy to bet that you won’t live beyond 95, then you want it to continue for 50 years. By my back-of-the-envelope calculations you’d want about 1.9 million. But note that nobody can guarantee that you will get a long-term real return of 2%; you may not. And, even if you do, you still face the issue than in particular years where your real return is less than 2% you may need to reduce your income.

There is a certain amount of pessimism in your view. The need to be flexible and consider inflation are important.

OP there's numerous studies on the 4% rule. Have a look see what conclusion you come to.

The S&P500 seems to have an after inflation and dividend adjusted return of 7.6%. It's up over 20% without dividends this year too.

True the sequence of returns will play a big part in how it works out but if you get passed the first few years without having to sell assets at recession prices then the chances of success are pretty good.

One way to ensure you don't have to sell at low prices is to have a cash buffer. You get to use that cash buffer to find spending instead of selling assets. Just sell assets when they are ahead and cash when they are not. Or a balance of the two. Replace the cash to the buffer when assets are up.

Something else to consider and the parents in malaga post perhaps eludes to it somewhat...you spend less money as you get older.....67 years olds on average have a lowering spending need than 47 year olds. I think it's called the Ty Bernicke's Reality Retirement Plan you spend 2% less on average from 55 to 75.

You can try playing around with firecalc.com for a look at how you would have done in the past.

Squozen

Multiply your annual expenses by 25 and you should have the value you need to be financially independent. Make sure your investments always return you more than this and you never need to work again (although nothing's stopping you from working for fun instead of necessity).

So this will result in me getting 60k pa for how many years?

FOREVER. The joy of compound interest.

But €60k is a ridiculously large amount of money for somebody with no mortgage. Much safer to budget for living on €20-30k for a few years in a cheap country (which is still pretty extravagant), let the money accumulate and reevaluate.

650Ginge

Life expectancy figures as used by actuaries are very biased and usually wrong for every individual.

In 1950 the America life expectancy table give a life expectancy to people born that year of 55.....so on average they would be dead by 2005.....most of them are still alive in 2017. With such long time lines accuracy is improbable.

But a question i have asked and never got any answers to is for everyone born in any given year say 1950 how many are still alive now. You would think that data exists. I cant find it.

KellyXX

And when you retire you probably don't have the expenses of mortgage and all your other work related expense you have now.
That's a huge sum of you work.it out in yearly expense that you won't have anymore.

Peregrinus

650Ginge wrote: »

There is a certain amount of pessimism in your view. The need to be flexible and consider inflation are important.

OP there's numerous studies on the 4% rule. Have a look see what conclusion you come to.

The S&P500 seems to have an after inflation and dividend adjusted return of 7.6%. It's up over 20% without dividends this year too.

True the sequence of returns will play a big part in how it works out but if you get passed the first few years without having to sell assets at recession prices then the chances of success are pretty good.

One way to ensure you don't have to sell at low prices is to have a cash buffer. You get to use that cash buffer to find spending instead of selling assets. Just sell assets when they are ahead and cash when they are not. Or a balance of the two. Replace the cash to the buffer when assets are up.

Something else to consider and the parents in malaga post perhaps eludes to it somewhat...you spend less money as you get older.....67 years olds on average have a lowering spending need than 47 year olds. I think it's called the Ty Bernicke's Reality Retirement Plan you spend 2% less on average from 55 to 75.

You can try playing around with firecalc.com for a look at how you would have done in the past.

The long-term real return on US equities is 6%, but if your investing a portfolio for this purpose you certainly would not be advised to invest 100% in equities - too volatile, which is a problem for reasons already pointed out. The long term real return on US bonds is 2%, so if you have a 50/50 portfolio you'd be looking at 4%.

But of course unless you happen to be retiring to US dollarland, you wouldn't invest exclusively, or even largely, in US shares and bonds - you'd be taking an entirely unnecessary exchange rate risk. So you need to be looking at long term returns in the markets in which its appropriate for you to invest, given where you will be retiring to.

And you rather glibly say that "if you get past the first few years without having to sell assets at recession prices then the chances of success are pretty good". Yes, they are. But you have no reason to assume that you will get past the first few years without having to sell assets at reduced prices. If you could successfully predict market downturn, you wouldn't have to be worrying about how to fund your retirement. So your retirement strategy needs to be robust; it needs to work even if there's a sustained market downturn in the years immediately after you retire. Probably you need to hold a couple of years' worth of your income requirements in cash, which of course will further reduce your expected return on your portfolio.

The bottom line, I think, is that if somebody is serious about doing this they need to sit down with a good investment adviser, discuss their objectives and their attitude to risk, and then look at the portfolio that's appropriate for them and then make a realistic estimate of the real returns that portfolio is likely to generate. Then they should model the income they can prudently draw from that, and stress-test how they will fare should conditions turn adverse - which, at some points in a 50-year retirement period, conditions certainly will.

650Ginge

Peregrinus wrote: »

The long-term real return on US equities is 6%, but if your investing a portfolio for this purpose you certainly would not be advised to invest 100% in equities - too volatile, which is a problem for reasons already pointed out. The long term real return on US bonds is 2%, so if you have a 50/50 portfolio you'd be looking at 4%.

But of course unless you happen to be retiring to US dollarland, you wouldn't invest exclusively, or even largely, in US shares and bonds - you'd be taking an entirely unnecessary exchange rate risk. So you need to be looking at long term returns in the markets in which its appropriate for you to invest, given where you will be retiring to.

And you rather glibly say that "if you get past the first few years without having to sell assets at recession prices then the chances of success are pretty good". Yes, they are. But you have no reason to assume that you will get past the first few years without having to sell assets at reduced prices. If you could successfully predict market downturn, you wouldn't have to be worrying about how to fund your retirement. So your retirement strategy needs to be robust; it needs to work even if there's a sustained market downturn in the years immediately after you retire. Probably you need to hold a couple of years' worth of your income requirements in cash, which of course will further reduce your expected return on your portfolio.

The bottom line, I think, is that if somebody is serious about doing this they need to sit down with a good investment adviser, discuss their objectives and their attitude to risk, and then look at the portfolio that's appropriate for them and then make a realistic estimate of the real returns that portfolio is likely to generate. Then they should model the income they can prudently draw from that, and stress-test how they will fare should conditions turn adverse - which, at some points in a 50-year retirement period, conditions certainly will.

I had to look up 'glibly'.

I am not an expert or either do I have a crystal ball. You seem to be more informed than the majority. To be honest you could be right with 6% or you could be wrong, Warren Buffet reckons 7% over a long term period. I am sure you, Peregrinus, appreciate that little old 1% difference is absolutely huge over what could be a 50 year time frame. 6% would turn 1 million into 18 mil and 7% would turn it into 29mil. Or drawing down 63500pa v 72500pa.

As for the buffer cash reducing the returns, yes it will and over a 50 year window the difference if everything else was equal would be huge. But just for clarity and using simple rounded none specific example assuming the 4% rule of 40k needing a million euro. Having 40k in cash would reduce the return from say 6% to 5.76%, admittedly that will get much bigger over time. But it is better than selling out on a 25%-40% drop every 10 years or so, over a 50 year timeline that will get very expensive indeed. I still think that having a cash buffer to ride out the next recession without selling is a good plan, should you maintain the cash buffer after that point I don't know, I would probably do it, but it will cost me in the longer term probably. But you have enough and you can reduce the stress caused by market volatility then maybe it is worth it.

Does such a thing a good independent financial advisor exist, theres very few independent ones around. Most work of commission. The true fee paid ones are like hens teeth and like anyone is subject to their own biased, albeit maybe more experienced view of the world.

I would suggest anyone doing this (early retirement) firstly doesn't listen to anything said on boards but merely uses that as a kick-starter to do you own research. Become a financial advisor but skip all the dumb exams and titles. Then go see a financial advisor when you decipher the rubbish that most of them will be talking.

650Ginge

There is large community of people both seeking and having succeeded in achieving FIRE. Financial Independence Early Retire, it can and is being done by mostly ordinary people, it sure takes a different mindset. But it can be done.

Some one linked MrMoneyMustache in an earlier post, but there are lots of others too.

I like this post showing how one ordinary person did it in 10 years, showing ordinary income and real returns...

http://rootofgood.com/zero-to-millionaire-ten-years/

or these guys....

http://ourtour.co.uk/home/

There is loads of people out there doing it. One thing that comes through clearly as common to them all is that it is about keeping it simple, nothing complex, no get rich quick schemes, no ferraris and champagne, just hard work and perseverance.

Peregrinus

650Ginge wrote: »

Life expectancy figures as used by actuaries are very biased and usually wrong for every individual.

Life expectancies are averages and, like all averages, they are very useful when you're looking at large groups, but practically useless when looking at individuals. Nearly every individual will die either before or after the date that would be suggested by his life expectnancy; relatively few die on or near that date. That's how averages work.

And, yes, life expectancy figures are calculated from death records. You don't know how long anybody's life is until he dies. The result is that the life expectancy figures we have now reflect the lifetime impact of the medical, dietary, environmental etc experiences of people who have already died, most of whom were born many decades ago. Somebody born today, or born recently, will have different medical, dietary, environmental etc experiences. We hope that they will give him a longer life expectancy than we would calculate by looking at the age his grandparents, great-grandparents etc lived to and, for the past couple of centuries, life expectancies have steadily advanced. But, actually, it's not inevitable that this will continue.

650Ginge wrote: »

But a question i have asked and never got any answers to is for everyone born in any given year say 1950 how many are still alive now. You would think that data exists. I cant find it.

We can estimate this (based on life expectancies!) but it's extremely hard to calculate by measurement. Birth and death records aren't linked - if I get the birth certificate of a person born in 1950, it will not show whether he is still alive or not. So it would be a huge exercise to search through the death records looking for a death certificate for each person for whom a 1950 birth certificate exists. And, even if I identify all the people born in 1950 for whom no death certificate exists, it doesn't follow that they are all still alive. They could have died in another country, for example. Or they could have changed their name (e.g. on marriage) between birth and death, and it may be that a death certificate exists but I have simply failed to match it up.

Cute Hoor

650Ginge wrote: »

I like this post showing how one ordinary person did it in 10 years, showing ordinary income and real returns...

http://rootofgood.com/zero-to-millionaire-ten-years/

Two very interesting reads.
These guys had a reasonable start to their 10 years in that they owned a rental condo that they sold and invested the proceeds, that gives you a nice start. It seems to me that they were extremely frugal in their 10 year mission, 1 holiday to Argentina that they got free flights for and didn't bring the kids (presumably to save money). With such frugality over the 10 years, how easy will it be for them to start spending freely and enjoying the fruits of their wealth, a second blog in 10 years would be interesting, I'd suspect that rather than dwindling their fund will have more than doubled in that period, it's difficult to change the mindset.

They succeeded in eliminating their taxes, ending up with a tax credit in one year, how could they do that and if every lad was at it who'd pay the taxes, the littler people. Here, even with using all the tax avoidance measures available to you, you would still have to pay USC and PRSI, even using tax avoidance measures to avoid the 20% tax element probably wouldn't make economic sense.

Viscount Aggro

I discovered the FIRE concept back in 2012.
Was always frugal with money, but this put my savings rate onto another level.
The goal was always to retire early, at least by age 50.

My experience has been, dont tell friends and family what you are doing, it will end badly - they wont understand and will attack you.
Focus on your savings rate, forget the investing side, until you have your frugal muscle developed.
For the honours students, read Early Retirement Extreme, by Fisker - the website of the book. He retired at 27, by saving hard for 5 years.

Since JAN this year, I have been at 100% savings rate each month. Yes, I have enough passive income to support this.
It also helps that I know what I am doing, in terms of asset allocation, and tax and trading expenses.
I think in 2013 I squirrelled away a ton - combination of savings, market gains and dividends, bond interest.
As a rough guide, you need 25 times your annual living expenses.

The difference between 50 or 60% savings rate is 5 years more chained to a desk.

So, yes its hard to achieve FIRE in Ireland, but it is possible.

Austria!

BrokenArrows wrote: »

1.5 mill would give you 60k per year for 25 years without investment.

If you invest 1.5mill and get 4% per year invested it will give you 60k

4% is achievable.

Yeah, but what's left after taxes?

Squozen

Austria! wrote: »

Yeah, but what's left after taxes?

You can’t live on €60k before taxes with no mortgage??

Austria!

That depends on what's left after taxes? I assume it's just regular income tax you'd pay?

Squozen

Austria! wrote: »

That depends on what's left after taxes? I assume it's just regular income tax you'd pay?

Well, yes. It’s income so you pay regular income tax.

Peregrinus

Squozen wrote: »

Well, yes. It’s income so you pay regular income tax.

Not necessarily. The return on your investments will come as a mix of income and capital gains so you'd pay income tax on some of it and CGT on the rest. You might in fact select your investments with a view to maximising the tax efficiency of the return stream (though, personally, I would counsel caution; it's generally dangerous to let tax considerations distort investment decisions).

KellyXX

The way I look at it,.in your 30s ton50s or thereabouts you have a mortgage. You also have costs of getting to work and costs of putting money into a pension.
So let's say you take home 4k after tax and spend 2k on these costs.
That means when you retire you should hopefully have no mortgage and no longer have to pay to provide a pension.
So you should need enough to cover only 2k a month in retirement.

A lot of people I speak to think that what it costs them to live today will be the same costs in retirement. Not true at all.

Peregrinus

KellyXX wrote: »

The way I look at it,.in your 30s ton50s or thereabouts you have a mortgage. You also have costs of getting to work and costs of putting money into a pension.
So let's say you take home 4k after tax and spend 2k on these costs.
That means when you retire you should hopefully have no mortgage and no longer have to pay to provide a pension.
So you should need enough to cover only 2k a month in retirement.

A lot of people I speak to think that what it costs them to live today will be the same costs in retirement. Not true at all.

This is correct. Although of course at a later stage of retirement costs may rise again, if you need e.g. to buy in home care or to move to a supported environment.

Also it's relevant to remember that things like paying off the mortgage and getting your feckless adult children out of the house and into careers of their own are independent events from retiring. The OP was looking to retire in his 40s, when he might well still have a mortgage and/or dependants, and when he couldn't buy himself a brand-new Toyota Corolla and think "that'll see me out!".

elperello

When calculating the sums you should factor in some extras that become available as you age.
The state pension or whatever replaces it.
The over 70 medical card.
The household package, free TV licence etc.

Peregrinus

If the OP retires in his 40s, he may not have enough social insurance contributions to qualify for the contributory pension, and of course the non-contributory pension is means-tested; on the figures we’ve been looking at he wouldn’t get that either. And some of the other benefits are tied to being in receipt of the pension.

(Plus, if you’re looking at retirement in your 40s, you should not bank on the structure of older-age pensions and benefits provided in 30 years time being the same as it is now.)

BrokenArrows

Austria! wrote: »

Yeah, but what's left after taxes?

Depends on what his circumstances are and what country he is living in and what other income he has.

For example in Ireland you pay income tax on all your dividends and capital gains on any sales profit above €1270

However in the UK he would get £5k tax free dividends and then pay income tax.
And would get £11.3k capital gains tax free and then pay tax.

makeorbrake

Just giving some additional info that has been speculated upon...

- I DO have a mortgage and it has quite a good few years to run. However, whilst I have very little equity in it, the mortgage is small - 400 euro/month. I have ecb plus 0.52% tracker - probably the cheapest finance i will see in my lifetime. Its out in a regional backwater but rental is such that it should wash its face if I rent it out -so I'll keep it. Either a close family member will manage it for me or it may be that a family member will live there.

- I take the point about social benefits, etc. It's too long down the road...perhaps I will return to Ireland - but the plan right now is to live overseas in a developing country at low cost. Both my wants/needs, the situation abroad in terms of costs, situation in Ireland with regard to costs and benefits may change in the long term...so i guess i'll have to review that as I go.
I have 15 years of pension contributions together with having put in 9% AVC's. However, when I look at the yearly statement ref. my pension and what it would be worth if I continued to pay into it until state retirement age, it makes for depressing reading. I guess if I'm still in a developing country at that point, I may get more mileage out of it. That said, can I cash it all in now - and would it be prudent to do so??

- Whilst I'm looking to 'retire' early, Im still pretty young. I'm planning on going somewhere that may not be awash with jobs(!). However, I believe that there are always opportunities that pop up. With that -it's plausible that i may re-enter the workforce...whether self employed or otherwise - but it remains to be seen at what point and what the value of that 'work' will be.


Thanks all for the input on this thread - it's been really helpful. Planning on making a move in the next few months. Once I have time on my hands, i'm going to focus purely on examining all the options in terms of managing my savings to best advantage -so as to finance my lifestyle.

KellyXX

Op, I don't know how true this is, but I was told a while ago by someone who lived in Spain for a few years that you can transfer social welfare to any country in Europe. You get paid what you would get paid in Ireland.
So say you lived in Spain but we're on the dole/pension here before you left, then you transfer your Irish dole/pension over there and get what you would have got here.
Also you are entitled to the same medical care as.tou would be entitled.to in Ireland too.
I don't know how accurate that is but worth checking out if you are moving abroad.

makeorbrake

@KelllyXX: Thanks for your post. I'd imagine that's true for a contributory pension - but I doubt it's true for a non-contributory? With regard to the dole, I remember there was a scheme whereby either you could transfer it for 3 months (or welfare here continued to pay it for three months) - but that was as far as it went. You were on your own after that. Perhaps they changed it since then but I doubt it. Surely the likes of Poland would be full of guys living at home on the irish dole (and yes, I understand that in the case of the childrens allowance, this is possible - just before someone brings it up ;-) ).

In any event, current plans are to move beyond the EU. Of course, I may move again - but just working on current plans right now.

In terms of investment though, what would people do with a 15 year old contributory pension? I'm not sure if it's possible to take it all out - but I'd imagine it's possible to take the bulk of it out. Should I leave it where it is OR should I take it out and add those funds to my pool of funds for investment - to be invested/managed myself??

b4bmm

makeorbrake wrote: »

@KelllyXX: Thanks for your post. I'd imagine that's true for a contributory pension - but I doubt it's true for a non-contributory? With regard to the dole, I remember there was a scheme whereby either you could transfer it for 3 months (or welfare here continued to pay it for three months) - but that was as far as it went. You were on your own after that. Perhaps they changed it since then but I doubt it. Surely the likes of Poland would be full of guys living at home on the irish dole (and yes, I understand that in the case of the childrens allowance, this is possible - just before someone brings it up ;-) ).

In any event, current plans are to move beyond the EU. Of course, I may move again - but just working on current plans right now.

In terms of investment though, what would people do with a 15 year old contributory pension? I'm not sure if it's possible to take it all out - but I'd imagine it's possible to take the bulk of it out. Should I leave it where it is OR should I take it out and add those funds to my pool of funds for investment - to be invested/managed myself??

What country are you looking to move to?

60k a year let’s say 40k a year after taxes is a nice figure in Ireland to be living off with no expenses apart from living expenses but in a much cheaper country such as Thailand, Costa Rica, Eastern Europe etc its a very nice living standard, a lot better than what you sound like you in at the moment. If you are living in another country there is a good chance you won’t have a vehicle even to pay for so your talking rent as the main expense and then international health insurance and after that it’s gravy.

Many factors to consider and given the information you have provided, not much, only you can decide what’s the best path.

I’m on a similar path but looking to retire younger than you. There are a few things that need to unfold before I will do it. I won’t pull up stumps early and realise five years down the track I need to Go back into the workforce because I don’t have enough money. It’s always possible that I will have to do that but have to give myself the best chance now that I won’t have to do it.

My strategy is to not have to eat into any capital when retired if possible. I feel being very conservative is the best action to take. I take 3-4% as a return figure on that capital, I’m at about 30% this year but the market is being kind at the moment. So let’s say I have 1M. The return im looking for is 4%. That gives me 40k, let’s exclude taxes. Depending on the country you move to and the type of income you will look for it could well be tax free anyway. I would look to spend 20k of that 40k and either reinvest the other 20k or more likely I would put it into a very low risk investment, maybe term deposit or bonds. When the market tanks, which it will, you don’t have to be forced to sell when you don’t want to because you have that buffer there. I would also put aside if possible a 3-5 year buffer from the start as living expenses to ensure you are not a forced seller.

4% should be easily achievable. You can get that fairly easily on property. If you dumped your 1.2m on a well picked multi - family property in Dublin you should get around 6% return after expenses.
That will give you 72K per annum income gross.
Pick it well and it will be untenanted very little but the returns may fluctuate depending on the economy. It should give 3-4% worst case scenario.

I’m not really sure what else to say with the information you have provided but it sounds like you need to educate yourself better before you make the move, you seem to be rushing it without really knowing where your future income will come from.

KellyXX

My parents sold their house and paid of the 40k remaining on the mortgage.
The rest, about 300k, they set aside 10 X 20k money which they say will easily last them the 10 years they had hoped and more.
And they invested the rest.
Then they both have contributory pensions which they haven't even had to draw down on yet. I don't think they are old enough yet anyway to draw them.
They are living the life as far as I can see and even my aunt now is talking about doing the same thing.
Fair play to anyone who does it.
Wouldn't mind retiring in my 50a lls myself. All this talk of.oncreasing retirement age is depressing. Obviously people with easy jobs trying to make decisions for those with hard jobs.

Tristram

Where do they live now?

makeorbrake

b4bmm wrote: »

What country are you looking to move to?

I will take up residency in Panama (hopefully!) first week in February. The visa will take a couple of months - but effectively I will be in-country and residing there from the point of entry.

b4bmm wrote: »

60k a year let’s say 40k a year after taxes is a nice figure in Ireland to be living off with no expenses apart from living expenses but in a much cheaper country such as Thailand, Costa Rica, Eastern Europe etc its a very nice living standard, a lot better than what you sound like you in at the moment. If you are living in another country there is a good chance you won’t have a vehicle even to pay for so your talking rent as the main expense and then international health insurance and after that it’s gravy.

Panama is relatively low cost (so long as I move away from Panama City. I mentioned 60k - as I wanted to allow for inflation - but I would imagine that I can exist on much lower than this. I would be new to conventional investing - but I will have time on my hands initially (and a couple of friends with years of experience with same....so once everything is sorted residency wise - that will be my next priority - to have a balanced portfolio that will put my money to work - and for me to spend the time to research the art of investing...and take control over what I'm doing.
Now, it could also be that I don't end up staying in Panama. If I see a country where my money goes further, I may well up sticks down the road and relocate once more. I don't have any ties - I am agile and can move pragmatically - if needs be (I've not done in-depth investigation of this yet but I'm confident there are lower cost jurisdictions still). At the moment, tax is the motivation ref. Panama.

b4bmm wrote: »

Many factors to consider and given the information you have provided, not much, only you can decide what’s the best path.

Yup, can't argue with that. I have one extremely urgent issue to resolve first and after that, I will have time on my hands to figure out what works best after that (with regard to location, etc.). ...but priority remains with setting up shop in Panama for right now - as soon as I can bring it about. Otherwise, if things run against me, I could end up on my ass (the asset class I want to cash in is highly volatile - so it's risky...can't deleverage myself from that position fast enough.

b4bmm wrote: »

I won’t pull up stumps early and realise five years down the track I need to Go back into the workforce because I don’t have enough money. It’s always possible that I will have to do that but have to give myself the best chance now that I won’t have to do it.

I believe you're thinking along the right track. I am aiming for that. However, it remains to be seen until the day I realise my paperwork worth (which changes hour by hour at the moment) as to what sum I end up with. That said, I'm still young - there's life in the old dog yet - and after a short period of consolidation/chilling out, I would imagine I will be looking for an opportunity to create a little bit of extra wealth (may not need to be anything fancy - just something that brings some cash in to suplement my savings/mean that I don't draw down on the nest-egg).

b4bmm wrote: »

My strategy is to not have to eat into any capital when retired if possible. I feel being very conservative is the best action to take.

AS above - we're on the same page.

b4bmm wrote: »

I would also put aside if possible a 3-5 year buffer from the start as living expenses to ensure you are not a forced seller.

Savvy advice for sure.

b4bmm wrote: »

you seem to be rushing it without really knowing where your future income will come from.

You're absolutely right - I am rushing it - and whilst I'm not comfortable with that, purely by accident, all my asset class is in one item - which is extremely volatile. If that bombs over the next 45 days, I end up on my ass. I have to resign myself to that eventuality. However, I have an insurance policy in that if that happens, I will spend a year travelling - enjoy it - and (reluctantly!!) go back to the job in Ireland that I absolutely hate (in fairness to them, they have just introduced a 1 year career break - and so I can return if I find at time of cash out - that the asset I've invested in implodes).
Once I have realised that gain, I will have time on my hands. I intend to get myself up to speed very fast in terms of traditional investing - with a balanced portfolio that hopefully I can structure to achieve a reasonable gain. I am not averse to allocating funds to property (on the basis that I would rent out rooms or apartments but will NOT make a kneejerk descision on that until I am in-country - and know the lay of the land. I need to have a true appreciation for the value of property there (got caught in the past in Ireland on that in the Celtic Tiger years! ...not going to happen again!).


@KellyXX: My pension will probably end up being miniscule - so I'm being conservative and not even working that in to the equation right now.

KellyXX wrote:

Wouldn't mind retiring in my 50a lls myself. All this talk of.oncreasing retirement age is depressing. Obviously people with easy jobs trying to make decisions for those with hard jobs.

It's being done more and more often now. It depends on your personal circumstances. If you have family, then it's a difficulty. I'm on my lonesome - and I relish the chance to live somewhere new - so it's a no-brainer for me.

Andrew Beef

With no debt and no rent, €60k a year (before tax) would be a lot. Someone could have a fantastic retirement with an income like that.

Having said that, we’re aiming for a lot more with a view to being able to help out the next generation if needs be and to be in a position to travel a hell of a lot.

b4bmm

makeorbrake wrote: »

I will take up residency in Panama (hopefully!) first week in February. The visa will take a couple of months - but effectively I will be in-country and residing there from the point of entry.


Panama is relatively low cost (so long as I move away from Panama City. I mentioned 60k - as I wanted to allow for inflation - but I would imagine that I can exist on much lower than this. I would be new to conventional investing - but I will have time on my hands initially (and a couple of friends with years of experience with same....so once everything is sorted residency wise - that will be my next priority - to have a balanced portfolio that will put my money to work - and for me to spend the time to research the art of investing...and take control over what I'm doing.
Now, it could also be that I don't end up staying in Panama. If I see a country where my money goes further, I may well up sticks down the road and relocate once more. I don't have any ties - I am agile and can move pragmatically - if needs be (I've not done in-depth investigation of this yet but I'm confident there are lower cost jurisdictions still). At the moment, tax is the motivation ref. Panama.

Yup, can't argue with that. I have one extremely urgent issue to resolve first and after that, I will have time on my hands to figure out what works best after that (with regard to location, etc.). ...but priority remains with setting up shop in Panama for right now - as soon as I can bring it about. Otherwise, if things run against me, I could end up on my ass (the asset class I want to cash in is highly volatile - so it's risky...can't deleverage myself from that position fast enough.

I believe you're thinking along the right track. I am aiming for that. However, it remains to be seen until the day I realise my paperwork worth (which changes hour by hour at the moment) as to what sum I end up with. That said, I'm still young - there's life in the old dog yet - and after a short period of consolidation/chilling out, I would imagine I will be looking for an opportunity to create a little bit of extra wealth (may not need to be anything fancy - just something that brings some cash in to suplement my savings/mean that I don't draw down on the nest-egg).

AS above - we're on the same page.

Savvy advice for sure.


You're absolutely right - I am rushing it - and whilst I'm not comfortable with that, purely by accident, all my asset class is in one item - which is extremely volatile. If that bombs over the next 45 days, I end up on my ass. I have to resign myself to that eventuality. However, I have an insurance policy in that if that happens, I will spend a year travelling - enjoy it - and (reluctantly!!) go back to the job in Ireland that I absolutely hate (in fairness to them, they have just introduced a 1 year career break - and so I can return if I find at time of cash out - that the asset I've invested in implodes).
Once I have realised that gain, I will have time on my hands. I intend to get myself up to speed very fast in terms of traditional investing - with a balanced portfolio that hopefully I can structure to achieve a reasonable gain. I am not averse to allocating funds to property (on the basis that I would rent out rooms or apartments but will NOT make a kneejerk descision on that until I am in-country - and know the lay of the land. I need to have a true appreciation for the value of property there (got caught in the past in Ireland on that in the Celtic Tiger years! ...not going to happen again!).


@KellyXX: My pension will probably end up being miniscule - so I'm being conservative and not even working that in to the equation right now.
It's being done more and more often now. It depends on your personal circumstances. If you have family, then it's a difficulty. I'm on my lonesome - and I relish the chance to live somewhere new - so it's a no-brainer for me.

So you have hit the bitcoin jackpot.
Lucky and good for you.
Super volatile. It has made a lot of people a lot of money. If I even put 5% of my net worth into it last year I would be very very comfortably retired by now. Can’t win them all. It may go 10X from here or it may go to zero nobody knows just like nobody knew a year ago. It’s too volatile for me at my current stage. Have already suffered heavy losses in stocks in previous years and took me a while to get back in track. I can understand why you are looking to selll now.

What’s your thinking behind choosing Panama is it purely due to ease of residency for Irish people at a fairly low cost plus low cost of living or do you have friends there too? Did you look into anywhere else? It’s on my radar along with a few other countries in the not too distant future, maybe next year. If you plan to get your return through the stock market instead of property which is my plan for now then you can earn tax free in Panama I think (no CGT). Dividends are usually taxed at source so if you are investing on the ASX for example there will be tax withheld on your dividends before distribution (Property is similar AFAIK) I’m not sure how the double tax agreements play a role in this if any.

You really sound like your rushing things and I’m wondering why. Where is the 45 days coming from? You could sell them right now surely? Of course you will be liable for tax unless you have made some other arrangement or maybe that 1.2 you talk of is net after taxes?

If you are looking to set up residency in Panama with the view to selling your cryptos as a resident there and in effect not have to pay any tax on that you are mistaken. If you change residence from Ireland to Panama your obliged to inform the tax office that you will no longer be a tax
Resident in the state and you are supposed to pay up to date your position. Meaning if you haven’t even sold but are sitting on a gain of X then you are expected to pay to the tax office what you owe and then you are free to do as you please from then on in your new jurisdiction. This is the case in Australia anyway and I’m sure Ireland wouldn’t be any different.......Of course you could chance your arm and you may get away with it but that’s not something I can comment on and not something I would like to have hanging over my head.

KellyXX

Tristram wrote: »

Where do they live now?

Spain. Lucky fcukers

Cute Hoor

KellyXX wrote: »

My parents sold their house and paid of the 40k remaining on the mortgage.
The rest, about 300k, they set aside 10 X 20k money which they say will easily last them the 10 years they had hoped and more.
And they invested the rest.
Then they both have contributory pensions which they haven't even had to draw down on yet. I don't think they are old enough yet anyway to draw them.

Presumably your folks are renting in Spain, obviously going to be cheaper than renting in Ireland but would still be eating into their savings while they wait for the pension. If they have 2 contributory pensions coming in (eventually) they should be able to live comfortably on that. Living in another EU should also provide a lot of comfort from a medical/health (a big consideration unfortunately as one ages) point of view. So it looks pretty secure from a financial point of view.

KellyXX wrote: »

They are living the life as far as I can see.
Fair play to anyone who does it.

Fair play to them. It's not an easy or straightforward decision though, they are probably giving up a lot to live the life and presumably they did the blank sheet of paper filling in the pros and cons before going for it. You are giving up being close to a lifetime of relations and friendships (travel is easy and cheap but still an issue), the Sunday morning game of golf and craic, the Wednesday morning game of bridge, the Friday night Bingo, watching the Tournafulla junior As breaking ash over their local rivals, etc etc, all with lifelong fellow relations, members and friends. It involves building a whole new suite of friends and activities in Spain, very doable but a challenge nonetheless. Once you've made the rational decision though it should be happy days.

KellyXX wrote: »

Wouldn't mind retiring in my 50a lls myself. All this talk of.oncreasing retirement age is depressing. Obviously people with easy jobs trying to make decisions for those with hard jobs.

Unfortunately (for you) retirement age will have to continue to increase, there is no way out of that, anything else would be totally unsustainable with people living longer than ever before, a statistic that will continue to improve with advances in medical science. The pension age will probably have to increase at a far quicker rate than it is currently doing to make the whole pension thing viable. You can try to manage early retirement of course for yourself by building a pot that will keep you from your (hoped for) retirement age to reaching pension age.

Viscount Aggro

Think about early retirement like this;

Ask yourself, what is the minimum I need to retire early. Forget about all the doomsters, or financial sector sales people - its in their interest to scare you with large numbers. Theres plenty of people living the life on Benidorm, on very little.

Heres a stat. - for every 1K annual living expenses you can trim, it reduces the required pension pot size, by 25K.
Using the 4% SWR rule (look it up).

I wouldnt let anyone talk you out of it - a full working life is not for everyone.

Andrew Beef

“Existing” somewhere like Benidorm wouldn’t be most people’s cup of tea.

It would be quite sad to be run out of one’s own country on the basis of not being able to afford to live there.

Half of one’s earnings is a decent target to aim for; it’s good enough for public servants with full service after all.

elperello

Andrew Beef wrote: »

“Existing” somewhere like Benidorm wouldn’t be most people’s cup of tea.

It would be quite sad to be run out of one’s own country on the basis of not being able to afford to live there.

Half of one’s earnings is a decent target to aim for; it’s good enough for public servants with full service after all.

Possibly better to do your sums on the basis that you can live where you chose within reason ie. not necessarily Monaco but definitely not Benidorm.

You don't want to end your years living out a real life version of "Best Exotic Marigold Hotel".

KellyXX

Cute Hoor wrote: »

Presumably your folks are renting in Spain, obviously going to be cheaper than renting in Ireland but would still be eating into their savings while they wait for the pension. If they have 2 contributory pensions coming in (eventually) they should be able to live comfortably on that. Living in another EU should also provide a lot of comfort from a medical/health (a big consideration unfortunately as one ages) point of view. So it looks pretty secure from a financial point of view.



Fair play to them. It's not an easy or straightforward decision though, they are probably giving up a lot to live the life and presumably they did the blank sheet of paper filling in the pros and cons before going for it. You are giving up being close to a lifetime of relations and friendships (travel is easy and cheap but still an issue), the Sunday morning game of golf and craic, the Wednesday morning game of bridge, the Friday night Bingo, watching the Tournafulla junior As breaking ash over their local rivals, etc etc, all with lifelong fellow relations, members and friends. It involves building a whole new suite of friends and activities in Spain, very doable but a challenge nonetheless. Once you've made the rational decision though it should be happy days.



Unfortunately (for you) retirement age will have to continue to increase, there is no way out of that, anything else would be totally unsustainable with people living longer than ever before, a statistic that will continue to improve with advances in medical science. The pension age will probably have to increase at a far quicker rate than it is currently doing to make the whole pension thing viable. You can try to manage early retirement of course for yourself by building a pot that will keep you from your (hoped for) retirement age to reaching pension age.

I think they have it all sussed alright.
I have an aunt who lives over there for the last 20 years so she helped them with the move. They went there a few times a year before they moved so they do love the place and have plenty of friends already there.

They are renting a nice 3 bed apartment in a complex with a pool and nice grounds with a golf course too. No electricity or any other services to pay for.
Beach and town about 5 minutes walk away.
All for €350 month, paid up front for the whole year every year.
There is some.club they have joined too that they pay a small amount for that arranges tours and entertainment nights etc . Think he said that was about €500 a year.
Other than that they have no expenses to speak of apart from food. I don't even think they cook at home anymore because eating out is so cheap. I'm going out to see them in March so I'll find out more, but I don't think they would be in the least financially taxed with it at all.

Megamemnon

Viscount Aggro wrote: »

I discovered the FIRE concept back in 2012.
Was always frugal with money, but this put my savings rate onto another level.
The goal was always to retire early, at least by age 50.

My experience has been, dont tell friends and family what you are doing, it will end badly - they wont understand and will attack you.
Focus on your savings rate, forget the investing side, until you have your frugal muscle developed.
For the honours students, read Early Retirement Extreme, by Fisker - the website of the book. He retired at 27, by saving hard for 5 years.

Since JAN this year, I have been at 100% savings rate each month. Yes, I have enough passive income to support this.
It also helps that I know what I am doing, in terms of asset allocation, and tax and trading expenses.
I think in 2013 I squirrelled away a ton - combination of savings, market gains and dividends, bond interest.
As a rough guide, you need 25 times your annual living expenses.

The difference between 50 or 60% savings rate is 5 years more chained to a desk.

So, yes its hard to achieve FIRE in Ireland, but it is possible.

Hi there, I'm interested in your take on how to achieve FIRE in Ireland. All the blogs I read look at investing in ETFs which doesn't seem profitable in Ireland due to high taxes etc. Do you mind me asking your approach?

phantom_lord

650Ginge wrote: »

There is loads of people out there doing it. One thing that comes through clearly as common to them all is that it is about keeping it simple, nothing complex, no get rich quick schemes, no ferraris and champagne, just hard work and perseverance.

http://rootofgood.com/zero-to-millionaire-ten-years/

Is there any of these with ordinary joes that get there by working/saving? The people in that story were adding more than their gross earnings into their savings account due to property/other influxes.


As well, I think giving up on holidays/scrimping on every dollar is no way to spend your life even if you are "retired". Think there's a balance somewhere to the north of that.



edit:

Every year we saved more than half of our income. In other words, we saved all of my paycheck every year and then saved part of Mrs. RoG’s paycheck, too.

Just not possible to do that here.