Early Retirement at 57

bilbot79

https://www.boards.ie/discussion/comment/121999632#Comment_121999632

It's more that I defer early retirement if plan A fails. I see it that I'll still be in risky funds at the time rather than tapering.

At the end of the day though, if you are 60 and don't want to work anymore you'll look at what's in front of you and ask yourself is it enough. I have the 2.15m target because

1. It's the limit
2. It's a lovely amount to keep you for a long time
3. It's plausible for me in a high risk scenario (depending on markets)
4. One needs a goal

dunnerc

https://www.boards.ie/discussion/comment/121999629#Comment_121999629

I pay Zgemma combo box 100 euro, sky dish 30 euro , saorview aerial 20 euro .One off payment 150 euro .

Virgin media 500gb broadband 35 euro a month , 420 a year + 0ne off payment of 150 for free tv channels + 6.99 a month to 48.ie for unlimited phone and texts and 100gb data .

SeanieRetrofitter

https://www.boards.ie/discussion/comment/121999632#Comment_121999632

Of course some years it will be less. That's what average means. And bilbot is talking about annualised return. The nasdaq 100 annualised return since 1986, net of annualised inflation, is 11%. Disregarding inflation, history is very much on bilbots side re the more popular s&p 500.

Standard advice is 60% equity, 40% bonds piling more into bonds as you approach retirement. It's good advice over the short term but it's terrible advice over the long term. High return indexes are volatile. Low return options are stable- which in this context is another way of saying stagnant...

Henry Ford III

https://www.boards.ie/discussion/comment/121993305#Comment_121993305

Or a QFA.

well24

https://www.boards.ie/discussion/comment/121998502#Comment_121998502

last things. You can only contribute a certain % of you salary to a pension.. so I doubt you could be contributing 2800pm..

Allinall

https://www.boards.ie/discussion/comment/121999771#Comment_121999771

You can contribute as much as you like.

There is a cap on the tax relief you can get, depending on your age.

bilbot79

https://www.boards.ie/discussion/comment/121999774#Comment_121999774

Exactly. My company is paying 600 odd and I'm paying 2200 which is only costing me around 1320 after tax.

Pension = the ultimate get rich slowly scheme

Peregrinus

https://www.boards.ie/discussion/comment/121999718#Comment_121999718

It would be a mistake to think that the risk posed by volatile returns ceases when you retire, though. On the contrary, it becomes more acute, as you will no longer be able to respond to lower-than-expected returns by deferring retirement (you have already retired) or by increasing contributions (you are no longer earning).

So, while in retirement, you want your fund invested in low-risk assets whose returns are less volatile.

But here's the thing; you don't want to have to switch from higher-risk volatile assets to lower-risk stable assets in one giant leap at the point of retirement. If that happens at a time when the high-risk volatile assets are in the downward phase of their volatility, you're permanently locked in to that lower valuation. It makes huge long-term difference to the level of your retirement income.

It's no answer to say that you will defer retirement until the markets rise again; you may not have a choice about the timing of your retirement if it is occasioned by ill-health, for example, or by a badly-timed redundancy.

So, the received wisdom is that you progressively switch from the higher-risk assets to the lower-risk over a period — say, about 5 years — leading up to your expected retirement date.

The other point worth thinking about is your twin assumptions that you'll get an average return of 10% a year and that your contributions will rise by 5% a year.

Why would your contributions rise by 5% a year? Because you expect (or at least hope) that your earnings will grow, is my guess. And of course they almost certainly will; historically, earnings do grow from year to year. Why? Inflation is why.

Effectively, you're assuming 5% wage inflation there. But of course wage inflation also implies price inflation. You project that at the age of retirement (which, IIRC, is in 15 years time) you'll have accumulated savings of €2.15 million. But what will €2.15 million be worth in 15 years time?

Given your assumed 5% inflation rate, the answer is "about €1.24 million in today's money". Not a trivial amount, but a good deal less than €2.15 million. And, if you're aged 60 today, your life expectancy (if you're male) would be about 22 years 5 months. (Higher if you're female.) By the time you actually reach age 60, that period is likely to be a bit longer.

So, you have to ask yourself, will the equivalent of €1.24 million be enough to keep me in champagne and oysters, or at least in beer and baked beans, for 22 or 23 years? But even that is not really good enough; having enough money to last you for the average life expectancy for a person of your age and gender gives you a 50% chance of running out of money before you die — possibly many years before you die; you could easily live to, say, 90 or 95. Plus, do your retirement savings have to keep not only you but also your spouse/partner, should they live longer than you?

The message here is not that we're all doomed, financially speaking; it's that we need to think realistically about what income we will actually need or want in retirement. If you own your own home, don't have work-related expenses, and enjoy gardening, going for a stroll, having a quiet pint of an evening, and other recreations that can be pursued at a modest cost, €1.24 million can be stretched for a long time. If your ideal retirement involves wintering in Biarritz every year, buying yourself a new car every two years and flying first class everywhere, you have a bit of a problem.

The thing you need to ask yourself is, will my projected retirement savings be enough to pay for the kind of life I want to have in retirement? In considering this question it's really not helpful to model the nominal figure you calculate your savings will accumulate to. €2.15 million looks like a stupendous amount of money, but you can be sure that by the time you actually have it, in 15 years, it will look a lot less stupendous. So don't think in terms of getting a 10% return; think in terms of the real return (i.e. the return in excess of inflation) that your savings can earn. The figures you get from calculations like that will give you a much more realistic feel for how wealthy you will be.

SharkMX

I was out with a few people I used to work with last night and one of them was retired and he was in his 50s.

During the night, since this thread was fresh in my mind, I quizzed him about it. He said he would talk to me in more detail again if i was interested in doing that myself.

I will try and summarize it here, but there was alcohol had :)

He retired when he was 53 (The same year he was finished his mortgage). He is 57 now.

His wife retired too at the same time as him. They have grown up children.

The year before they had retired they had expenses that they then didnt have after they retired (only rough figures i can remember). €1400 Mortgage, €1000 pm into pension, €500 pm savings, Car loan €250 pm, €100 for parking near work, fuel, €100pm for commuter ticket and a few more that I can remember.

He said when they retired they didnt have mortgage, were not adding to pensions, were not adding to savings anymore as it was coming out instead of in. And their car loan was finished about 2 months after they retired too. They also went down to one car and traded the 2 cars for 1 newer car. So they had already about €3500 less on outgoings.

There were other costs that i cant think of now that he said just vanished too.

Now they go on more holidays than they used to because they can just check the cheapest off peak prices and book them on the spot. So they do that a lot. Probably a break once every month or two to Spain, Italy, Greece apart from in the summer.

They havent even taken their lump sums yet because they are still living on savings so their pensions are actually still growing. They will take his lump sum and draw his pension in about 2 years. When that cash gets low they will activate her pension.

For bills he said he actually spends much less, for much more holidays overall. Electricity and heating is about double but it doubled anyway for everyone over the last few years, so he cant tell how much extra from both being at home. And they are away a good bit of the winter now.

For lifestyle he put iot to me like this - "I can now do whatever I want. I can sleep in if I want, I have zero stress, I could even work if I wanted. But I find I am relaxed all the time and never in a rush or concerned with anything to do with a job. Whats not to like"

I asked were there any downsides and he said there was one. He said he felt guilty saying "Sorry, i cant, im off on holiday that week. when his children asked if they would mind the grand children. And the wife loved minding the grand children as much as possible"

All in all it seemed very positive. I will have a much longr conversation with him when i get the chance but I was inspired. I know others who have done this but didnt get into as much detail with them about it as he was going into. He knew all the figures off the top of his head and said he has a spreadsheet he will send me from his last 5 years before retiring. One thing im very aware of is that none of them regret it at all. And anyone who ive ever heard questioning why anyone would ever want to retire early arent and will never be in a position to do it themselves so it always seems like an "i never loved him anyway" sort of comment from them.

Trigger Happy

I will be retiring early too but leaving it until I am nearer 60. When you take out mortgage, cost of work, cost of kid I will have more disposable income after tax than I have now and able to afford the travel and things I want to do - within reason. That's something to look forward to. Half of my post retirement income will be index linked which also helps.

But one thing that strikes me from reading this thread is how confidently wrong some people can be on how pensions work.

The J Stands for Jay

https://www.boards.ie/discussion/comment/121996858#Comment_121996858

They'd still have their annuity.

bilbot79

https://www.boards.ie/discussion/comment/121999797#Comment_121999797

Thanks. I really appreciate your post. I'm not inclined to live an extravagant lifestyle at all and will adapt accordingly once I get to see what the final figure really is. There's a lot of unknowns but the things that are certain are that getting the maximum out of the pension tax benefits is both an ideal and realistic goal and should be exploited for all it s worth (esp. since we are living in the land of zero ISAs and the deemed disposal)

My wants for the future are a place in Spain that is good for cycling, probably Denia or Costa Brava. I don't want a massive change in spending apart from initially buying an apartment but in any case I think a lot of the downside can be tackled by spending time in places where life is cheaper and arguably better. 1.5 million in real terms will go farther in Spain than 2.2 million in Ireland. Furthermore I already have my lifestyle locked down to an extent where I save a lot, don't spend much really, yet I'm happy so it makes for an easy transition.

I would say that if it works out I'll be in an ARF with lower risk assets drawing 4% a year but possibly even reinvesting some of that to keep the passive income coming in.

The assumption of 5% increase in contributions is based on promotion prospects (very good), annual salary increases and also tax relief limit increasing to 30% from age 50 and then 35% from age 55.

I also think the tax bands for income will be raised up abut in 15 years time meaning which is also a mini-hedge against inflation.

Also in the plans is downsizing the PPR in Ireland to release equity free of CGT. This would nearly cover a place in Spain.

If you get to the 2.15m there is a dispensation to use the tax paid on the 500k lump sum against the 150k above SFT meaning effectively no tax on the 500k. If that 500k were invested low risk rather than splurged it could easily produce 15k per year passively (assuming conservative 3% return) in addition to what is happening passively to the remainder of the ARF tax free.

You could spend all day weighing up the pros and cons but the fact will remain that if you can do this you should do this.

Then finally there is the state pension at whatever age. I'm also looking into whether I can pay the supplements for UK state pension.

Viscount Aggro

I retired early, about 2 years ago. It's all down to your lifestyle.

Peregrinus

https://www.boards.ie/discussion/comment/121999876#Comment_121999876

It absolutely is, for two reasons.

First, you have to tailor your lifestyle to the kind of retirement savings you accumulate, or tailor your retirement saving to the kind of lifestyle you want to fund, or (in real life) a bit of both. This is very doable for most people, but you have to think clearly a realistically about it.

(If you're thinking about/planning for retiring early, there's a temptation to envisage your life in retirement as the life of a fit and active person. But of course you won't be fit and active forever. So your plan to, e.g, relocate to a cheap and pleasant place with a mediterranean climate and lots of golfing opportunities needs to take account of your likely wish, at some point, to re-relocate back home where your social and family support networks are, as you become more frail and more dependent.)

Secondly, if you do have enough money to retire early, that's great; it gives you a choice. But just because you can doesn't mean you should. A lot of people find retirement very stressful, and it can put a lot of stress on relationships as well. (Both death rates and divorce rates tick up in the immediate aftermath of retirement.) If you enjoy the work you do, if you value it and think it's useful, think long and hard before you give it away. You'd be surprised how much of your self-esteem and self-worth is tied up with the way you spend your time, and with what you do. You'll need a sense of purpose in retirement; where is that going to come from? Retirement isn't just about all the things you no longer have to do; it's largely about the things you do instead, so think about what they will be and how you will make them happen; meaningful occupations won't just drop out of the trees as you pass. Maybe you want to travel, in which case, budget for that. Maybe you want to volunteer — think about with whom, and on what terms. Maybe you have projects you want to pursue. But if you don't have plans like this, quite concrete plans, then think carefully before you retire early. Because giving away a lifestyle that you enjoy, that makes you feel good, and that brings in a useful amount of money, in exchange for a lifestyle that turns out to be a bit purposeless and dull and maybel even lonely, is not a good deal. And it's not a decision that is easily reversed if it turns out to be not what you wanted.

Furze99

https://www.boards.ie/discussion/comment/121999950#Comment_121999950

Very solid advice I think both here & above. I presume you work in financial planning of some sort.

Masala

https://www.boards.ie/discussion/comment/121999622#Comment_121999622

https://www.boards.ie/discussion/comment/121998472#Comment_121998472

….. by the time I reach retirement - 'things' are going to go be giving up body wise!! I don't want to be laying on a trolley for a scan OR waiting 2 years for a hip/knee/ heart etc appointment. Health Insurance is expensive and if you can get the cover for a 60-65yr old cheaper than €1300-€1500 a year - then well done.

Personally -I not going to retire and then live like a hermit by turning off the heat, boil the kettle 2 a day, electric shower once a week, get rid of the broadband and reduce to watching 6 channels on the TV (Sky).

Trigger Happy

https://www.boards.ie/discussion/comment/122000000#Comment_122000000

And that is exactly it. What makes sense is people to figure out what lifestyle they want in retirement, what that will cost and then do their pension/retirement planning with that goal in mind. The earlier this planning happens the better.

For some the gap between what they want and what they can fund can never be bridged no matter how long they work. For some others the gap can be closed in their mid-50s and they can retire then from a financial perspective.

Peregrinus

https://www.boards.ie/discussion/comment/121999989#Comment_121999989

No. But in a past life I worked quite a lot with people who did.

SharkMX

https://www.boards.ie/discussion/comment/122000036#Comment_122000036

The key seems to be to work out what disposable income you have now and what expenses will drop off after retirement. Then aim for the same amount to live on after expenses in retirement as you live on at the moment. Assuming you are living comfortably now on what you have left after all your expenses.

Peregrinus

https://www.boards.ie/discussion/comment/122000051#Comment_122000051

You also need to take account of any expenses that will go up in retirement — e.g. if your retirement plans involve more travel, more entertainment or taking up new activities, there'll be expenses associated with that.

well24

https://www.boards.ie/discussion/comment/121999789#Comment_121999789

Will have to ask my financial advisor about this (and he is on the list mentioned before), he advised me that for your salary the max you can put in is x amount … never mentioned anything about putting as much as I want but without the tax incentive..

Good luck to you, I really hope you achieve the 2m, I wonder what age you expect to have the 2+m so you can retire?

Just ensure you aint putting it all into your pension, enjoy the now as well :)

bilbot79

https://www.boards.ie/discussion/comment/122000122#Comment_122000122

I can put it 25% of my gross salary in order to escape income tax. If I put in more it would be from my taxed income but would grow free of capital gains tax in there. However I wouldn't bother putting in extra as I need it in the here and now.

Aiming to retire around 60 if all goes to plan

Viscount Aggro

I worked out my number as follows;

I was not trying to achieve the maximum pension pot. I thought, what do I need to live on, and still have a surplus each month. Thinking alternatively, I cut everything back. Using the 4% annual withdrawal rule.... For every 1000 annual expense you can cut, that's 25000 less you need in a pension pot. The imputed distribution on an ARF is 4%.

I was in a career that was making me sick with stress.

downtheroad

https://www.boards.ie/discussion/comment/121999759#Comment_121999759

A CFP is streets ahead of a QFA.

The QFA exams are multiple choice ffs. I wouldn't be trusting a QFA with my financial future when they got their qualification by literally ticking a few boxes.

well24

https://www.boards.ie/discussion/comment/122000145#Comment_122000145

Is your gross salary around 8800 pm?

You mentioned before "I'm paying 2200 which is only costing me around 1320 after tax"

So 2200 is 25% of your gross salary?

Your on a dacent wage then..

bilbot79

https://www.boards.ie/discussion/comment/122000196#Comment_122000196

Yes that's roughly correct. Probably not typical of the nation as a whole but for Dublin not unusual.

SeanieRetrofitter

https://www.boards.ie/discussion/comment/122000000#Comment_122000000

I pay €1,250 each for myself and my spouse on good health insurance because I also have no wish to go on public lists. But that's a long way south of €1,600.

My heating costs are about €700 per year, because i insulated the crap out of my house. Similarly, my electricity is around €1,500 annually right now (led lights everywhere, but the tumble dryer etc are on daily), usuallyat night rate), soon to hopefully approach zero with solar panels.

So for myself and my spouse, we'll be saving about €4k on your "essential" expenditure without giving up anything. That's €80 more a week (effectively forever) that we have to spend on restaurants, holidays, whatever shiny crap takes our fancy.

Energy efficiency improvements are pretty much the best place to put your money in my experience, at the right price.

I'm a netflix and Disney plus person myself (and the library, of course) but whatever floats your boat in terms of home entertainment- if you get value out of it, it's a good investment.

But key message is to shop around, and make sure your money is working for you. It honestly sounds like your money is working for your energy suppliers....

SharkMX

https://www.boards.ie/discussion/comment/122000071#Comment_122000071

From the people ive spoken to travel and entertainment seems to go up but the expenses for those two things seem to go down for them.

I think anyone thinking of retirement will have what expenses might me at the top of their list of things to think long and hard about alright.

yagan

Another consideration is where you live.

Does it have good public transport connections so if needed you can reduce the car expense once work commuting is finished?

Does it have ample garden space for a greenhouse, for growing veggies and just general relaxation?

Looking back at my parents experience of retirement they poured all their time into golf, even though they'd never played before that. They loved it and it was a great socialising scene too, although I found it tedious anytime I joined them for a round. Aside from health insurance their annual gold club fee was their biggest expense. They only changed their car once, and that was an upgrade of a cheap bog standard saloon car.

What motivated them most though was what happened to my uncle after he'd given a lifetime service to the same heavy routine job. He really struggled with the sudden change in circumstance and within six months he had a massive debilitating stroke. He'd been healthy all his life, so it was a big shock for everyone. My dad was about to retire in similar circumstance so he decided he needed to take up something to get busy with, and sure enough they pretty much spent nearly two decades after retirement playing golf competitions in every club within a hours drive.

Personally I'd rather watch paint dry than play golf, but it's having an interest that was the key.