Early Retirement at 57
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Retiring early (or on time with higher income for that matter) will always involve sacrificing some of your current salary for your future self.
Most people wouldn't think twice about committing to a 30 year mortgage in their 20s or early 30s to have the security of their own home rent-free later. Probably the majority would pay more for a better (whatever your personal definition of "better" happens to be) home.
So long term financial planning and salary sacrifice for retirement is actually totally normal. A pension plan is just another leg for the retirement stool...
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Im told I can access mine from 50 years old if I want.
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Some interesting points made by KPMG on public consultation on SFT
Should be raised from 2m to 3.47m
Contributions limit should raise to 200k from 115k
Unused contributions should be allowed to carry forward
Private sector should be able to refund contributions against breach of SFT as apparently public sector can do that
I would say there is a good chance of movement on some of these due to inflation, rental society etc
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Allowing people to carry their contributions forward is a good idea- it incentivises lump sumpayments when people get windfalls.
Their justifications for increasing the SFT are.... weak.... Nobody with the financial cop on to accumulate 2 million plus in their pension fund is going to be dumb enough to then throw that money away on an annuity. They're also unlikely to be renting in their retirement....
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I think raising the contributions limit is a good idea too. 115 today ain't what it used to be. Inflation in general is a good enough reason. Our govt is giving us sweet FA in terms of tax benefits compared to the UK so more tax free cash in the pension is welcome
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Really great thread and interesting to hear the different outlooks, I can see my own dad doesn't want to sit still in retirement and still wants to keep involved in something work wise. That's his want and that's fine, me I would finish work tomorrow and potter quiet nicely, I've started by taking parental leave already and love the time off. It does limit the income but I'm not interested in fancy cars or clothes anymore, going to spend my money on my whoop watch, gym, golf and decent food and hop off that pension for many a year!!
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It's possible, via compounding. I've seen some insane results from the FIRE (Financial Independence, Retire Early) people. One guy hit double digit millions because he started it aggressively when he was 25. Future gains depend on risk profile, contributions, yadda, yadda, but it's very much a thing.
Post edited by Boards.ie: Mike on1 -
if you can afford it, and your finances are in order, dont think twice about this, go for it, you will not regret it, lifes away too short, unfortunately theres a good chance you wont be fit enough to do what you can do now, as you age, so go for it, and best of luck with it
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With the shortage of qualified reliable people in many sectors now is a good time for those looking to go part time.
I know a few for whom it worked out very well.
Once the stress of full time responsibility is removed the 15-20 hours a week can be very manageable and help with finances.
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One of the contribution limit or SFT should be scrapped. Why do we need both of them?
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No risk, no reward.
€10k- current value with inflation of €14k- in the nasdaq 100 on 1 January 2004 would have grown to €110k on 1 January 2024. And has an excellent chance of growing to €1.24 in 2044- assuming similar inflation levels, around €880k today. 8.8 times growth in 20 years in real terms.
1986 to 2006 would have been 7.1 times growth in real terms. That period included the dot com crash.
S&P figures are lower, but more stable. AAA bonds would be negative after inflation.
If i knew then what i knew now!
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FIRE and day trading have one thing in common - all those promoting it work very hard at selling you stuff - books, courses, data and services because that is the only way to make real money out of it. Yes it is possible to accumulate a tidy sum if you start early and compound at around 12.% pa but not with that FIRE fudge.
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Yes, I can check out any time I want but I can never leave…
The AVCs were originally supposed to fill in the years between when I left the company and when I officially retired and started drawing down from their DB scheme. There was a whole leave, transfer AVC to a pension bond, move to another company, retire on the transferred value plan given to me by the adviser. The next year, when I asked to clarify how exactly it was to be done I was told none of it was actually allowed by the rules of the pension scheme and both DC and DB elements were tied together.I worked out actual values and couldn't believe it. Because the DB schemes payout includes the state pension, and the reductions are so severe, the DB payout is crazy low until I'm 68. €8,700 annual pension @60. My AVCs are obviously DC but they seem like a much better deal. They cost more than double to fund though and I don't know if I can keep it funded at this level forever, and I have some optimistic growth forecasting done on it.
Looks like I'll be rethinking the whole early retirement thing.0 -
To be fair, the FIRE stuff is mostly common sense- pay off high interest debt, invest in index fund & over pay mortgage. And a debt free homeowner has vastly more options than the person paying half their salary on mortgage, car loan etc.
It's not that the influencers selling these concepts are wrong- It's more that if you can't grasp the idea in a 3 minute Instagram video, whatever they're selling you isn't really going to help. And if you do grasp it, the course etc is still a waste of time and money.
Day trading is an excellent way to lose money. Even for professionals, vanishingly few traders can beat the market long term.
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I presume these limits were pushed down under the watchful eyes of the troika. I guess limiting the contribution limit creates a bit of trickle down and tax revenue from the greedy scrooge mcducks. I always spend the bit of my bonus that pushes me over in the real economy but I wouldn't if I could get the tax benefit.
I guess the SFT is just the taxman reining it in. They reduced it in the UK to 1073000 but then recently scrapped it altogether. We should probably do the same but I would have Ireland ditch the deemed disposal and start ISAs sooner than increase the SFT
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I know someone from Dublin who retired early. Had his pension and investments all set up.
When he retired he moved up to Northern Ireland - i think he had to be there a certain amount of years first before he could take money from his investments. He got better tax treatment on his investments and in general was far better off financially living off his pension and invested money than he would have been if he was tax resident south of the border.
Ive heard of people doing the same in Spain or Portugal too, but i dont know anyone who did it myself.
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OP didn't give much information, and never posted again, so (as has been mentioned) without knowing his annual costs, we cannot calculate his SWR (=Sustainable Withdrawal Rate).
A SWR of 4% has been mentioned already, this is based on an old study ("Trinity"). At the moment that's regarded as too high a number, for a bunch of reasons.
My advice, if OP is still reading this, or anyone else is considering doing the same, is to carefully calculate your annual costs, and look at what your SWR is running at. Then read up on websites and blogs that focus on this topic - e.g. Monevator & Mr Money Moustache. Those are UK & US base respectively, but the principles remain relevant.
That's all just to begin with. You need to think of other issues such as what your portfolio is actually invested in and how current valuations are (at the moment, US stock market is widely regarded as being somewhat "overvalue" = high price to earnings ratio). This would increase your exposure to sequence of returns risk (which you can research if you want, no need for me to explain here).
That's all aside from non-financial factors - what will you do with your spare time / if wife is still working will you be alone most of the time - are you ok with that, do you have a personality type that is suited to that / what would your average day look like post retirement, etc, etc.
For reference, I retired early 7 years ago.
Best of luck, whatever you choose!
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Is the wrong answer.
First off, 4% is the minimum withdrawal from your pension fund each year up to age 70 when it increases to 5%.
Sustainable/Safe Withdrawal Rate is the amount you can draw down from your pension fund every year without going broke and dying in poverty. It's dependent on your investment strategy in retirement, and whether you're apply the rate to the value of the fund when you retire, or the reducing balance. For example:
— If you invest your entire fund in nice safe German government bonds with a return at or below the rate of inflation, draw down 4% of your initial balance per year, and are lucky enough to live 30+ years after retiring, you still stand an excellent chance of dying in poverty.
— If you invest in the Nasdaq 100 (in which I personally am all in with for my fund) and it continues to deliver an annualised inflation adjusted return of 11% for the same 30+ years while you draw down 8% of the balance, you'll get richer and richer over time.
— If you draw down any percentage of the remaining balance of your pension fund each year, you will never actually run out of funds: even if you withdraw 50% of the fund, you'll still have the remaining 50%. (The remaining 50% may be worth buttons, but this is illustrative).
Whether US stock indices are currently under- or over- valued is debatable and largely irrelevant. The pendulum swings both ways and it's only ever clear in retrospect which is the case, and anyway only idiots try to time the market. Nobody— but nobody— should be making decisions on how to invest for their pension based on the situation as it happens to be today. If you start your pension at 35 you're highly likely to be investing for 50 years or more, half of which you're going to be paying into it.
Long term trends are extremely clear: indices like the S&P and Nasdaq outperform every other investment option. For anyone about to say "Gold" here's a chart which shows you're wrong. (Anyone is about to say "Crypto" is an idiot— aside from anything else, crypto hasn't existed long term and anyway isn't an investment so much as a gamble which relies on finding bigger fools).
https://www.macrotrends.net/2608/gold-price-vs-stock-market-100-year-chart#google_vignette
How much anyone needs or wants in retirement is an entirely separate question. I personally am aiming to have more disposable income in retirement that I do while working, for the simple reason that I'll have more opportunity to spend it usefully on travel & hobbies. If I had an extra couple of hundred euro a week now I'd just do something stupid with it like buy a new car so I dump my spare income into my pension instead.
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Looks like I conflated ARF with SWR when referencing previous posts - fair enough.
But other than that, my points are all valid:
A key, unknown element is the OP's annual costs.
Another unknown element is what his pension is invested in (=asset allocation). This is obviously very important and ties into sequence of return risks.On some of your points:
SWR is not only related to pension fund, but all assets."Whether US stock indices are currently under- or over- valued is debatable and largely irrelevant"
The second part of this statement is not true, given we don't know the asset allocation of OP.
For example, if when you retire, you have 100% of your assets in stocks and they are currently overvalued, and your annual costs are around 4% of your assets, you are exposing yourself to very high sequence of return risk.
There's nothing wrong necessarily with retiring when you have a high % of your portfolio in stocks (even when they are overvalued), you just need to ensure your SWR is modest (which in practical terms means something significantly less than 4%). The traditional solution to this is to implement a glidepath. A typical example would be going from a 70/30 stocks/bonds split to maybe 50/50 at retirement."Nobody— but nobody— should be making decisions on how to invest for their pension based on the situation as it happens to be today."
Sounds like you think I said the opposite to this somewhere?
You may be confusing active investing with standard "glidepath" retirement planning as described above.
There's already products that do this for you automatically, I believe, such as offered by Vanguard."How much anyone needs or wants in retirement is an entirely separate question"
Not true, it has to be a (key) part of the question that OP is asking, which is a high level question on whether or not retiring in 2 years is a good idea for him.
If he can't afford to fund the amount he needs or wants in 2 years, then it's a problem.
If he can afford it today, then maybe he can retire even earlier than he's hoping for.
Therefore the "how much" is important.Post edited by Boards.ie: Mike on0 -
"The traditional solution to this is to implement a glidepath. A typical example would be going from a 70/30 stocks/bonds split to maybe 50/50 at retirement."
Yes, I know. It mitigates the risk (edit: certainty) of volatility by killing the long term annualised return on investment. That's why it's a bad long term strategy. It's good for 5 years or less if you require certainty, but it's reasonable to assume the vast majority of people hope to live longer than that when they retire— I certainly do.
Over periods longer than 5 years the volatility inherent in the stock market indices are usually ironed out so there's a big opportunity cost with putting any portion of your investment in bonds. At no point in the last 20 years was either the NASDAQ 100 or the S&P 500 worth less than double what it was worth 20 years before that, which is better than government bonds will get you.
Whether the indices are overvalued or undervalued today is only relevant if someone is dropping their investment into it today and withdrawing it all at some point in the medium term future. Nobody operates their pension like that: it's paid in over decades and withdrawn over decades. If it's overvalued today it'll be undervalued tomorrow and vice versa— daily, monthly, and annual fluctuations only really matter to the professionals. Long term trends are all that matters for individuals making pension investment decisions.
I recognise that many people are risk averse and for that reason opt for the glidepath or similar strategy. I would argue that it's not really any safer than 100% in an index fund, it's just more consistent. That sort of underperforming consistency is effectively useless to someone who isn't basically already rich. There are other, better, ways of hedging against volatility, chiefly using part of your lump sum as a contingency fund to cover the crappy years.
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I still say the question "How much do I need?" is entirely separate from the question of "How do maximise what I have?".
It is however completely accurate to say that how a person answers both of those questions will determine the answer to the question "Do I have enough?".
Some people have far more than me but will never have enough; usually because they p1ss away whatever they get. Others have significantly less than me but are very content because they're happily frugal. I personally aim to occupy the happy middle ground.
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I agree with most of what you say, and appreciate you responding.
Couple of points:
"killing the long term annualised return"
It doesn't kill the return, even at 50/50 allocation; it just reduces it - it's still a healthy positive expected return(assuming a sensible, proportionate allocation between stock markets, using low cost index funds, with similar sensible assumptions applied to the bond/bond fund allocation).
And just to clarify for OP or anyone else, it's also normal and generally very good advice, to hold some bonds in your portfolio, even when investing for the long term (as opposed to just 100% stocks or stock index funds/ETFs).
I hold a (roughly speaking) 70/30 split stocks/bonds, and have done so since I retired, and I am looking at a time horizon >>30 years.
There is a good writeup here on this topic : https://monevator.com/bond-asset-classes/"Whether the indices are overvalued or undervalued today is only relevant if someone is dropping their investment into it today"
I've already addressed why this isn't true for the original poster in my previous post.This page gives a good, detailed explanation of sequence of return risk : https://monevator.com/sequence-of-returns-risk/.
Hope that helps.Post edited by Boards.ie: Mike on0 -
Out of curiosity what kind of yearly living costs do people think they can manage to live on?
Was talking to someone who is in a FIRE club and he says he is currently living comfortably off 20k per annum.
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Roughly speaking, a 2% drop in return on my pension investments will reduce my pension pot on retirement in 14 years by about 25%. Assuming I live to age 80, it cuts the growth of my pension pot in half. To me, that's killing my growth— there is no scenario where reduction of 2% in the return on my investment will not make me much less better off in retirement.
I think where we're fundamentally at odds is our attitude to risk. For me, the benefits of increased return over the long term is worth the risk of (sometimes fairly extreme) volatility over the short & medium term. We probably also have very different views over what constitutes a "healthy" return. My number is 7.5% or more after inflation, I'm guessing yours is lower.
Put another way:
If I have a certainty of 4.5% (after inflation) return— which is pretty decent as it equates to 6.5% before inflation— I'll be OK in retirement. By which I mean I won't starve & I won't be cold, and I'll have some nice things for a while. Around my mid-70s the fund will run out and I'll be reliant on the state pension and my work pension (which together should be around €18k at current values, which in fairness isn't awful). I will struggle financially, and I definitely won't be able to have the life I want in retirement.
If I achieve an after-inflation return of 7.5% (which is 2 thirds of the long term after-inflation annualised return of the Nasdaq 100) I will be comfortable for the rest of my life. I'll have more or less the life I want, but with a bit less bling.
I prefer the excellent chance of retiring early and being comfortable for the rest of my life to the near-certainty of working longer and being poor for my final years. I'm comfortable with that excellent chance of being comfortable for all of my retirement being attached to a small but significant risk of being poor for all of it. I understand that many others can't accept that risk.
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Comfortably on 12k is my average, but that's helped a lot by not living in Ireland (different major EU economy). That's higher than it needs to be, because I have a few expensive renovation projects on the go (with the objective of reducing costs/improving quality of life in future years).
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I semi retired the start of 2019. I got a redundancy payment from work. I do a bit of farming and have two small houses rented. I could live on that income without touching my pension pot. Drew down my pension the start of this year to access the lump sum for another investment. I will take 4% a year from now until 70. I have it at level 4 of a 7 level investnent strategy.
60% equities, 20% fixed insterest, 15% alternatives and 5% property. I intend to ride the rhino by not accessing more than the statutory drawdown every year. I am hoping that the fund will out preform the drawdown.
It's all relative 500/ week each for a couple would see you very comfortable IMO as long as you are not a spender. By a spender I mean people that feel they need tochange the car every 3 years, carry out home improvements. Will you want two holidays a year and a few weekends away. Will you want to go to a restaurant every week( as opposed to a pub for dinner on a a Sunday). Will you want to see the world.
I am lucky as I still actively farm even at that for me personally retiring when I did was too young. However I was under pressure between the job and the farm. I was doing 40k+ km driving at work. I was on call. Money was excellent but I had a disc done on my back late 2016. The driving was causing it to start to act up again.
It peculiar but my better half was always on about that she intended to retire at 55. She is probably going to do it now over three years later.
I am kinda of ready to rock on for another 2-3 years.
Post edited by Boards.ie: Mike onSlava Ukrainii
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Your strategy works for you, but as you say you don't even need the pension. I'd consider your strategy viable for me only if i was in the similar position of being well enough off to not really need it.
For me,€250 per head per week would not be even nearly enough. It'd cover bills and the carvery once a month, but my travel plans are a big part of my reason for retiring- it's what I want the time for as distinct from how i plan to spend some of it.
Travel is one of my expensive habits along with diy. Cocaine would probably be cheaper!
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travel plans are a big part of my reason for retiring- it's what I want the time for
That's something that's often mentioned in this context, and is something of a paradox because the best (and cheapest) time to travel is when you're younger. The longer you wait, the more funds you'll need to set aside and the greater the risk that health issues - even minor ones - will begin to have an impact on where you can go and what you can do when you get there. That's one of the reasons I didn't bother waiting till "retirement age" to give myself the time for travelling, preferring to sacrifice the monstrous pension fund in favour of getting out and about while still fit and able.
Also extensive travel and serious DIY projects tend to be incompatible - too much competition for the same resources !
Post edited by Boards.ie: Mike on1 -
I disagree: any age is the best age to travel— I know people in their 80s who still travel actively. It's true that they weren't hiking up mountains and so forth, but any destination I've been to caters to the old and the young. For example, at Petra there were plenty of horses & carriages to bring those with less mobility to see most of the major attractions there. At Ephesus there were entire tour groups of elderly people making their way gently down from the top to the bottom. And nobody would be startled to see someone in their 70s at the Louvre or practically any other museum in the world. At the other end of the scale our little one has already visited 5 countries at the ripe old age of 2 and a half.
I totally agree that it doesn't make sense to wait until retirement to travel (and I haven't) but it's a lot harder to find the time to travel more if you're working full time regardless of income. It's also harder to take advantage of midweek airfares etc. The reason I'm dumping my spare cash into my pension is to hopefully ensure I don't end up time rich and cash poor.
It's true that the older I get the less I'll be able to do physically. But I see no reason why that should stop me enjoying life— even if I'm paralysed from the neck down, it'll still be better for my mental health to not be stuck in the house all day every day. Yes travel would be more complex in that scenario, but airports & airlines in the EU at least are legally obliged (and do) provide appropriate assistance for free. But the airlines aren't obliged to carry me for free, hence my need for a decent retirement fund.
I believe that if a person's plan for retirement is to sit at home doing nothing, they're doing it wrong. And unless you have a fantastically fulfilling job, if your plan is to not retire at all you're doing it just as wrong if not more so. I feel nothing but sympathy for people (even those I don't like) who want to continue working in office jobs until they either get thrown out or die. Everyone should be able to find something to do outside of work.
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All I want is to have my time to myself to do whatever i want to do with. Be that sit in the garden, Go for a walk. Go on a holiday or just sleep in or have a nap during the day.
Cant wait to off an employers schedule and just on my own.
Obviously I need money put away to allow me to do the things that require money
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