Irish Financial Independence & Personal Finance Podcast

August 2021 Portfolio Update

Wednesday 1st September 2021

Is Early Retirement Really Possible in Ireland?

I have reflected a lot since recording my final episode on the podcast. Many of you have commented that there was a good bit of emotion in the episode, and you would be right. I was frustrated. Having worked hard for 3.5 years to build an investment portfolio, I was still so far away from hitting FI.

I’ve spent the last few weeks researching alternative FIRE approaches. Some form of early retirement had to be possible in Ireland - surely early retirement isn’t just reserved for those who live in the US. When I reflect, I tend to go into deep thought about certain things, and this was one of those times. How can it be possible to retire early in the US with no decent state pension scheme and free health care, yet here in Ireland, with access to so much state support, early retirement didn’t seem possible.

50% tax rates make it hard, we know that - but surely with the state pension and free health care from age 70, it is possible to retire early here.

I am pleased to say that I was able to find several alternative FIRE approaches that would work well in Ireland. When Dave G invited me to be a speaker at an online FIRE event I decided it would be a great topic to cover.

I am pleased to announce that I will be giving a presentation on "Early Retirement Made Possible" at an online FIRE event taking place on the evening of the 16th of September.

There is a price of €20 for a ticket, however it will cover four hours of presentations from five different speakers. A recording will be available if you can't make the event in real time.

You can use the promotion code "MIKE50" to get your ticket for half price - only €10.

I won't be profiting from the event myself and giving up my time to speak for free. If you use the link below, then 50% of the ticket sales using this link will be given to an Irish Charity.

I will announce on the blog how much we raise for charity and which charity is selected closer to the event.

Introducing “Hybrid FIRE”

Looking at alternative FIRE strategies has been eye opening, and in the end it helped me to readjust how I needed to forecast my own strategy moving forward. You may remember back in July, I tried to forecast the next 18 years. While this was helpful, it failed in two areas:

1. It assumed inflation would be 2% per year, which isn’t ideal. It would be better if I was able to measure inflation and account for it on a regular basis.
2. It has me fully retired at 55. While I had good reasons for retiring at this age, I would still like to push for looking to retire at age 49 / 50.

What I needed was a system. Something which gave me a target each year, knowing that I was on track to hit my FI number by the time I was 50. I didn’t want to race, I had tried that and it leads to an unsustainable, burnt out lifestyle. I needed a system that was going to allow me to work through phases of full time, part time and mini-retirement breaks here and there.

When I reflect on my last 3.5 years, I realise that I have been doing this without any particular overall strategy in mind. In 2019 I worked part time for the whole year - even taking a mini retirement in June & July. When the property markets initially crashed in 2020, I went back to full time work (as we saw an opportunity to buy a new house) - I have continued to work full time ever since but I have been looking for a reason to start cutting back.

This is where Hybrid FIRE comes in. Hybrid FIRE gives you a yearly target. Once you hit or exceed that target, then you could stop contributing to your portfolio for an extended period and move into part time or mini retirement phases (perhaps taking extended time off between jobs for example). I refer to it as Hybrid FIRE because it gives you the freedom to move between different phases: full time work, part time work and mini-retirements.

You only need to know two things:

1. How much income you are looking for per year in today’s money in retirement.
2. How many years you want to give yourself to retire.

The rest is a formula - a calculation if you like. It isn’t complex, and the best part is, the number will adjust depending on inflation - so you can be sure to hit an FI number with inflation taken into account - rather than trying to guess your FI number in the future (as I did back in July).

Furthermore each year should get easier, as the power of compounding starts to kick in.

I am going to be covering this strategy (and 5 other strategies) in my presentation in September- however, I will be covering this in more detail going forward, as I see it as my path forward to ensuring that I can live the balanced lifestyle that I am looking to put together, while still ensuring I hit my FI goal.

Accounting for Inflation

I wanted to give a quick touch on inflation - as this aspect is going to be important in future updates.

Back in July, I went ahead and tried to forecast my FI number accounting for inflation. I assumed inflation would run at 2% per year for the next 18 years.

This was all well and good, but I have since realised a better way to account for inflation. There is very little we have control over when it comes to building our FI portfolio except for the amount that we can save each month. Whether the market and inflation go up and down, is largely out of our control.

Thankfully, we can calculate both of these metrics. We can work out our portfolio balance by adding all of our assets together (and making some assumptions, such as the price of any property). For inflation, we can use statistics that are published monthly. Yes, there are critics of these metrics that they are “selective”, however they are still the best tool that we have to calculate the impact inflation has on our FI number.

I decided that I will use the yearly figure of €30,000 per year from January 2018 as my FI number. This was the year that I started to pursue FI. What this means is that from that, I am able to adjust my FI number each month based on the impact of inflation.

For example, between January 2018 to July 2021 inflation has increased by 4.4%.

When keying in €30,000, the calculator says:
“A basket of goods and services that cost €30,000 in Jan 2018 would have cost €31,323.97 in Jul 2021”

Therefore, my inflation adjusted FI number becomes:
€31,323.97 * 25 = €783,099.25

This is somewhat sobering - and we can start to see first hand the impact that inflation has on our ability to hit FI. Inflation has its positives, such as reducing mortgage debt in real terms, however when it comes to the accumulation stage of FI, inflation is a major issue because every €1,000 increase in our expenses, results in an additional €25,000 increase to our FI number.

The point I am trying to get across is that we are dealing with moving targets. Both our retirement expenses and FI number will change considerably with inflation and by adjusting our FI number with inflation, we are able to define clearly when we hit FI based on our portfolio amount exceeding our inflation adjusted FI number.

I will start recording my inflation adjusted FI number on monthly reports going forward and will cover this more in next month’s update.

Pensions Awareness Week

I am delighted to announce that I have been invited to take part in Pensions Awareness Week, also happening in September. This is my third time being invited to speak. You can register for the week-long event at the Pensions Awareness Week Website.

Let’s jump over to the numbers

I wanted to give more transparency on the portfolio changes, so I will start breaking down the numbers in more detail.

Change in Pension Value

My pension is made up of investments mainly in index funds (with some REITS, investment trusts & cash to cover broker fees). Pensions grow tax free in Ireland, so having funds invested in a pension is extremely tax efficient.

August 2021 Pension Changes
Opening Balance €89,496.44
New Pension Contributions €2,500.00
Dividends Received €0.00
Capital Gains €2,253.14
Closing Balance €94,249.58

Change in Property Equity

The following table highlights the change in the amount of equity I have in our buy to let property.

August 2021 Property Equity Changes
Opening Balance €82,794.99
Capital Repaid €645.89
Closing Balance €83,441.88

Change in Cash

My cash balance changes due to two factors.

1. Any new savings I add during the month.
2. Net Income Received from my buy to let - this is any left over cashflow after paying off the property loan, property management fees and any other expenses.

As a result, it can be confusing to see why my cash balance changes, but I will highlight the change in cash balance below:

August 2021 Cash Changes
Opening Balance €10,184.00
New Cash Contributions €2,500
Buy to Let Net Income €-38.91
Closing Balance €12,645.09

Overall, my change in portfolio can be summarised as follows:

August 2021 Portfolio Changes
Opening Balance €186,075.43
New Contributions €5,000
Pension Capital Gains + Dividends €2,253.14
Property Income €607.98
Closing Balance €193,936.55

Portfolio Breakdown

The table below shows how my portfolio is currently broken down:
Portfolio Breakdown (as at 31st August 2021)
Pension (Equities) €94,249.58 48.60%
Property €83,441.88 43.03%
Forestry €3,600.00 1.86%
Cash €12,645.09 6.52%
Total €193,936.55 100.00%

Overall Retirement Goal

I will be updating my goal next month based on my new Hybrid FIRE strategy - so bear with me until then!

I thought I might share a nice statistic however. Assuming I didn’t invest another cent into my portfolio, based on a real return of 5% per year, I would be able to retire in 28 years, aged 65. This means I am officially COAST FI!

Passion Projects

Finally, it isn't all just about money! I also work on projects because I want to make positive changes to the world! Here are some projects I am part of:

The Irish FIRE Podcast

I launched The Irish FIRE Podcast in June 2019. While I did run ads back on the podcast when it first launched, these days I run the podcast as a passion project. The podcast shares my story on my journey towards financial independence.

An Dúlra Co-Op

An Dúlra Co-Op is an Irish initiative hoping to make a positive difference, by establishing Irish native woodlands. Irish residents can become shareholders of the co-op and become part owners of newly established Irish forests. I co-founded the co-op in September 2020. We are still looking for new investors, so definitely check it out!

Portfolio Tracker

Portfolio Tracker is designed for those who are pursuing financial independence and are looking for a software that will add accountability to your FI journey. Portfolio Tracker is a simple, flexible investment software that will allow you to see the growth of your portfolio over time, without being complicated to maintain. Click here to track your own portfolio.

Hockey Clubs

I helped co-found four new hockey clubs in North Munster, introducing over 300 children to the game of hockey. Interested in your children playing hockey? Feel free to bring them along to any of the following hockey clubs - Castletroy Hockey Club, Ennis Hockey Club, Nenagh Hockey Club and Thurles Hockey Club.

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