June 2021 Portfolio Update
Sunday 4th July 2021
Opps, I Calculated My FI Number Wrong!
One of the reasons that I love to share my own FI journey, is that I get feedback from you guys - those who are following my story!
Last month was a great example of this. I made the comment last month that I thought I was going to need a portfolio of around €1 million in today’s money to retire comfortably and it didn’t take long to get feedback that this was likely too high!
The feedback I received is that if we would be able to put ourselves in a mortgage free position, then there is a good chance we would require a lot less than €1 million.
I worked through the numbers in more detail, and upon reflection realised that I had indeed over budgeted. Obviously this is great news, as trying to get a portfolio of €1 million in today’s money was going to be tough.
I came to the conclusion that if we were mortgage free and if our children were no longer depdendent on us, that it would be possible for us to live comfortably on an income of €24k per year (in today’s money).
For us to receive an income of €24k, we would need a portfolio of €750600k in today’s money, based on the 4% rule.
How about becoming mortgage free? This one is all about taking advantage of the 25% tax free allowance which can be accessed from your pension portfolio on retirement. I was able to work out that by the time I am 55, I will have around €75k left on our mortgage balance. I will look to include a provision in our portfolio an additional €75k so that when I retire, I can use this additional money to pay down the remaining mortgage balance and be mortgage free from that point.
Therefore, our target FI portfolio target has been adjusted to €675k (600k + 75k) in today’s money. I will be adjusting this amount to take into account inflation below.
What was exciting about these figures, is that based on what we have already accumulated, and assuming I continued to add around €800 a month into our pension between now and age 55, then I could likely go back to working part time and adopt some form of Coast FI approach from today if I wanted too.
One consideration is that there is still 17 years or so before I hit my retirement age, so I need to find a way to ensure that I hit my FI number. I have explained the approach I have since adopted in more detail below.
Is 55 Early Retirement Though?
Yes, 55 is early retirement in the traditional sense, but it isn’t the excitement of retiring in my 30’s or 40’s like we read about in the US. I know in the past, I have found several different potential routes for me to reach FI, however when I sit down and reflect on each of them, I realise that adopting a retirement age at 55 is likely the best path for me.
There are two core reasons for this - children and tax! Let me explain:
Children
My youngest child turned 4 a couple of months ago. He will have just turned 22 by the time I turn 55. He should be at an age where he is in his final year or two of college. My other two older children should be in the workforce and hopefully no longer dependent on my income (if they are still living at home, they will be paying rent!). As our expenses go, we should finally have found ourselves in a position where we are no longer supporting our children financially and this should allow us to live as a couple in our 50’s on a much less.
Tax
Ireland can be a high tax country. I say it can be, because unless you utilise a pension, you're likely going to find that a good chunk of your income falls in the 50% tax bracket. I have avoided this by paying myself a salary at the tax cut off rate (the amount just before 50% tax falls due). This results in me needing to invest via a Director’s Pension and through my web development company. It is likely that 55 will be the age that I could access by Director’s Pension, so it makes sense to utilise the pension as much as I can, and retire when I can access this.
So yes, while 55 may not sound early compared to some of the stories we hear over in the US, by Irish standards, it will be at least 12 years earlier than the standard retirement age.
I recently posted a poll in the Limerick FI group asking what age they planned to retire. It was interesting to see that even in a group of people who were specifically looking to retire early, half planned to be at least in their 50’s before they retired.
The reality of living in Ireland, is that because ultising a pension is the most tax efficient way for us to retire and given we can’t access the money until we are 50, it is likely that for most of us, early retirement in Ireland means retiring in your 50’s!
I would have been curious to see how Irish people would approach FIRE if we had access to something like ISA in the UK.
I am still trying to work out my long term FI journey. Part of me wants to continue to work as hard as possible and make early retirement happen ASAP. The other part of me wants me to slow down and take my time. There are advantages to both approaches of course, the big advantage of going slower is that it would allow me to start working less from today!
But for now, I will continue working as hard as I can, while I have the motivation.
What About Property
One downfall of this approach is that it might seem that I am over reliant on equities. There are options for me to diversify within a pension, such as buying property through a pension, and I will explore this as I go. I hope to provide more insights into this in due course.
I am also open to exploring the option of buying property through my web development company. While this isn’t as tax efficient as buying through a pension, it is still another option available to me.
Revaluation of Investment Property + Peer to Peer Write Off
Two houses have recently sold in the same estate as our buy to let investment property for significantly more than what it has been valued for in my portfolio. The last time the property was valued was 12 months ago, so I decided it was time to update the market value of the property. I have conservatively valued the property at €240,000 - it is likely it would sell for more than this, but this at least accounts for the amount I would get after the legal fees and auctioneers expenses. This has been reflected in the portfolio report below.
I also made the decision to write off the remaining Peer to Peer investments. There was around €1,150 left, however it is unlikely I will receive the bulk of this investment back - so it made sense to finally write this off and remove it from my portfolio.
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