Irish Financial Independence & Personal Finance Podcast

September 2021 Portfolio Update

Friday 1st October 2021

Does the 4% rule really apply in Ireland?

Last month I gave my presentation titled "Early Retirement Made Possible". I love presenting and I always find I learn so much about my own journey when I need to prepare for a presentation.

Up until recently I've been frustrated with FIRE because I felt that to follow the 4% rule was so difficult in Ireland, largely due to the high tax rates. Yes, we can push everything into our pension, but that then rules out early retirement, with no option to retire in our 30's or 40's.

It wasn't until I dug a little deeper, that I realised that perhaps we don't need to apply the 4% rule so strictly in Ireland, largely for the following reasons:

1. We have this exceptionally generous state pension. While it may not be as generous in real terms as it is today by the time we hit traditional retirement, it's unlikely just to fall off a cliff. When we factor this from say age 68 to 70, then it makes a huge difference to your retirement plan.

2. We have free health care from age 70. Follow any US FIRE influencer and all you hear about is "rising health insurance costs". In Ireland (and Europe), we have the opposite - health care is typically free once you hit a certain age. Even if you have private health insurance the amount it can increase is capped. It's a cost we typically wouldn't lose sleep over!

3. We can always return to work before we hit our traditional retirement age. This is probably the biggest consideration. With FIRE our worst case scenario is that we return to work at some point. Imagine you retired early in 2007. A year later your portfolio is worth half of what it was the year before. Are you really going to stand by the 4% rule in this case, or are you more likely to pull up your socks and return to work? I know I would return to work if this happened, so perhaps we can be more aggressive with our withdrawal rate knowing that we won’t withdraw from our portfolio during a bad year.

4. We will likely work in retirement anyway. Keep in mind that so many people who achieve FI end up continuing to work in some form or another! Even a small income will make a huge difference to your withdrawal strategy. In my own case, I have income from passive income sources, income from hockey coaching and I will likely continue to freelance as a web developer even once I hit FI. Based on all of this, there is a good chance I could likely cover most of my living expenses anyway just from small consulting work, hockey coaching and some passive income.

5. We likely have some sort of inheritance due to us at some point. For many of us, we may benefit from their assets being passed on to us one day!

Based on all of the above, it is likely that we don’t really need that much to hit our traditional retirement portfolio. Even a small pension of anything over €200k would likely be more than sufficient to live off once you factor in the state pension and an inheritance. So what if we aimed to withdraw 4% once we hit traditional retirement age and be a little bit more aggressive before then, knowing we can always return to work if there is a major market correction.

As for what we withdraw before then, well it's largely up to you and your own personal situation. I suspect anything between 5-8% would likely be safe enough if you managed it correctly and aimed to withdraw only in the good years.

In order to be cute and clever, I've also given this FIRE approach a name. I am glad to introduce “Hybrid FIRE”. Here is my official definition -

"Retiring on 12.5x to 20x your retirement expenses and being prepared to work as needed, knowing that you have your traditional retirement covered anyway!"

Didn’t I mention some sort of calculation last month?

Last month I mentioned that Hybrid FIRE was going to have some sort of calculation. I am still working on this and will report on it in a later update. I initially thought the calculation was going to be related to Hybrid FIRE, but actually, it is more likely just a useful tool to keep you on track to hit your FI number. In the end Hybrid FIRE has evolved to the definition I described above.

Raising Funds for Charity

I am pleased to report that I raised €100 for charity from my online presentation last month. I have been in touch with Help the Homeless Limerick who are delighted to hear about the contribution - so thank you to those who used the affiliate link last month and came to watch my presentation.

Hitting my “Initial FI Number”

When I first got started on my FIRE journey, I was under the false idea that €200k was going to be more than enough to retire on! I had the logic that if I could withdraw 1% per month, that would give me an income of €2,000 a month, which would cover my basic expenses.

I thought it would take me at least 5 years to hit my FI number back in 2018. In the end, it has taken me a little over 3.5 years - I will likely hit €200k in October.

I am pleased to say that hitting the €200k milestone is actually a great feeling. It has given me the freedom to start focusing more on lifestyle design, rather than continuing to add to my portfolio so aggressively. The power of compounding interest will really start to be noticeable now, and I know I have the option to reduce my workload and build a better lifestyle for myself, knowing that even if I didn’t add another cent to my portfolio, it will compound over time naturally.

Infact, I have actually taken the first step towards this. For the last 18 months or so, I have been working incredibly hard. I have been averaging over €10k a month in income and for me to do that has been me working on multiple projects and working some very long days. I have finally reached a point where I feel the need to continue to do this is no longer required. With a portfolio of €200k, compounding will now be a major factor moving forward.

When I also consider our low cost of living, little to no debt and owning 50% of our primary residence (which I don’t factor in when looking at my FI number), our overall situation is pretty strong. When I started to consider withdrawal rates, and reaching various alternative FIRE strategies, there were a few things that really stood out. One in particular was an approach called Flamingo FIRE. Flamingo FIRE is simple - save up half your FI number, then move to part time work and let compounding grow the other half.

This part time work is referred to as “semi-retirement”. Many of you may recall back in 2018-19 I did this for around 18 months. It was one of the best time of my life, and a period that I have been greatly missing. The problem when I did it in 2018 is that I didn’t have a significant portfolio to back up what I was doing - this has now changed!

Back in 2018-19, I was working 3-4 hours a day, which covered my expenses and still allowed me to put a small bit away in my portfolio. I am pleased to say that in September I started to reduce my workload and now consider myself to be in the “semi retired” phase of Flamingo FIRE.

What that will look like, and how long this period will last, I am yet to determine. I think as part of the deep reflection process I did when I was looking at various early retirement strategies last month, is that I felt the semi-retirement phase would allow the best of both worlds. It will allow me to work on software development projects that I enjoy, without that feeling of having to slog away working 40 hours a week or more. It will give me enough freedom to work some days, and not others, without really having much pressure because to sustain our cost of living as a software developer is actually not that difficult at all.

So, for now, I am adopting an approach that I call “Flamingo FIRE, Plus”, which is where I am moving to the semi-retirement phase of the FIRE movement, but still contributing a small monthly amount to the portfolio to ensure that I will likely be able to retire fully within 10 years. This feels like a better strategy than continuing to work full time for the next 4-5 years ago - taking it easy from here and allowing myself to cruise to FI seems a far easier approach.

Furthermore, I am adopting Hybrid FIRE and will look to save up at least 16x my retirement expenses before looking to withdraw from my portfolio. At this point, I suspect I would adopt some form of Barista FIRE approach anyway - where I withdraw a small amount from my portfolio, but continue to work in some capacity because either I enjoy it, or I just want to give myself opportunities as they come along!

It’s been a long road over the last 3.5 years or so, but I am excited to be at a point where I feel the accumulation phase of my FIRE journey has ended and I can start to move into a consolidation phase.

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.

September 2021 Pension Changes
Opening Balance €94,249.58
New Pension Contributions €4,500.00
Dividends Received €0.00
Capital Gains €-2,374.11
Closing Balance €96,375.47

Change in Property Equity

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

September 2021 Property Equity Changes
Opening Balance €83,441.88
Capital Repaid €361.44
Closing Balance €83,803.32

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:

September 2021 Cash Changes
Opening Balance €12,645.09
New Cash Contributions €500.00
Buy to Let Net Income €16.10
Closing Balance €13,161.19

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

September 2021 Portfolio Changes
Opening Balance €193,936.55
New Contributions €5,100
Pension Capital Gains + Dividends €-2,374.11
Property Income €277.54
Closing Balance €196,939.98

Portfolio Breakdown

The table below shows how my portfolio is currently broken down:
Portfolio Breakdown (as at 30th September 2021)
Pension (Equities) €96,375.47 48.94%
Property €83,803.32 42.55%
Forestry €3,600.00 1.83%
Cash €13,161.19 6.68%
Total €196,939.98 100.00%

Overall Retirement Goal

At the moment, I don’t really have a specific goal or time frame for full retirement. I am planning to enjoy the semi retirement phase for a while before I focus on anything specific.

Ideally, I would like to be able to retire fully within the next 10 years. Based on my Hybrid FIRE strategy, I will need to grow my portfolio to 16x my retirement expenses.

I have been using a figure of €30,000 per year (from January 2018) to calculate my retirement expenses. According to the Irish Inflation Calculator, €30,000 in January 2018 has the same purchasing power as €31,504.51 as of August 2021.

Therefore, based on my portfolio value of €196,939.98, my portfolio currently covers 6.25 times my retirement expenses (€196,939.98 / €31,504.51). Therefore, I am 39.06% (6.25 / 16) towards being able to fully retire.

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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