How low-income earners can still retire early in Ireland

In this post, I demonstrate how you can retire early, by age 57, earning just above minimum wage here in Ireland. I tried to make my assumptions as realistic as possible to the vast majority of families.

This analysis was spurred on a comment on a reddit thread that financial independence and early retirement were only attainable for high earners. Challenge accepted.

I wanted to test this theory with my own analysis and have found that early retirement is possible even for low-income families. Of course, this requires some degree of financial literacy on investing and continuously keeping spending in check but this is true for anyone on the path to financial freedom.

Let’s start with a story of the subjects in question.

Let’s call them Mary and John.

Mary and John are the same age. They didn’t go to college and started working full time at a job that paid the living wage at age 20.

“Living Wage is a level of pay recommended by the Living Wage Technical Group. It is not mandatory – just advisory. In 2020 – that advisory body raised its recommended minimum living wage from €11.90 per hour to €12.30. Lidl is one company in Ireland that pays the Living Wage. Someone earning the Living Wage doing 39 hours a week would earn €24,944 gross a year. This would result in take-home pay of €419 a week or 21,788€ a year (After tax, USC and PRSI of €3132 a year)”

Jointly, they take home 43,576€/year. Their joint expenses come to 35,634€. This leaves them 7,942€/year or 18% of their take-home) to invest which they put into a savings account as they have not yet learned about investing.

At age 20, their expenses look something like this. They each rent a room in separate accommodation and pay 400€/month each. They spend a good bit on entertainment and holidays as young single people typically do.

As they are low income earners, they qualify for a medical card and GP visit card, explaining the lack of medical costs in their budget.

	Annual	Monthly	Each
Bank Charges	9.95	0.83	0.41
Entertainment	6,454	537	268
Food	7,785	648	324
Home	160	13	6
Holiday	3,000	250	125
Monthly Bills	12,176	1,014	507
Personal	597	49	25
Transportation	4,404	366	183
Weddings	1,046	87	43
	35,634	2,969	1,484

At age 20, they each buy a second hand car for cash worth 2,500€ reducing their savings that year.

At age 24, Mary and John meet and fall in love.

At age 25, they jointly have 34,000€ in cash savings and decide to look into how to invest. They discover ETF investing through an online broker. They decide not to put it into a pension at this point as they have plans to use the cash before retirement age for big life events like buying a house.

By age 26, they are living together and have moved to a location which is close one of their workplaces only requiring one car. They decide to scrap their old cars and use their savings to buy one “new” used car to share for 5,000€ cash.

At age 29, they get engaged and have the wedding the following year. At this point, their investments have grown to 110,000€. They withdraw 20k to pay for their wedding.

At age 32, they find a house and make a move to purchase it. At this point their investments have grown to 122,000€, they withdraw 70k to make a 30% downpayment on a 250,000€ house. This brings their monthly payments to 850€/month over a 25-year term at 2.95% interest.

At age 33, their last car needs replacing so they get another “new” car for 5k cash out of their investments.

At age 34, they have a baby and Mary takes 18 months off. As they are sleep deprived, their entertainment budget reduces their overall expenditure by 3,000€ to 32k. Taking the 6,370€ of state maternity cover into consideration along with the 140€/month of child benefit, they only need to withdraw 3,700€ from their investments to cover the time off. Though they stop contributing to their savings for this time as well.

At age 36, they are both back to work full time and have their kid in child care. Their entertainment budget is dramatically reduced and is moved towards child-related costs. As they are low-income workers they are able to avail of government subsidies for childcare. According to this calculator, they are entitled to a subsidy of 118€/week. Their creche costs 850€/month. Taking their subsidy of 6k and child benefit of 1.6k out of the creche costs the child care only adds around 3,000€/year to their costs, which they easily saved by cutting back on their entertainment budget.

Also at age 36, as their big early life expenses are out of the way, they decide to start contributing to a pension which increases their 7,942€/year in pre-tax investments to 9,977€/year due to the tax deferral. They both maximise their contributions in the year they are 36 which is capped at 20% of their gross salary between age 30 and 39.

At age 37, Mary has another baby and takes another 18 months off. They withdraw another 3,700€ from their ETF investments to cover the gap in time off and stop contributing to investments until they are both back to work.

Once they have 2 kids their expenses look like this

Bank Charges	€ 11
Cash Withdrawals	€ 328
Entertainment (alcohol, gadgets, sporting events, concerts, nights out etc)	€ 1,381
Food (groceries, fast food, lunches out, restaurants)	€ 7,447
Home (accessories, furniture/appliances, insurance, LPT, maintenance, TV license)	€ 1,651
Kid Stuff (clothing/accessories, supplies, toys/books, subsidised childcare)	€ 4,051
Holiday (flights, accommodation, food/drink, transport etc)	€ 2,000
Monthly Bills (mortgage, utilities, mobile, refuse)	€ 12,618
Personal (clothing, haircuts)	€ 348
Transportation (maintenance, NCT, tax, parking, petrol, public transport, taxi, tolls)	€ 2,023
Weddings (accommodation, food/drink, gift, stag/hen, transport)	€ 1,000
Miscellaneous	€ 2,778
Grand Total	€ 35,634

Due to the government subsidies for child care, the additional child benefit and the fact that the 1st child will almost be in school by the time Mary goes back to work from her second maternity leave, their expenses for childcare do not increase.

From age 39 onwards, they continue investing 9,977€/year into their pension.

At age 40, they withdraw another 5k from their ETF portfolio to replace their last car (essentially they do this every 7 years). And again at age 47 and 54.

By age 49, their childcare costs are halved to 1,500€/year as their 1st born is now 16 and no longer needs after school care. They invest this difference into their ETF portfolio.

At age 52, their 2nd child is 16 and they have no more childcare costs, this increases their savings to an additional 3k/year going into ETFs on top of their pension contributions.

By age, 57, their mortgage is paid off reducing their annual expenses from by 10,200€/year.

At this point, their original 35k per year in expenses has reduced to 22.5k as they no longer have childcare costs or a mortgage. This means they only need an investment portfolio of 562,000€ to cover their remaining expenses using the safe withdrawal rate of 4%.

Assuming a real rate of return of their ETFs of 7.91% and 6.54% of their pension after fees and inflation, their portfolio actually reaches this value at age 56 but as they still have their mortgage payments for another year it would be safer to continue working 1 more year. They technically could have the option to withdraw more than the 4% for their first year but this may be taking an added risk for the sake of working an extra year.

If they decided to support their kids through college, they could have reduced their savings in previous years and could continue working past 57 and investing the savings from their mortgage into their pension which would still have them retiring comfortably by age 60. Still well before the age they can access the state pension (which will just be a bonus and is not something they will require to cover their cost of living).

While I know this could be picked apart on various points, it simply demonstrates the point that if financial literacy is taught in schools or at an earlier age, and people can learn to keep their spending aligned with the things that bring them the most happiness, they can keep their expenses down, while still living a traditional and fulfilled life and still have money left over to work towards financial security without relying on the government state pension.

Detailed calculations

And for those that want to pick apart the numbers here is the portfolio growth:

ETF Growth

Age	Year	Fund	Annual Savings	Gain	Exit tax/ Deemed disposal	Withdrawal	Total	Note
20	1		7,942			5,000	2,942	No gains as cash only Each get a second hand car for 2500
21	2	2,942	7,942				10,884	No gains as cash only
22	3	10,884	7,942				18,826	No gains as cash only
23	4	18,826	7,942				26,768	No gains as cash only
24	5	26,768	7,942				34,710	No gains as cash only
25	6	34,710	7,942	3,374			46,026	Invest in ETFs
26	7	46,026	7,942	4,269		5,000	53,237	Get 1 second hand car
27	8	53,237	7,942	4,839	–		66,018
28	9	66,018	7,942	5,850	–		79,810
29	10	79,810	7,942	6,941	–		94,693
30	11	94,693	7,942	8,118	–	20,000	90,754	Wedding
31	12	90,754	7,942	7,807	–		106,503
32	13	106,503	7,942	9,053	1,383	70,000	52,114	30% downpayment, 25 year term, 2.95%
33	14	52,114	7,942	4,750	1,750	5,000	58,056	New car
34	15	58,056		4,592	1,984	3,700	56,964	Have baby, take 18 months leave, no investments
35	16	56,964		4,506	2,399		59,071	No investments
36	17	59,071		4,673	2,846		60,898	Investing in Pension
37	18	60,898		4,817	3,329	3,700	58,687	Have baby, take 18 months leave, no investments
38	19	58,687		4,642	3,201		60,128
39	20	60,128		4,756	3,712		61,173
40	21	61,173		4,839	1,948	5,000	59,064	New car
41	22	59,064		4,672	1,883		61,853
42	23	61,853		4,893	1,847		64,898
43	24	64,898		5,133	1,916		68,116
44	25	68,116		5,388	1,975		71,528
45	26	71,528		5,658	1,903		75,283
46	27	75,283		5,955	1,950		79,288
47	28	79,288		6,272	1,984	5,000	78,576	New car
48	29	78,576		6,215	1,915		82,876
49	30	82,876	1,500	6,674	2,006		89,044	Half child care (1500 more to invest)
50	31	89,044	1,500	7,162	2,105		95,601
51	32	95,601	1,500	7,681	2,209		102,573
52	33	102,573	3,000	8,351	2,320		111,604	No more childcare
53	34	111,604	3,000	9,065	2,442		121,227
54	35	121,227	3,000	9,826	2,571	5,000	126,482	New car
55	36	126,482	3,000	10,242	2,548		137,176
56	37	137,176	3,000	11,088	2,736		148,528
57	38	148,528	10,200	12,555	2,936		168,347	Mortgage free
58	39	168,347	10,200	14,123	3,149		189,521
59	40	189,521	10,200	15,798	3,424		212,095
60	41	212,095	10,200	17,584	3,717		236,162

Pension Growth

Age	Year	Fund	Annual Savings	Gain	Total	Note
20	1			–	–
21	2	–		–	–
22	3	–		–	–
23	4	–		–	–
24	5	–		–	–
25	6	–		–	–
26	7	–		–	–
27	8	–		–	–
28	9	–		–	–
29	10	–		–	–
30	11	–		–	–
31	12	–		–	–
32	13	–		–	–
33	14	–		–	–
34	15	–		–	–
35	16	–		–	–
36	17	–	9,977	652	10,629
37	18	10,629		695	11,325	No investments due to maternity leave cover
38	19	11,325	9,977	1,393	22,695
39	20	22,695	9,977	2,137	34,809
40	21	34,809	9,977	2,929	47,715
41	22	47,715	9,977	3,773	61,465
42	23	61,465	9,977	4,672	76,114
43	24	76,114	9,977	5,630	91,721
44	25	91,721	9,977	6,651	108,349
45	26	108,349	9,977	7,739	126,065
46	27	126,065	9,977	8,897	144,939
47	28	144,939	9,977	10,131	165,047
48	29	165,047	9,977	11,447	186,471
49	30	186,471	9,977	12,848	209,296
50	31	209,296	9,977	14,340	233,613
51	32	233,613	9,977	15,931	259,521
52	33	259,521	9,977	17,625	287,123
53	34	287,123	9,977	19,430	316,530
54	35	316,530	9,977	21,354	347,861
55	36	347,861	9,977	23,403	381,241
56	37	381,241	9,977	25,586	416,803
57	38	416,803	9,977	27,911	454,692
58	39	454,692	9,977	30,389	495,058
59	40	495,058	9,977	33,029	538,064
60	41	538,064	9,977	35,842	583,883

Total Investments

Age	Year	Fund	Annual Savings	Gain	Exit tax	Withdrawals	Total
20	1	–	7,942	–	–	5,000	2,942
21	2	2,942	7,942	–	–	–	10,884
22	3	10,884	7,942	–	–	–	18,826
23	4	18,826	7,942	–	–	–	26,768
24	5	26,768	7,942	–	–	–	34,710
25	6	34,710	7,942	3,374	–	–	46,026
26	7	46,026	7,942	4,269	–	5,000	53,237
27	8	53,237	7,942	4,839	–	–	66,018
28	9	66,018	7,942	5,850	–	–	79,810
29	10	79,810	7,942	6,941	–	–	94,693
30	11	94,693	7,942	8,118	–	20,000	90,754
31	12	90,754	7,942	7,807	–	–	106,503
32	13	106,503	7,942	9,053	1,383	70,000	52,114
33	14	52,114	7,942	4,750	1,750	5,000	58,056
34	15	58,056	–	4,592	1,984	3,700	56,964
35	16	56,964	–	4,506	2,399	–	59,071
36	17	59,071	9,977	5,325	2,846	–	71,528
37	18	71,528	–	5,512	3,329	3,700	70,011
38	19	70,011	9,977	6,035	3,201	–	82,823
39	20	82,823	9,977	6,893	3,712	–	95,981
40	21	95,981	9,977	7,768	1,948	5,000	106,778
41	22	106,778	9,977	8,445	1,883	–	123,317
42	23	123,317	9,977	9,565	1,847	–	141,012
43	24	141,012	9,977	10,764	1,916	–	159,837
44	25	159,837	9,977	12,039	1,975	–	179,878
45	26	179,878	9,977	13,396	1,903	–	201,348
46	27	201,348	9,977	14,852	1,950	–	224,227
47	28	224,227	9,977	16,403	1,984	5,000	243,623
48	29	243,623	9,977	17,662	1,915	–	269,347
49	30	269,347	11,477	19,522	2,006	–	298,339
50	31	298,339	11,477	21,502	2,105	–	329,214
51	32	329,214	11,477	23,611	2,209	–	362,094
52	33	362,094	12,977	25,976	2,320	–	398,727
53	34	398,727	12,977	28,496	2,442	–	437,758
54	35	437,758	12,977	31,180	2,571	5,000	474,343
55	36	474,343	12,977	33,645	2,548	–	518,417
56	37	518,417	12,977	36,674	2,736	–	565,331
57	38	565,331	20,177	40,467	2,936	–	623,038
58	39	623,038	20,177	44,512	3,149	–	684,579
59	40	684,579	20,177	48,827	3,424	–	750,159
60	41	750,159	20,177	53,425	3,717	–	820,045

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