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.

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

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

Pension Growth

Total Investments

Upcoming FIRE event

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If you do sign up, please be sure to select AF1 as the referral link to flag me as the referrer to support the blog with a commission at no additional cost to you.

You may (or may not) have noticed a lack of blog posts. I certainly have felt guilty for not writing! A lot has been going on in the last number of months and the blog had to take a back burner. I’m hoping that with our new lifestyle choice, that will change.

I really struggled with the title of this post. I wanted to put something really catchy for google search terms like “We partially retired!” but funnily enough Mr. MH came across a critique of FIRE bloggers often saying they retired early but that this is disingenuous as their online platforms are earning them more now than they ever made working a day job and that they still put in a lot of hours into their business. The critique said they should be more honest and say something like:

“I’m a former retiree. I came out of retirement to share my advice on saving, investing, and frugal living. I make good money doing it.”

or

“We quit our jobs to do what we love! We now travel the world and share the investment strategies that have worked well for us. We now work at what we enjoy doing and make money from sharing our advice with others”.

And in our case, it’s no different. Plenty of families choose to live off one income and have one parent stay at home (though maybe less so nowadays). The only difference I’d argue in our case is the choice was afforded to us by the financial freedom we have worked towards.

Snapshot of the last 4 months

Each of these points could warrant a full blog post and may do in the future but this gives you an idea of what’s been going on on our side:

• End of March:
  • I went back to work (remotely) from maternity leave on a 2.5 day/week contract. Mr. MH was still off on unpaid parental leave.
• Beginning of April:
  • I went up to 5 days a week due to project demands and trying to get as much done before Mr. MH went back to work, I also continued to take on blog consultations.
  • We un-officially listed our condo in Canada for sale, got an offer in 1 day but had to decline as the tenant could not remove his belongings due to COVID travel restrictions.
• Beginning of June:
  • Mr. MH went back to work on a 3 day week, I went back down to 2 days a week. We juggled swapping between working from home and childcare.
• End of June:
  • We attempted to find childcare in time for end of July when Mr. MH was due to go back full-time. Could not find any availability in creches and childminders were going to cost 2,000€/month for a 3 day week.
• Beginning of July:
  • We officially listed our condo and sold within 2 weeks. The relief of selling was overshadowed by trying to figure out tax liabilities for disposing a property from abroad.
• Mid-July:
  • Decision made for Mr.MH to hand in his months’ notice
  • Mr. MH went back to a 5 day week, while I worked a 2 day week by doing an early morning shift before resuming caring for our son.
• August:
  • Mr. MH finished up work, I’m now on a 4-day week
  • I worked on a number of blog consultations, was on a podcast and prepped for some upcoming presentations in Sep
  • Our condo sale officially closed and taxes are filed
  • We took a one week holiday and are now thoroughly enjoying our new work-life balance!

Considerations

Going down to one part-time income and essentially delaying our time to financial independence was a weighty decision but definitely feels like the right decision for our family, at least for now. Many angles were considered when making the decision which I will go into below.

Money

The first consideration was, could we make this work money-wise and still have money left over to build towards financial independence? Short answer: yes.

Lower housing costs

Long answer: With the sale of our Canadian property freeing up some equity the decision remained around how best to use that money.

1. Do we leave it in Canada and invest it there where there are more tax-efficient vehicles?
2. Do we transfer it to Ireland, incurring additional capital gains tax (CGT) on remittance and invest it here? Or
3. Do we transfer it to Ireland and use the funds to pay down our mortgage here?

After further analysis, I discovered that paying down our mortgage would take the same amount of time to get to financial independence as investing it in a more tax-efficient Canada (full post on this pending). Even though our net worth might be higher in the long term by investing it instead, this is not the main goal for us. What is important is the financial freedom to buy TIME and paying down our mortgage will get us to the same end goal in the same time while also reducing our expenses now and reducing the risk of the market not performing (which is questionable in the next number of years).

Lower childcare costs

As mentioned above, if we could get a place in a creche it would costs us about 800€/month for 5 full days a week but in the current climate, we could not secure a place. This left childminders, who in our area are charging 10-12€/hour, so for a full day, 3 days a week this would cost us 2,000€/month. While this was less than our lowest income, the reasons for us both working full time were dwindling.

Social

Leaving the workforce would be a major social change for Mr. MH. So much of our social network is the connections we have at work. Becoming a stay at home dad could present its own challenges in terms of keeping engaged with other adults. We will play this by ear. We have a few friends on maternity leave and so Mr. MH can meet up with them during the week and with me being off on Friday’s we can take turns going on social outings with friends if we feel we need more social outlets.

Although men are starting to become primary care givers more often, it’s still not commonplace. We considered the social impacts of this and reached out to a friend who also took this decision. They said they are definitely enjoying the added time for things that are important to them like preparing better food and being able to eat all together but mentioned that their husband needed to make a conscious effort not to be bothered by frequent questions about him being off work while at the playground or library during business hours – at least Mr. MH can be aware to expect these comments and be prepared to not let them bother him. Another great tip was to join a gym with a creche so they could get some alone time while their kid gets to play with other kids.

As for our son’s social side, he gets time with other kids at the playground and with our friend’s kids when we visit them. We would like for more social outings for him but trying to balance reducing COVID risks with the need for him to socialise. We may book him into some day care sessions at some point or hold off until he is in the early childhood care and education (ECCE) scheme where he’ll get 3 hours of free schooling per day once he is 3.

Loss of earning potential

One of our concerns in either one of us temporarily leaving the workforce until our son is in school was our loss of earning potential. We both felt like we had reached a decent level of earnings and that taking a leave from the workforce could take us 5 years to get back to the same level of pay we are on now.

Some of this is unfounded as we had a similar feeling when we left our jobs in Canada to start over in Ireland. We felt like we were earning more than we ever had and couldn’t see how we would maintain that level of earning in a new country where we had no local experience. Fast forward 6 years and we are earning almost 60% more take home than we were then (before going to one income).

Anyway, we think we’ve found a way not to worry about this. Our latest path to FI analysis includes Mr. MH never needing to return to work. Should he wish to return to work when our son is in school to fill his time, it will be of his choosing and the pay will not matter. We can maintain this lifestyle of me working a 4 day week until we reach full FI and then we will both have enough invested to cover our expenses.

Health

Being off with our son enables Mr. MH to stay a lot more active than if he were working. He usually aims to get outside twice every day for a walk in nature wherever possible. And with me being off on Friday’s we will have more time to start taking turns going out on more strenuous exercise outings.

I recently watched an episode of Zac Efron’s Down to Earth on the research into Blue Zones where there are large populations of people over 100, and the key findings to a long life are: low stress, active lifestyles in addition to genetics, environmental factors and diet.

I feel like the decision to go down to one part time income will certainly help tick a few of those boxes.

The other health considerations are COVID related. Mr. MH is an at risk category and so putting our son in creche would increase the chances of us contracting it. We have friends who have already had to get tested after having their kids in creche for 1.5 weeks. The cycle and stress of having our son being continually sick and constantly worrying whether it is COVID, going for testing, taking time off work when our son had to be kept home from creche was all another major tick box against the idea of both of us continuing to work.

Family

One of my main reasons for striving for financial independence is to have more time with friends and family. As tomorrow is not guaranteed, I feel it is important to prioritise this now as much as possible and this decision helps to do that now rather than later.

Whenever I have a chance to call my parents, or my siblings, even if I feel like I should be doing something more productive, I do my best to always chose the call over something else. I think to myself, some day, you might not be able to call them anymore and you will not regret taking every chance you get to call them while you still can.

Having a long weekend every weekend also enables us to go and visit people more often. We have been back in Ireland for 6 years and we saw more of our friends in Ireland when we lived in Canada and would make a tour of the country once a year to get to see everyone. Now that we are here, we take it for granted that we can go anytime and everyone gets so busy that we don’t actually make the time. Now that we have more time, we plan to schedule visits with friends and family around the country far more often. We’ve already been up to Sligo and got to catch up with friends we hadn’t seen in ages.

Lifestyle

I feel like we are already living a partially retired lifestyle. We don’t have to worry about taking work off when our son is sick, organise childcare or camps during school terms, work our schedules around drop off and pick up times at creche. We are building in the hobbies and exercise routines we’d always put on the long finger and hoped to do “when we had more time”.

With the extra time I plan on growing the blog, learning to grow my own food, getting out in nature more, visiting friends and family, joining an exercise class and trying new vegetarian recipes.

For example, last Friday was my first “guilt free blog work day” and it looked like this: Woke up had a slow breakfast, tidied the kitchen while Mr. MH had a lie in, worked on a presentation I am doing in early Sep, came down for lunch, played an hour of playstation, threw on some laundry, worked on a blog consultation, went on a long walk with Mr. MH and our son in nature, worked on another consultation while Mr. MH made dinner and had the evening to ourselves once our son had gone to bed.

When I asked Mr. MH how he was finding the new routine he said he was finally getting back his “Joie de Vivre” which he hasn’t felt since we were back in Canada. This was a shock for me to hear and while I’m sad it has taken this long, I am even more grateful that we can be in this position and has solidified my feeling that this is the right decision.

When we dug into this a bit more, we feel it’s a combination of getting more exercise, being out of a stressful job and knowing we will be ok for money for almost a year even if I lose my job.

Risk

My job is not permanent and my contract only gets extended for 6 months at a time. This is a risk we are taking but we are mitigating this by maintaining a cash cushion to cover at least 6 months living expenses should my contract end and either one of us need to get another job.

The stress of this risk is also alleviated as once we pay down our mortgage with proceeds from the condo, our annual expenses will almost be low enough to live off one minimum wage job so even if we can’t find a professional job quickly enough, we could take a minimum wage job while the other continues to stay home with our son and we’d still have enough to get by, though we would need to temporarily pause our goals for saving towards FI.

Impact on Path to Financial Independence

So how has this decision impacted our path to financial independence? Basically it has delayed our time to full financial independence but I would argue that we are already living the lifestyle we want to live once we get there so reaching FI is no longer the most important goal. We are already building in the lifestyle we want once we no longer need to work for money and test driving options so that we are not shocked once we get there and regret having given up work.

• If we both worked full time and put our son in childcare, we would have been fully FI in 4.25 years.
• If Mr. MH worked full time and I worked 3 days a week, we would have been fully FI in 8 years.
• With our current plan of me working 4 days a week, Mr. MH never returning to work, paying off our mortgage in the next few years and then investing in ETFs, we should be in a position to be fully FI in 12 years.

This of course is assuming I maintain my job and current level of pay but as per the other risk mitigations mentioned above we are happy enough to live the life we want now even though it extends our time to full FI. Should our circumstances change, we are also happy that our expenses will be low enough to still maintain a low stress lifestyle with one person able to stay home with our son and one person working for minimum wage even though it may pause our path to full FI until we can get a professional level job again!

I recently got a question from a friend on how I plan to save towards my kids’ college years and so I thought I’d put my thoughts into a post in case it’s of some use to others.

How much do you need?

When I first discovered the FIRE movement I was talking with friends and colleagues at work about it and I mentioned my plans to save X amount to cover my living expenses, a colleague then asked how I had planned to cover my kids’ costs at college. She had read that you need 40,000€/child to cover the costs of 4 years of college – even though third level education is mostly covered by the government in Ireland, these costs are for housing and supplies etc. Of course these can be more or less but it’s a decent guide. At the time I was of the mind set that I would not pay for my kids college education if I was not in a position to as a result of retiring early and that they could work through college and take out loans if needed but since I’ve crunched the numbers and realise that it really won’t take much to save this kind of money if I’ve got 16-19 years to do it and so I have changed my mindset as this will not overly delay my early retirement plans. Now my original mindset may seem a bit heartless but I hope that I can teach my kid about money from an early age and that they will be able to provide for themselves rather than needing money from us.

How I plan to invest

In summary my main idea is that I’d like to find an online brokerage custodial account which I can put in my son’s name. I have asked Degiro if they offer this and they said it was on their to do list but do not have one just yet. If anyone has come across an online broker with custodial accounts please do let me know! The reason I want it in my son’s name is so that the growth and any dividends are in his name for tax purposes and he will not be liable for capital acquisition tax (CAT). If I were to invest in my own name and give him the money later then he would have to pay CAT on any annual amounts over 6,000€ (see below for more on the 6,000€ amount).

Once I can start investing on my son’s behalf I will invest 12,000€ as a lump sum over 2 years, the reason I will split this over two years is again for tax purposes. In Ireland there is something called a small gift exemption where any person can receive a gift of 3,000€ from multiple sources and each gift is exempt of capital acquisition tax (CAT) up to the 3,000€, so both myself and my husband can gift a total of 6,000€/child/year without triggering CAT. The other thing to note is that this gift amount does NOT reduce the lifetime inheritance limit of 335,000€ (as of 2020 budget). More info here.

By investing 12,000€ over two years and letting it grow for 16 years at an estimated growth of 7.91% (average stock market returns of 10% minus 0.19% ETF portfolio fees minus 1.9% inflation) and paying 41% exit tax every 8 years as a deemed disposal, you will have just over of the inflation adjusted 39,000€ in the 16th year aka the future amount will show 51,240€ but will have the buying power of today’s 40,000€.

If you don’t have that lump sum to invest you can invest 100€ month for the 16 years to end up with just under 39,000€ (for a total investment of 19,200€). This just goes to show the power of compounding interest over time – that you need to invest 7,200€ more if you spread if over 16 years instead of a lump sum at the start. With the current child allowance of 140€/month/child you could technically just invest that money and have your college expenses paid for by the government. My original post stated that the 140€ was taxed but a reader kindly pointed out that this benefit is not taxed regardless of income so if you invested the full amount you’d have (inflation adjusted) 54,560€ after 16 years (for a total investment of 26,880)!

What if you don’t have 16 years?

Ok so what if your kids are older and will need the money sooner? Here is a rough guide of how much you’d need to invest if you have 4, 5 or 10 years to college years following the same investment principals – though if you need the money in 4 or 5 years then a higher risk portfolio may not be the best option but up to your level of risk tolerance.

4 years to college

If you’ve got 4 years you’d need to invest 708€month for a total investment of 34,000€ to end up with (inflation adjusted) 41,277€ in 4 years. This is 8,500€/year so your child would be liable for CAT on 2,500€ if you followed my approach above meaning they’d need to pay 3,300€ back to revenue over 4 years meaning they’d only have 38,000€ instead of 41,000€ to cover their costs. That said, in the guide linked above it does say that any excess of 6,000€/year could be claimed against the inheritance lump sum so they could avoid taxes now but lower their overall inheritance amount in the future which is something you may consider.

Another approach here could be, instead of gifting upon investment to avoid taxes on growth, to invest in your own name and only gift the 6,000€ CAT exemption limit per year in the year they need it once they are in college. As you only had investments for 4 years, the extra CAT you would pay on gains would be lower than if you had invested over 16 years. Your kid would need to cover the remaining 4,000€/year themselves through part time work or living more cheaply but then at the end of their college years they would still have nearly 30,000€ left as an investment that you could either continue let grow or continue gifting the 6,000€ year until it’s depleted which they could either reinvest in their own name or put towards a downpayment etc. If they have a partner at that point you could also gift another 6,000€ to their partner as the small gift exemption is not limited to family.

5 years to college

If you’ve got 5 years you’d need to invest 521€/month for a total investment of 31,250€ to end up with (inflation adjusted) 39,496€ in 5 years. This is just over the 6,000€ limit so you could follow a similar approach to what I suggested above to avoid the CAT on the remaining 1,000€.

10 years to college

If you’ve got 10 years you’d need to invest 220€/month for a total investment of 26,400€ to end up with (inflation adjusted) 41,094€. This is under the 6,000€ small gift exemption per year so no need to alternatives for reducing CAT.

How does this compare to other estimates?

I read another article recently which quoted varying savings amounts for 4, 10 and 16 years by investing in varying lower interest savings accounts or in actively managed funds and the monthly amounts were nearly double in some cases as the fund managers would be taking their slice of the pie or the returns in lower risk investment account would be lower.

The 4 year estimate was 100€ more per month than my estimate at 808€/month.

The 10 year estimate was to invest 11,334€ more in total compared to my 26,400€ estimate which assumed a rate of 5.4% return compared to my 7.91% (likely as the active fund would be taking the 2.51% for their cut).

The 16 year estimate was 70€/month MORE than my estimate, again likely as the active fund would be taking that as their cut. 70€ on top of the 100€ means they’d be 41% of your investment for themselves (Or 13,440€ in total). This is why fees are so important to check and understand how they compound! Especially since the article mentioned they would likely just invest it in something like the vanguard all world fund ( VWRL), which you have access to invest in yourself at a fee of 0.25%!

Anyway that’s my initial thoughts on how to save for college but I’m still searching for the custodial account which I can put in my son’s name. In the meantime I will put aside money in my own account and allow it to start growing there.

Please do let me know if you manage to find a custodial account for investment purposes!