Asset shift

Before we moved back, our assets were split per the below chart:

Our home made up the majority of our equity (66%), then our Canada ETFs and Irish stocks (Mr. MH’s old work scheme) made up 11% each and our Irish ETF portfolio made up 7%. We kept a cash buffer to cover a few months of living expenses, making up 3% and our car made up 2%.

For now, our new asset breakdown looks like this:

79% of our equity is now made up of our Canadian ETF portfolio. 12% remains in our Irish stock account which we will start to sell off when we start to withdraw from the portfolio. 5% is the value of our car and 4% remains in cash as an emergency fund.

In terms of existing assets, I wasn’t going to sell them off and trigger a tax event unnecessarily so for now our portfolio will look a bit more complicated than it needs to be. Eventually, as we start to sell off funds when we start to withdraw, we will sell off the funds we no longer want to hold first and our portfolio will get simpler over time.

Detailed Canadian ETF Breakdown

Once we moved, we had to decide how to restructure our assets. I didn’t want to have assets in 2 countries as I didn’t want to have to keep filing taxes in both as well as to continue managing multiple investment accounts and portfolios. I’m a big fan of the keep-it-simple approach.

As mentioned in my last post, we decided we would rent instead of buy a new home for the time being and so we wouldn’t be needing any large sums any time soon and even if we do want to buy again, we’ve decided we’d like to save up and start again, leaving the rest of our assets invested to grow.

To start building out our new portfolio, I did up a budget, figuring out how much cash we would need to cover the next twelve months including the purchase of a new car and other setup costs. I also figured we needed to leave some cash in our Irish account as we had plans to travel to France, Portugal and Ireland within the next twelve months and there was no point converting the cash only to convert it back again a few months later. Once I knew how much we needed to leave out, we took the money from the sale of our Irish home, sold our Irish ETFs and moved the money to Canada. From there I took the opportunity to apply the knowledge I’ve acquired in investing so far and made up a new consolidated ETF portfolio.

Initially, I was just going to continue replicating the ETF portfolio I already had. It has performed well enough and has good diversification, but when it came to investing the largest sum of money I will probably ever invest at one time, I thought about all the other long-time FIRE bloggers that I follow. All of the American bloggers have said time and time again to just invest in VTSAX (Vanguard Total US Stock Market Fund) and block out the noise about anything else. J L Collins says he plans to never sell and just live off the dividends.

The bloggers I follow worked to reach their full FIRE number before retiring early but have way more now than they will ever need, partly because they never really stopped working. They just work how and when they want to work now, on things that they are passionate about. Working for money is optional for them but if you have the drive to reach FIRE, you are not going to be the kind of person to sit back and never earn money again. Looking at my investment portfolio and own journey to FIRE in this light gave me new perspective. I decided I would follow suit and take a bit more risk than I previously would have by investing in one ETF with exposure ONLY to the US stock market.

Consideration 1: VTSAX is not available in Canada. After some research, I found a very similar fund. This post gives a good comparison. In summary, if you buy VUN (Vanguard Total US Stock Market ETF), it’s made up of the same underlying stocks as VTSAX but it is purchased in Canadian Dollar. Unfortunately, the annual management fee is 4 times higher than if you were in the US (0.16 instead of 0.04) :(, I suspect this is due to currency conversion costs.

I could have converted my Canadian Dollar to US Dollar and bought VTI or VUS (other similar funds in USD) but that added more complexity, more currency hedge risks and would subject me to US withholding taxes which I’d have to track and claim back at tax time. Again, I’m all for the Keep It Simple approach which just means I’ll pay a slightly higher annual fee.

Consideration 2: Not all of this money is mine alone, some belongs to Mr. MH and so he had to agree with the latest shift. He bought his previous ETF portfolio after me and although his was made up of the same funds as mine, the timing meant that his portfolio dipped for much longer and his best-performing fund during the pandemic was VCE (Vanguard FTSE Canada Index). Because of this, he felt more comfortable keeping at least some of the portfolio invested in a Canadian stock market ETF.

This meant that our target portfolio allocation was going to look something like 95% VUN and 5% VCN (Vanguard FTSE Canada All Cap Index) – this is a newer, broader ETF than VCE.

I started off by investing the proceeds of our house first. I bought mostly VUN and a small amount of VCN per the plan. Then as we were moving over the proceeds from our Irish ETF portfolio my nerves started creeping in about how over-exposed to the US markets we were. I decided I wanted to build back in some regional diversity and looked for another fund or two to help round out my portfolio. As we add more money we will purchase the other funds to balance it out a bit more.

Previously our ETF portfolio was made up of 5 funds. Now I think I can get the diversification I’m comfortable with in 3.

Our new target is something like 80% US, 15% Developed Markets excluding US, 5% Emerging Markets

This should give us a weighted MER of 0.19%, estimated annual growth of 12.02% and estimated annual dividends of 1.58% (based on returns since inception per current fact sheets).

Our current portfolio including our Irish stocks currently looks quite disorganised but I’m ok with that as the estimated returns of the portfolio are slightly better than the above projections. Our current weighted MER is 0.18%, estimated annual returns are 12.28% and dividends of 1.37%.

Once you get to a certain level of funds, you can start to see really fun gains or really scary losses on a daily basis. This has been an interesting experience. Our life’s savings are literally all in the stock market. We signed up to an account which lets you consolidate all of your investment accounts into one dashboard with reports. So far our Canadian accounts have gone like this:

The blue line is contributions and the green line is value of investments. So in August, we lumped in our house proceeds and we saw a nice uptick, very shortly followed by a downturn which didn’t go below our initial contributions but was still a drop of 24,000$ in the span of a few weeks. Thankfully, this has now gone back up to above where it was at the previous peak but before you go putting large sums into investments, be sure you are committed to the buy and hold strategy as the smallest drop in your share price can result in big drops in your portfolio. If you sell when it dips, you are locking in your loss, but if you hold on for long enough it will recover.

The current year to date returns are coming in at 14.53% not including dividends.

Different accounts

Another thing I haven’t gone into yet are the different investment accounts available in Canada. As soon as we got back, we opened up a number of new accounts under each of our names in order to maximise our tax benefits. Below are the different accounts we currently hold in each of our names.

• Tax-Free Savings Account (TFSA)
• Register Retirement Savings Plan (RRSP)
• First Home Savings Account (FHSA)
• Margin Account

The TFSA gives you a certain amount of money you can invest per year tax free. This is after tax income but grows tax free and is tax free on withdrawal. Unfortunately for us, your contribution room stops growing once you are out of country so we only have a portion of the 88,000$ room other Canadians have. Still it’s a great account to have.

RRSP’s are similar to Irish pensions in that they are tax-deferral accounts with annual contribution limits where you contribute to them in your higher earning years to reduce your taxable income, the investments grow tax free until withdrawal, at which time you pay your marginal income tax rate. The benefit Canadian RRSPs have over Irish pensions is that you can easily open an account and manage the funds yourself and there is no minimum age for withdrawal.

FHSA’s are tax-free savings accounts to help people save for their first home. There are annual contribution limits up to a maximum of 40k, contributions are tax-deductible, growth is tax-free and withdrawal is tax-free. Contrary to what the name implies, if you have NOT owned your primary home in Canada in the last 4 calendar years, you are still eligible for an account. If you do not decide to buy a house in the end, you can roll the money into your RRSP without impacting your RRSP contribution limits. Your contribution room only starts growing once you open an account so even if you don’t intend on investing/saving for a home, it might be a good idea to open an account just in case you do in the next few years.

Margin accounts are your usual taxable after tax investment accounts.

As we’ve been out of country for 9 years, our contribution room in our TFSA and RRSPs are not as high as they could be but something is better than nothing. So for now, we have maxed out our TFSAs, RRSPs and FHSAs and lumped the rest in our Margin accounts. As I haven’t worked much this year, this may seem like a waste as I won’t have income tax to reduce but getting the money invested and allowing it to grow as soon as possible will outweigh the tax savings I would have made if I had spread it out over higher income earning years.

There is also a Registered Education Savings Plan (RESP) we may look into for our son but I’m not 100% sold on the benefits vs. restrictions. Should our son not go to third level education in Canada, your marginal income tax is charged on withdrawal PLUS a 12-20% withdrawal penalty. For now I’ll just keep investing in our other accounts and use those funds to pay for college if needs be.

As Forest Gump once said: That’s all I got to say about that.

There have been some big changes in the Money Hacker household over the last 12 months. Aside from my journey back to mental wellness, we’ve had some exciting changes too. This post will cover the What, When, Why, and How’s of what’s been going on.

What

We moved back to Canada! We sold all our assets (house, car, furniture and Irish investments) and moved all our money to Canada. We are now renting a two-bedroom house in the countryside and have invested all our money in ETFs (exchange-traded funds). We are test-running semi-retirement, seeing how our portfolio performs to see how much or how little we need to work to cover the rest of our expenses. We’re also looking to split our time between Canada, Portugal and Ireland over the next 12 months. Should we wish to buy another house at some point, we will start over, building up a new downpayment and getting another mortgage. We would hope that our portfolio growth would cover our mortgage payments at minimum at that point and would still be mortgage-neutral.

When

I knew in June of 2022 that I wanted to move back. It took many months for me to convince Mr. MH that this was not a passing whim (of which I have many in fairness to him). It was particularly hard for Mr. MH to come to terms with as I had been so adamant only weeks prior that I had zero intention of moving back to Canada for as long as I could see. Given my state of mind at the time, I can understand his reluctance. During the time it took me to convince Mr. MH, I researched, plotted and planned. We sold off furniture and toys, donated books and got the house ready for sale. Whether we moved to Canada or not, we still planned on selling our house and moving within Ireland to somewhere closer to family/friends as you’ll read about below. In the end, we reduced our last 9 years and a three-bedroom house into a 20-foot shipping container. Finally, by June of 2023, we flew back to Canada with what was left of our belongings trailing behind us.

Why

Part of the change stemmed from the isolation I felt during the pandemic and my state of mind. I was in search of 2 things. 1. The ability for me to quit work, preferably with Mr. MH off at the same time for a significant amount of time and 2. Community. I ran through many scenarios trying to figure this out.

One of the silver linings of the pandemic is that it opened up the opportunity to work remotely and although that has changed somewhat since, there are still opportunities that weren’t there before.

At one point, we were looking at buying an old farmhouse on 5 acres of land in Mayo to be closer to Mr. MH’s family and to be in nature.

At another, we were looking at a house in the same estate as some friends of ours in Cork where we could be mortgage-free and live off one part-time income. And every option in between, each option we considered had to tick both boxes, and for each we compiled a list of how much closer we would be to how many friends and family members. Then about 2 weeks before we were due to come back to Canada for the summer, a switch flicked. I knew then that I needed to come home. I couldn’t describe it as anything other than intuition.

Now, we are renting a two-bedroom house in the countryside less than 2km from my parents. I thoroughly appreciate the sense of community I so lacked. I see my parents almost every day. We have each other over for dinner once or twice a week and borrow milk and random ingredients from each other (we are a 40-minute drive to the nearest town). My sister randomly bought me a pair of pants she thought I would like. My Mom, while watching my son, baked zucchini bread as an activity and made an extra loaf to share with us. She also recently made me a pot of homemade soup when I was sick. My Dad helps us with things around the house. My siblings drop by unplanned or at short notice. We have play-dates with cousins and family BBQs. In the Summer, we spend time at the lake 20 minutes away. I got a paddle board which I absolutely love to get out on. My parents watch our son from time to time which has allowed us to get some alone time.

We even got to go to France for 2 weeks for the Rugby World Cup child-free! None of this was possible from where we were. Prior to this, we had been away from our son only twice for a total of 4 nights in 4 years.

It’s not all one-sided. I get to help out too which I thankfully now have some energy to do. I help with things like tech support, babysitting, lifts to doctors’ appointments, dinners and house cleaning for example. We also buy things for each other where we see it’s needed without expecting anything in return.

For this chapter of our lives, it feels like friends are so busy with kids and activities that it’s hard to schedule in any time together. If we are to see other people regularly, it’s far more likely if we are closer to family – at least for now.

I recently listened to a wellness podcast that said that community and connectedness are a missing link in sustained wellness and I couldn’t agree more. It’s made a huge difference to the quality of my life.

How

The move went as smoothly as it could have gone, though I like to think my level of planning had something to do with that.

I use a software called Asana to help manage big to-do lists. It’s shared with my husband so we can each work away on things and keep each other updated in one place with the progress using comments and attachments. Our move to Canada list had the following sections:

• get house ready for sale
• packing/shipping
• before we leave
• finance stuff
• after arrival
• quality of medical care research
• shopping on arrival
• house to-do (rental)

We would add to the list as soon as we thought of something else that needed to be done and keep it up to date as we went along to make sure nothing got forgotten. Coming up to the last day, I also had a paper to-do list on the kitchen counter with the last-minute stuff.

I also had a spreadsheet (of course) which had the following tabs:

• rent vs buy analysis
  • this included the total of our assets alongside various options of buying a house vs renting a house to see how much our portfolio would cover of our living expenses and how many months of the year I would have to work to cover our remaining expenses. Some example scenarios below.
  • I also kept track of the exchange rate trends and calculated what gross salary I would need to make to cover all expenses after taxes in the 2 provinces we were considering (Quebec and Ontario have very different income tax rates)
• move furniture
  • this was an analysis of what we paid for our furniture, what we thought we could sell it for second hand, what we would have to spend to replace it in Canada vs what it would cost for us to ship it
• home build
  • we also looked at the option of severing a plot from my parents’ farm to build a prefab home
• rent option
  • this looked at what rental yield we thought we could get if we rented our Irish home out instead of selling
• estimated cost of living
  • this included a few of the rent vs buy scenarios using our current cost of living in Ireland as a base and adding/taking away costs per our research and understanding of Canadian costs
• move costs
  • this included estimates on how much the move would cost us including house sale costs, shipping and flights as well as the sale of our car. This was used to help us manage cash flow as we knew we’d need some large sums available for things before the assets from the house sale were freed up

We had a few administrative hiccups getting set back up on this side but overall can’t complain. We had a very soft landing in that we had a place to stay for the first few weeks with my parents. And then when our furniture arrived, we moved into our rental.

Of course, wrapping up our life in Ireland and saying our “see you later’s” was hard and definitely had me questioning my decision the closer we got to leaving but now that we’re 5 months in on the other side I have to say it was the best decision for our family for this chapter of our lives.

Rent vs Buy Scenarios

In this section, I will go through the various scenarios we considered when looking at renting vs buying in Canada. All of the below scenarios were based on actual houses available to buy/rent in the areas we were considering. I will generalise the information without giving specific personal figures however, I will share the actual expected outcomes of each for comparison purposes.

1. Buy house for cash, invest the rest, withdraw 7.5% of portfolio per year, add on non-employment non-dividend income (tax refunds, child benefits, passive blog income), minus base living expenses.
2. Buy house with 90k mortgage, invest the rest, withdraw 7.5% of portfolio per year, add on non-employment non-dividend income (tax refunds, child benefits, passive blog income), minus living expenses (base + mortgage).
3. Buy a duplex with 70k mortgage, invest the rest, withdraw 7.5% of portfolio per year, add on non-employment non-dividend income (tax refunds, child benefits, passive blog income), add on Air BnB income for the other unit minus living expenses (base + mortgage + additional homeownership costs) minus Air BnB fees and rental income taxes.
4. Rent for 1,000$, invest everything, withdraw 6.5% of portfolio per year, add on non-employment non-dividend income (tax refunds, child benefits, passive blog income), minus living expenses (living expenses including rent would be comparable to owning as home ownership costs are much higher in Canada – higher property taxes, higher insurance)
5. Rent for 2,100$, everything else the same as option 4 except increase withdrawal from portfolio to 7.5%
6. Rent for 1,000$, spend an additional 2,500€ in rent for 3 months in Portugal/Ireland, everything else same as option 4 except decrease withdrawal from portfolio to 6%
7. Stay in Ireland, move to a house where we could be mortgage-free with assets from our current home, leave remaining assets invested, withdraw 6% from portfolio, add on non-employment non-dividend income (tax refunds, child benefits, passive blog income) minus living expenses (current minus mortgage)

The below table shares the outcomes of each of the above scenarios in terms of remaining expenses that would need to be covered through employment income.

Selling our house

We sold our house using auctioneera. They offer all the same services as a traditional estate agent but for a flat fee instead of a percentage which saved us a few thousand euro. We liked the online nature of their service and the dashboard/updates you’d get after every viewing.

We did a lot of decluttering and staging ourselves. Our house listing went live on Feb 17. We had a total of 4 group viewings with 19 people from Feb 23 to Mar 10. For each viewing, I made sure the house was spotless, aired out and staged the same as we did for the photos. On some days I even made fresh cookies so the house smelled of baking. On the evening of Mar 10, the bidding went available online and we watched 6 people make bids on our home. It finished up at 40k over asking. We went sale agreed on Mar 16. We had a condition that we needed the house until the end of June so we moved out on Jun 22 and had funds in our account from the sale on July 12.

Moving furniture

As mentioned above we were quite torn on whether the cost of shipping our furniture was worth it.

We estimated we spent around 17k on furniture and accessories for the house. If we managed to sell all of it (which was unlikely), we’d maybe stand to make about 25% of that back (4k). We’d then have to replace all of that furniture on the Canada side. We estimated it would cost us about 10k to replace what we’d need. This would not be a like-for-like replacement. As we hadn’t planned on leaving Ireland, the furniture we bought was higher quality – stuff we really liked. We’d also likely still have some things to ship as we had some sentimental items like a few baby things, teddies/toys for our son, and a wedding present that is dear to us that we couldn’t fit in a suitcase.

Our first shipping quotes were at peak due to pandemic backlogs, port congestion and strikes. They ranged from 9,500€ to 11,000€ for a SHARED 20-foot container not including insurance.

I found a site called Freightos that tracks the ticker rates for certain shipment routes. Like tickers for the stock market, there are similar ticker rates for freight costs – referred to as the FBX. I signed up to their newsletter and kept up to date on the rates for our shipment route. We used this as a basis for comparison when looking for new quotes closer to the date of our move. A year later, we got updated quotes from the existing companies and they were coming in even higher than before! It pays to shop around as we got a quote from a different company and managed to get our full 20-foot container including insurance for 7,560€.

We still had to downsize some of our furniture in order to fit everything into 20 feet and there were some things we no longer needed or electronics that wouldn’t work in Canada so we still had to sell some things and replace them on the other side on top of the shipping but it was oh so nice to get our furniture from our Irish life to help us feel at home more quickly in Canada. I think this was particularly helpful for our son’s adjustment to his new life, to have some elements of familiarity.

In terms of timing, we sold our car the morning the movers came! Our furniture was packed up and collected on Jun 22nd. We got a taxi to our friends’ house where they surprised us with a final gathering of some of our best friends for dinner and then we flew out the very next day. Our furniture arrived at our new rental on August 1st. There were quite a few forms to fill out and sign off on. One set of forms you have to have completed and signed on arrival in customs when you fly in, in order to avoid paying customs on your personal items. Then once it arrived at the port, we had to drive to Montreal to sign another customs form in order to release the goods.

Moving Money

We did a good bit of research trying to find the cheapest way to get out money moved back to Canada. As we were moving such a large sum, both the exchange rate and the exchange fees were going to make a huge difference so this was an important one.

When I first checked with a currency broker I had used in the past, they were offering an exchange rate that was 0.13 points lower than the market rate. This seemingly small number was going to cost us over 7,000$ (4,700€) in difference.

I ended up finding a company called Atlantic Money who give you the market rate and only charge a flat fee per exchange. The catch was that the transfers were limited to what our online banking would allow per day which was 10,000€. This meant I needed to make a transfer per day for a lot of days to get the full amount changed over but this also allowed us to “dollar cost average” with the exchange rate. Even with the flat fee and the number of exchanges we needed to make, the fees came to less than 100€. A far cry from the 4,700€ cut the broker was going to take.

As I hadn’t used them before I started with a small transfer of 1,000€ to make sure it got to my Canadian account as expected. Once tested, we continued on with the daily transfer until all funds were transferred. We had to prove where the money came from for anti-money laundering purposes but it was super fast to complete and get approved.

They also now have a Business account if you have a business and work or get paid in multiple currencies.

Home build

We also priced out what it would cost to buy a plot of land off my parents and build a pre-fab home.

In 2022, this was what we had estimated.

For a prefab 2-bedroom bungalow like this one, it would cost between 434,000$ (295,000€) and 487,000$ (331,000€) including site works and land.

Break-down looked like this:

Estimated cost of living

In Ireland, by the time we left, our annual cost of living was averaging at about 36,000€ with a small mortgage.

Annual expense posts here: 2022 (35k), 2021 (38k), 2020 (39k).

We mapped out a few scenarios of living expenses in Canada per below:

Of course, these are estimates and we will get a better sense of what is realistic once we’ve lived here for 12 months, which I hope to share, but for now, we had to start somewhere. I used sites like numbeo and local blogs/forums/family to get a sense of what things cost here now. Will keep you posted on how close or far off we were.

And that about covers it! It looks like a lot of effort now looking back but we were both off and I’m a good planner so it was a lot more gradual than it looks reading it all in one blog post.

In my next posts, I’ll give an update on what our new Canadian portfolio looks like now as well as how we spent our time in the almost 18 months we were both off together.

Total spend in 2021 came to:

€38,064

This is only 4% less than last year instead of the 18.5% we had forecasted this time last year due to halving our remaining mortgage and selling our Canadian property, getting rid of that negative monthly cash flow.

Not included in this figure are the costs of our garden renovation which added to our home equity (12k), the capital costs of our “new” car (6.5k) and the income taxes we paid on our additional income here in Ireland (<1k) as the taxes are income-related expenses. Also excluded are any tax refunds we got from last years overpayments (8.6k).

Last year’s graphics were from YNAB but I converted my expense tracking to my own excel tracker template which I used to create the below graphics/reports.

Overall spend

Here is a summary of the main categories.

Food

Food became our biggest expense in 2021 (9.6k). Our grocery category (8k) includes everything you’d buy at the grocery store so can include alcohol, toiletries, cleaning products, the odd centre aisle item like small tools, toys for our son etc. Obviously, the food bought out of the house like lunches, restaurants and coffees are minimal due to COVID.

If we convert the full annual food spend of 9.6k into cost per person per week (assuming 2 adults and 1 toddler (I’ll average at 2.75), it comes to close to 67€/week/person.

This is a 23% increase from last years food spend. We got a lot more take-away in 2021 (38% or 400€ more than the previous year). Spend at the grocery store went up 18% (1,468€ more) compared to last year. We did less meal planning and more ad-hoc shops. Our son is eating more now so this could account for some of that increase. Also Mr. MH is coeliac so we spend a bit more on gluten-free pasta and bread and since Mr. MH is now the main grocery shopper and chef, we’ve been eating more meat and more red meat which is more expensive. We really did try to cut back on meat for a while in 2019 and 2020 which did reduce costs but it took a lot of effort to try and find new recipes all the time that didn’t end up all tasting the same. I found veggie recipes use a lot of the same base ingredients and eventually most of our meals ended up tasting very similar. I’d still like to eat less meat but this change has been bumped down the list with everything else that’s been going on.

Monthly bills

Monthly bills came to a little over 7k. The vast majority of our monthly bills was our mortgage (56% or 3,978€). The rest were made up of Gas, Mobiles, Electricity, Internet, Refuse, Life Insurance (for me only to cover our mortgage). Electricity was up 20% from last year (126€ more) and Gas was up 16% (139€ more) – this could be because we were away for the most expensive months in Jan-Feb 2020 in addition to rate increases. Internet was up 20% (100€ more) due to an increase in contract cost despite shopping around for intro offers.

Home

House related costs were our 3rd largest expense coming in at 5.2k. Sure, what else did we have to spend money on last year? We bought a new bed and mattress, a BBQ + supplies, picnic supplies (for all those COVID picnics meeting people outside), an awning for the garden, a humidifier and Christmas decorations etc. Our oven and hob gave up and needed to be replaced. Home maintenance was up this year too. We needed to replace a few taps and sink parts, and a roof repair for a leak as well as a few garden supplies. And the usual home insurance and TV license.

In terms of increases from last year, we spent 27% more on furniture, 45% more on small appliances and 86% more on maintenance than last year.

The joys of owning a 16-year-old home and all the appliances start to go at the same time. Something to keep in mind when looking to buy a house.

Entertainment

This category is slightly inflated by the cost of 2 rugby world cup packages, half of which we will be repaid for at some point. Mr. MH’s lifeline during COVID was sport so there are increased costs for sporting events and sports tv packages, he also got a second-hand bike. The next biggest cost in this category was sightseeing. We got annual passes to both Blarney Castle and Fota as some of the only outings we could do during lockdowns. The gadget category includes some podcast memberships, headphones, a PS4 controller and SAD lamp. The alcohol spend is only those bought directly at an off-license, the remainder is included in our grocery spend. We both play video games so spend a bit there.

Transportation

Transport costs were up from last year too coming in at just over €3,200. We paid cash for our car so have no car payment in this category. Despite not commuting to work we still spent almost €1,400 on petrol. We did have a few trips up to Sligo/Mayo and even though I am not commuting, we still drive around a good bit to various playgrounds and nature walks with our son. Even still, when we were both commuting to work, me with the car and Mr. MH on the bus, and able to drive to visit friends and family, we spent closer to 2k on petrol and public transport alone. Car repairs cost 71% more than last year as our previous car was starting to need more maintenance, part of the reason we got a new one. Motor tax was 33% more as I made a mistake paying for a full year on the old car before we traded it in which I didn’t realise I couldn’t get back. NCT was also up as we had to NCT both the old and new car.

Medical

Our next biggest expense was medical (3k), the biggest part of this was health insurance (almost 2k). We used to have cover through Mr. MH’s work and when we decided to go down to one non-permanent income, this was an additional cost we had to cover. The 2 other biggest costs were Mr. MH’s glucose sensors and GP/counselling costs.

Other

The remaining categories had a spend of 1k or less and include things like:

Weddings/Family events for a friends wedding and a 50th birthday party which we all went away for.

Work expenses wise, my biggest expense was a 49″ widescreen monitor.

Personal expenses such as clothes, shoes, accessories, Mr. MH’s vape.

Gifts/charity came out to almost 1k. This was for birthdays and Christmas and charity giving.

Goals for next year

When I did this exercise last year there were very obvious expenses that I could see we wouldn’t have this year (mortgage reduction, Canadian property costs gone). Looking at the above, I don’t see anything that really stands out.

Food-wise, we may be able to cut down on costs by getting back into the habit of meal planning and eating less red meat. Buying a whole chicken and throwing it in the crockpot is a handy/cheap 2-3 meals. Maybe we could shave 800€ off there.

Hopefully, we won’t have anything else crop up in terms of home maintenance and I don’t think we’ll have any big furniture costs again for a while so that might bring us down another 2k.

I also don’t intend to spend any more on work-related expenses so that’s another 1k.

Car related expenses should also be close to 800€ less as we won’t have the costs from getting an old car ready for trade-in.

That would bring us down to 33,400€. However, we do have travel plans this year so that may cost 2,300€ more than last year, bringing us back up to 35,700€.

My goal for 2021 was 32k. I was off by 6k. My biggest oversight perhaps was the amount of additional food costs my son would add to our bill, and inflation.

This year I’ll target 36k.

Early retirement impact

In terms of early retirement planning, I think I need to be more realistic in my forecasting on cost of living, and subsequently the amount of money we need invested to cover those costs.

Our latest projection was to reach financial independence in 11 years to cover an annual cost of 24k (once our mortgage is paid off) and spending 30k/year from now until then. After increasing the cost of living during accumulation to 36k and increasing cost of living in retirement to 32k this brings our estimations up to 14 years on 1 part-time income. If we go up to 2 full-time incomes once our son is in school, this may reduce further. Still, retiring at 50 and 54 as a worst-case is not a bad goal to have.

If you’re interested in calculating your own time to retirement, I have a questionnaire format excel template in my paid member’s area.

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

On another note, If you’d like to hear from more Financial Independence enthusiasts please check out this upcoming 4-hour event on March 6. For just 25€ (or 15€ for the early bird), you get to hear 5 different speakers on their money, mindset and lifestyle stories. I have presented at these before and A LOT of time and effort goes into each presentation. Even the 25€ is a steal for the inspiration and insight you get.

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.

A while back I did a post on all I’d learned to date on investing in Canada. This post will summarise how to invest in Ireland.

Investing your hard earned money can be scary! I read up on investing extensively for 2 years before I took the plunge.

I suffered from something called analysis paralysis. The more I read the more I was unsure how and where to start.

By hesitating I lost out on 2 years of having my money work for me. Instead I lost money to inflation in my account.

My hopes for this guide will be to help people get off the fence and start investing.

Warning: This is a LONG post but I wanted it to be a one stop shop. You can check back and re-read all in one place, as you need to, instead of keeping track of multiple links.

To help you skip around, here is a table of contents

Preamble

This post covers a high level summary of investing concepts. A lot of the concepts could have full blog posts of their own. If you want to know more about any of them, you can research further. However, this post should give you the overall concept at a high level.

There are tons of resources out there for US folk but very few in Ireland. This guide will focus what I’ve learned on investing in Ireland to date. That said, aside from the tax specifics and investing platforms, a lot of what I talk about here is applicable anywhere.

This guide includes references to reaching financial independence. This is where your portfolio is large enough (25 times your annual expenses) to cover your annual expenses by withdrawing only 4% per year. While this may not be your goal, this guide applies to everyone who wants to start investing.

Start by paying off existing debt

If you have existing debts, it’s best to focus on those first as they typically have higher interest rates than you will achieve in an investment account. For example: If you have 100€ and you pay down your credit card you will save 21€ of interest (at 21%). If you invest that 100€ instead you may only make 7€ (at 7% real rate of return after inflation). So that same 100€ is making you 14% more by paying down your credit card.

Focus on the debt with the highest interest rate first – typically in this order

• credit cards
• car loans
• student loans

Mortgages are usually lower than what you can get in an investment account. This means that mortgages can be an exception to this rule. A good rule of thumb is if your mortgage rate is over 4% you would be better paying it down before investing.

See if you can consolidate your debt into products with lower rates. There are a lot of credit cards that offer 0% interest for the first 6 months. Or get a line of credit with a lower rate (say 5%) to pay off credit cards with a higher rate (say 21%).

Remember the power of compounding is working against you when you have existing debt. Using the rule of 72 (a calculation used to figure out how many years it will take for your money (or debt in this case) to double), a typical credit card of 21% left unpaid will double every 3.4 years or quadruple every 6.8 years!

What to invest in and why

Why traditional investments aren’t great

A lot of people (including me before I found a better way) think of their home as their retirement plan or invest in products sold to them by the bank or their employer. There are major downsides to this approach.

Your home can certainly go up in value over time but it can also go down. There are also plenty of costs associated with owning a home that you wouldn’t have while renting. I’m not going to go into the rent vs. own debate here as that warrants a post in itself but banking on your home as an investment puts all your eggs into one basket which is very risky. It’s also very illiquid and doesn’t give you many options should you need to free up equity.

Your home also doesn’t generate passive income. Unless you avail of the rent-a-room scheme which allows you to generate 14,000€/year tax free. By far the most tax efficient “investment” option in Ireland at the moment.

Bank and employer investment products are usually products that work out best for the bank or employer rather than for you. They typically have much higher fees or lower returns than you could get on your own using something called index investing.

Fees are often brushed over but they become very important when compounding over time. For every 0.25% of a fee you lose out on 5% of your overall portfolio’s value. So if you pay the average 2.18% for an Irish pension fund (as per a 2012 report which has since been archived), your portfolio will be worth almost 43.6% less than it would be if you had invested in a fund with lower fees! This means the fund manager is taking almost half of your profits regardless if they have made you any money.

A common misconception is that management fees are charged as a percentage of your profits. This is not the case. They are charged as a percentage on your total portfolio whether you make any money or not. So in a year where the markets are down and you lose 5%, the fund manager still takes their 2.18%. This means that you are down 7.18% that year instead of 5%.

What is index investing and why is is better?

Index investing is a way for you to essentially bet on the whole stock market.

An example of an index fund is the S&P500. This is an active index where the value of the 500 largest US publicly traded companies is calculated and tracked. Over 15 year time periods, the S&P500 has never lost money, and has had a median return of 12.2%.

There are many passive funds with lower management fees which try to mimic and track these underlying active funds. There are also many other funds which track other sections of the market. You can pick and choose a diversification you are comfortable with.

Since the inception of the stock market, it has always recovered from every downturn given enough time. If you have time to leave your investments grow, you don’t need to overly worry about market downturns. You do need to have the confidence to leave your money invested, especially in a downturn. That said, there are ways to mitigate losses which I will cover below.

Main selling points of index funds are:

• lower fees
• they outperform actively managed funds by 85%
• they allow for passive investing, in that you can invest and forget. Aside from re-investing dividends and rebalancing once a year
• you can access them as needed without penalty

Figuring out your comfort with risk

The two main elements of a balanced portfolio are stocks (equities) and bonds (fixed income).

• Stocks are shares in a specific company usually with higher risk and higher gains
• Bonds are essentially loans where the investor (you), loans governments or corporations money and they agree to pay you back in fixed income by a certain date. These are lower risk but also lower return. Bonds are used to balance out the risk of a stock heavy portfolio. They are one of the ways to mitigate against stock market crashes.

A typical investment rule of thumb is to keep bonds in the percentage of your age. So if you are 30 years old you should have a portfolio with 70% stocks and 30% bonds. This reduces your risk as you near retirement but keeps your portfolio growing with higher percentages in higher performing stocks.

I have read mixed reviews of this for early retirees with some maintaining 100% stock portfolios to achieve maximum gains. Even in early retirement they maintain higher risk knowing they will keep working and therefore do not need a mitigation strategy.

Others are more risk averse and even though they are retired in their 30s, maintain a 60% stock/40% bond split for the first 5 years of retirement. Even after 5 years they will only go as high as an 80% stock/20% split even though they are continuing to make money from passion projects.

At the end of the day you need to figure out which split works for your own risk tolerance.

You can see my portfolio, which indexes I have invested in and why here. Summary below (though stay tune in coming months as I plan to start shifting this to more accumulating funds):

I currently have no bonds but think I will up this percentage to at least 10% after reading how useful it is to weather any stock market crashes. More on that below.

Words of warning against 100% stock portfolio

It’s not all a sure thing and like any investments you need to be ok living without the money you’ve invested. As quoted from Your Money or Your Life here are some stats and recovery times on historical market crashes:

• Great Depression: Down 86 percent, 27 years to recover
• Mid 1970s: Down 46 percent, almost a decade to recover
• Late 1987: Down 32 percent in just 3 months, 4 years to recover
• Great Recession, 2007–09: Down 50 percent, 6 years to recover (or 14 years if you count from the matching dot-com peak in 1999, which had just been regained in 2007)

The two events within the lifetime of young investors, the dot-com crash and the 2007–09 crisis, were exceptions in that they took less than a decade to recover—but that doesn’t mean the cyclical nature of the market has been suspended. By contrast, bond funds are far less volatile, losing only a few percentage points when they falter.

How to Invest

Setup a brokerage account

In order to invest yourself you need to setup an online brokerage account. I use Degiro. There is also Interactive Brokers which you can check out.

Degiro offer free commission trades on some ETFs. Vanguard S&P 500 is one and Vanguard All World is another.

The Vanguard All World differs from the high yield world fund I am in so I must weigh up the fees and performance of these and may switch.

Here is the full list of commission free ETFs. You get one free trade per free ETF listed per calendar month (meaning you can make more than one free trade per month as long as it’s one per listed ETF).

If you are trying to copy my portfolio you don’t have to worry about timing it as you could buy the S&P and all world ETFs for free and the rest in my portfolio have commission so they could be bought at any time.

As per the usual disclaimer, do not invest any money you can’t live without. All investments can incur loss of some or all of your money.

I buy the Amsterdam market ETFs as they are in Euro and not subject to currency exchange fluctuations. That said, all of my dividends except VEUR are paid out in USD and converted to EUR. This means you will still have some currency exchange exposure if you want to consideration this for your own portfolio.

Degiro have an app as well which is quite good.

I went with a basic account vs custody. The main difference is that basic has lower fees and the shares in a basic account can be lent out by Degiro to 3rd parties. This can’t happen in a custody account.

Fund your account

You can transfer money to your Degiro account by adding them as a direct debit payee on your online banking, this should avoid any banking fees. Test with a small amount first just to make sure it’s setup correctly.

Buy your ETFs

Once you figure out the ETFs you want to buy and the allocation you want, you’ll need to figure out how many of each you can buy with the money you have to invest. Say you have 1,000€ to start with, I did up a spreadsheet with some basic formulas where I entered the current unit price of each ETF and figured out how many shares of each I would need to buy to make up my desired allocation split. This way each time I have money to invest I just update the unit price and it calculates what I need to buy.

For example: For the All-World ETF I wanted that to be 33% of my portfolio so 33% of 1,000€ = 330€. If the unit price is currently 48.43€ then I can buy 10 shares (330€/48.27$ = 6.81 shares). As you cannot buy portions of shares you need to round down all of your numbers in the last column.

This actually only buys you 889€ worth of shares leaving you with 111€ to buy say 2 more of the All-World.

To test the waters you can choose to buy 1 or 2 shares and watch it grow for a while to help ease your concerns. In my case, in both my portfolios (Canadian and Irish), I saw a drop in value more or less straight away but over time the market has recovered. You need to be comfortable with your portfolio losing money from time to time and rest assured that the market goes up twice as frequently as it goes down over long periods of time.

Investment options in Ireland

I did a whole post on investment options in Ireland including pros, cons, tax rates, and estimated real rates of return if you want to check that out and see what you think you’d be interested in.

Personally my investment portfolio currently consists of a property in Canada, retirement funds in Canada (invested in self directed ETFs), and self-directed ETFs in Ireland. A good chunk of money is also in our home in Ireland but I’m not counting that as an investment as we plan on staying in the home after retirement and it will not generate passive income.

I am now looking at simplifying our portfolio and selling our Canadian property at some stage in the near future. We think that we will use those funds to pay down our mortgage in Ireland. Even though mathematically it makes more sense to invest it and use the passive income to pay down the mortgage we want to reduce our cost of living so that we have more flexibility and options around staying home with our son should we wish to. It will also hedge against a recession if one of us should lose our jobs, we will be more comfortable having lower expenses.

In the coming years we plan on investing more into ETFs in Ireland.

Taxes on investments

I’ve done a number of posts on taxes on investments in Ireland.

• Investment options in Ireland
• Why taxes in Ireland get too much flack
• Tax loopholes for Irish investors

Unlike Canada and the US, there are very few ways to legally avoid taxes on investments in Ireland. Believe me I’ve scoured the internet trying to find similar withdrawal options.

I’ve now come to terms with the fact that if I want to retire in Ireland, I need to accept the limitations of where I am and suck it up. I will pay higher taxes on my investments in order to retire where I love to live. My investments will still generate enough income to cover my expenses. I will just need to work a few extra years to get there.

The other benefit of this approach is that if, later in life, we choose to move somewhere cheaper with better tax options, we will already have the most tax inefficient portfolio and larger portfolio and will have more freedom to move around.

Tax efficient options in Ireland

Rent-a-room scheme

The most tax efficient option is the rent-a-room scheme as mentioned above.

Pensions

Next to that, pensions are currently the most tax efficient, though like anything, depends on a number of factors.

Tax deferral

Pensions are a tax deferral tool which means you pay reduced taxes now in your (typically) higher earning years and pay lower taxes on the withdrawals later in your lower earning years (in retirement).

Limited tax savings

If you are already in the lower tax band and will continue to be on the same band when you retire then pensions, while savings you taxes now, only kicks the can down the road as you will pay that same tax amount back when you withdraw.

Similarly if you are already in a higher tax band say earning 50,000€ and will continue to be in a higher tax band in retirement and withdrawing 50,000€ then same concept applies. You save now but pay later.

For example:

If you earn 50,000€ and don’t contribute to a pension you effectively pay 26.4% in income tax (13,213€).

If you contribute the max 20% for someone aged 35 (10,000€) to your pension that brings your tax rate down to 18.4% (9.213€).

A savings of 8% now.

Then when you retire you withdraw 50,000€/year, and you pay 26.4% then.

Which shows that your 8% savings has just been deferred to when you retire. Albeit after age 66 you no longer pay PRSI which would reduce your taxes so it depends when you plan to retire.

In both cases though, your investments do still grow tax free until you withdraw so that is a bonus.

Some tax savings

If you are earning the higher tax band, you do save in taxes now, but Revenue have rules that ensure you are paying higher taxes on pensions withdrawals after a certain age and when your pension goes above a certain amount whether you need the income or not.

Even if you only need to withdraw an inflation adjusted 40,000€/year for a couple you will still end up paying an average of 15% or so over 40 years. This is still a savings of 25% but worth keeping in mind. If you plan on living off more than 40,000€/year and plan on using your 200,000 tax free lump sum for anything other than more investments, the savings are even less.

My case against pensions

Even though pensions are the most tax efficient, I’m still not convinced for a number of reasons.

Lack of control

Depending on your pension type, you typically don’t get a say in what it’s invested in nor can you negotiate fees or government levies.

This can have a major impact on your end portfolio.

Looking at Irish pension trends from 2007-2017, the average pension growth was -4.82% after fees and inflation based on historical average, though the report only has data from 2007 (-7.3%), 2008 (-35.7%), 2015 (4.5%), 2016 (8.1%) and 2017 (6.3%).

Even if you take out the crash in ’08 it’s still only 2.9% (or 6.98% if you add back in the 2.18% in fees/levies and 1.9% in inflation instead of 10% in the stock market).

In which case investing in an ETF portfolio, even with 41% exit taxes and deemed disposals every 8 years would have fared far better.

Your pension needs to be earning a real rate of return of 5.95% or more in order to outweigh the higher taxes of a self directed ETF portfolio. This is based on a number of assumptions fully detailed in this post.

A real rate of return is the difference between your annual return (performance) minus your management fees and inflation.

The last 30 year average inflation for Ireland has been 1.9%.

In the last recession the government also implemented a levy on pensions to get access to some of that money themselves which further reduces your growth potential. This has since been removed but would worry about it being added back again if/when the next recession hits.

Limited contributions

Depending on your pension type, you are also limited to the contributions you can make per year. The limitations are as per below:

Early retirement issues

If early retirement is your goal, pensions present 2 problems:

• You likely need to be investing more than your limited amount per year in order to reach your goal
• You can only access a pension at age 50 at the earliest (again depending on the pension type)

If you are self-employed you have quite a few more pension options in that you can contribute much more but still limited to access at age 50.

Complicated withdrawal options

There are also a number of options to consider when you’re ready to withdraw from your pension. You can convert it to an approved retirement fund, purchase an annuity and so on. Each has their own sets of conditions. Some require minimum guaranteed income from other sources. Some “die when you die” meaning that the money remaining in the pot does not go onto your family. And so on. These conditions can change over time.

With ETFs you take out the money when you want, how you want and leave it to who you want. Albeit you may need to look into estate planning either way as there are ways to reduce the capital gains taxes your children will pay.

There is a great podcast on some of your inheritance consideration options here.

Transfer pension to another country

There are options to transfer your pension to another country if you have a bonfide reason to do so (ie: you are from that country and are returning home), though it has to be transferred into that country’s approved retirement fund.

So for example I could contribute to a self-employed pension here and transfer it to Canada when I’m ready to retire. In Canada, you can access your retirement fund (RRSP) at any age as long as you pay the taxes. You will be charged withholding taxes immediately on withdrawal but you get back any overages when you file your annual return. You also lose your contribution room.

But in order to do that I’d need to move back to Canada which is not in my plans. I also haven’t looked into the full ins and outs of it and what fees may apply, but an option to keep in mind should our plans change. It’s also possible the approved fund wouldn’t be an RRSP (which I wouldn’t have enough contribution room to take my full portfolio anyway), it may need to be an annuity or some other form or retirement fund which I really haven’t looked into.

All that said, I’m personally looking at implementing the KISS method and to keep it simple silly. All of these potential loopholes are overly complex and my preference is to go with a simplified portfolio that will have predictable taxes and returns which I have more control over.

How to maintain your investments

Don’t worry about timing the market

When it comes to investing, hindsight is a wonderful thing, if only you could know when the market was going to rise or fall. There are people who spend their days trying to predict this but save yourself some trouble and follow either one of two approaches depending on your comfort with seeing your portfolio drop in value from time to time.

Emotional option: dollar/euro cost averaging

If you are really emotional about seeing your portfolio decrease in value, you can rely on something called dollar cost averaging. The idea is that instead of investing large lump sums on any given day you average it out over time so that you can reduce some of the risk of buying high only for stocks to crash the next day. Instead you buy little and often and you will naturally end up buying some stocks at a high but some at a low and it will average out over time.

Rational option: time IN the market is better than TIMING the market.

If you have gotten to the point where you are comfortable with seeing dips in your portfolio then rely on the fact that time IN the market is better than TIMING the market.

Other interesting stats about the market – based on the Toronto stock exchange: (courtesy of www.retirehappy.ca)

I couldn’t find any Europe specific stats but if you’re investing in world funds then these stats won’t be too far off.

1. Markets go up more often than they go down
2. Not only do markets rise more frequently, but they tend to increase in higher magnitude than the drops.

Over the last 90 years:

• Markets have gone up 73.9% of the time
• Markets have gone down 26.1% of the time
• The market gained more than 20% in 33% of the time
• The market lost more than 20% in 4.5% of the time
• The gains in positive years produce more than double the losses in the negative years

(This data is based on calendar year returns of the TSX from 1920 to 2010).

In addition (courtesy of Rob Carrick of the Globe and Mail),

• In 34 of the 37 corrections of 10%+ since 1950, the stock market was up 12 months later by 26.8% on average.
• Average decline for the 37 market plunges of 10%+ since 1950 is 19.7% or almost one every 20 months.

Either way your money will be working for you so pick the approach that works best for where you are at in your investment journey.

Keep adding to your investments

Buy as much as you can, as often as you can and watch your investments grow.

Try not to look at your portfolio too often as it can be off putting to see market dips.

Reinvest your dividends every quarter

There are some funds and accounts you can get with robo-advisors that will automatically re-invest your dividends but I have yet to delve into those options. For now I’m keeping it simple and manually re-investing my dividends. All of my ETFs pay out quarterly (you can see this on the fact sheet of each ETF), so I check back once a quarter and buy more with the dividends that are paid out.

For an Irish ETF portfolio you need to pay the 41% exit tax on your dividends on the year you receive them.

You can also get accumulating funds which means your dividends are automatically re-invested and do not incur the 41% exit tax until the 8th year. See this post for more information on what deemed disposals are.

Rebalance once a year

Throughout the year your stocks will likely outperform your bonds or certain ETFs will outperform others and your asset allocation will shift.

Say you started out with a 70% stock 30% bond split. Through the year your stocks performed really well and now they make up 80% of your portfolios value and bonds have fallen to 20%.

In order to maintain the asset allocation you are comfortable with you will need to sell some of your high performing stocks and buy some of the low performing bonds to rebalance your portfolio back to the original allocation.

This can be done once a year (I read a really good article on why any more than that actually increased your volatility while reducing your return but can’t for the life of me find it again). Keep an eye on trade commissions and creating tax events from sales.

File taxes once a year

In Ireland most people do not file taxes if you are a PAYE earner.

If you start investing, you will need to file taxes each year whether you make money or not.

If you are purchasing shares through a company share scheme you also need to be filing each year as well as every time you purchase the shares.

I am due to file my own taxes this year on my investments from last year so once I figure it out I will do a future post on both of these scenarios.

Although I’m not including details on how to file in this post, it is something to keep in mind for your own circumstances.

Revenue are extremely helpful if you need a hand you can give them a call. I think you can even book an appointment and they will walk through things with you in person as well.

Weathering a crash

When the market is crashing, it is very hard to leave your money invested but based on the facts, the stock market always recovers so the best thing for you to do is wait, alternatively there are two things you can do to lessen the blow:

Sell bonds at a high and buy stocks “on sale”

If you hold bonds as well as stocks, a crash may be a good time to rebalance as during a crash, money flows out of stocks (risky) and into bonds (safer), this devalues stocks and increases the value of bonds. So if you hold bonds now would be a good time to sell (high) and buy stocks (low) and rebalance your portfolio to your desired split. This means that once the market recovers you will own more stocks which you got “on sale” and will benefit more from the upswing in the market. If you don’t own any bonds you will simply need to wait for the market to recover (usually 2 years) as per recent trends.

This is why it’s important to hold at least some bonds as you will be in a stronger position to benefit from market recovery than if you only held stocks.

Sell at a loss to offset future gains

This is something called capital loss harvesting (or tax loss selling).

This concept is only applicable to certain investments like individual stocks including company shares purchased through benefit schemes and UK investment trusts. Unfortunately you cannot do this with EU domiciled ETFs.

The idea is that you take advantage of the downturn by selling some of your assets which have lost value compared to when you bought them. At the same time you should buy back a similar asset/stock at the lower value so that you maintain your original market exposure to ensure you can take advantage of the future gains when the market does recover. The reason you wouldn’t buy back the same stock is because there is a stipulation where you have to wait 30 days before buying the exact same thing again, or it is dismissed as a “superficial loss (or gain)”.

Capital losses can be applied to your current tax year, 3 years in the past and indefinitely in the future. This means you can basically “buy tax credits” in the down years which you can use to lower your taxable income in future years when your income may be higher.

Capital gains credit

In Ireland you also get a credit of 1,290€/year of capital gains on which you do not need to pay capital gains tax.

Mr. MH gets discounts company shares for the company he works for, we considered selling just enough each year to avail of this credit as if you don’t use it you lose it. However, the potential gains we would be losing out on on these particular stocks would far outweigh the tax savings we would make from the credit.

Again it’s trying to keep your emotions in check around tax avoidance. For me I feel obsessed with trying to get money in or out of things in a way that I pay as little tax as possible but in the bigger picture, if that investment vehicle allows you to make large gains over the long term, even though you are paying taxes on those gains, they are still gains which you would not have made otherwise.

How long to financial independence?

For those of you interested in achieving financial independence, you may be wondering how long it will take using the above investment model of ETFs in Ireland. The chart below shows how many years it will take for you to reach financial independence depending on your current assets and different monthly savings amounts. Financial independence (FI) means your portfolio is large enough to withdraw a safe withdrawal rate of 4% to cover your annual living expenses, in this case we are looking at a portfolio of 412,500€ for an annual cost of living of 16,500€ for 1 person. To apply this chart to a couple simply double the monthly savings amount in the first column to reach FI in the same number of years.

Assumptions:

• Amount of time to grow portfolio to 412,500€
• Safe withdrawal rate of 4%
• Annual living expenses on withdrawal of 16,500€ for one person
• Deemed disposals/exit tax of 41% starting in year 8
• Real rate of return used is 7.91% (average stock market performance over its lifetime has been 9-11% so I took the 10% average minus the average inflation for Ireland over the last 30 years of 1.9% minus MER fees of my sample portfolio of 0.19% = 7.91%)

So for a single person starting from 0€ in assets and saving 500€/month it will take 29 years to reach financial independence compared to 12 years if you save 2,000€/month.

If you already have 100,000€ in assets and you save 2,000€/month it will take you 8 years to reach financial independence.

This just goes to show how much of an impact your savings rate can have. It can shave years off your journey to FI. Not fast enough? There are a few more options on how to reach FI sooner.

Ways to reach financial independence sooner

There are a few other options if your time to FI is too far away. This is a quick list but you can google more on each bullet point to find many resources on each topic.

You could:

• Make more money with a passion project in order to increase your savings rate and decrease your time to FI. Google side hustles for ideas. Or check out the book Financial Freedom for a great guide on figuring out profitable side hustles. One exercise in the book is to make a list of your hobbies and a list of your skills. Take a step back and see if any side projects appear that make use of a cross between your skills and hobbies.
• Cut expenses to increase your savings rate.
• Do partial FI where you increase your withdrawal rate beyond the safe rate of withdrawal with the caveat that you would need to earn a certain amount through the year. This would no longer require a full time job, offering you and your partner more flexibility. For example: say you and your partner want to live off 40,000€/year. For a safe withdrawal rate of 4% you’d need a portfolio of 1 million. If you decide to take out 6% per year you’d only need a portfolio worth 640,000€. BUT you’d also need to top up your portfolio/investments with another 15,000€ per year to ensure it wouldn’t run out. So you or your partner could work part-time or take on contract work for a few months rather then wait your full time to FI. This approach practically cuts your time to financial independence in half while still achieving the flexibility you may want.
• Take mini-retirements once you’ve reached some degree of passive income/savings and can afford to take prolonged time away from work to pursue other things. Be it travel, time with family, going back to school etc. This is a great option if you want a change sooner than later. It also gives you a chance to try early retirement to see if it’s something you’d like to do full-time.
• If your job allows you to work remotely 100% of the time, consider moving to a place where cost of living is much cheaper. I know someone who contracts for a company in London, earns GBP and lives in Malta where there is no corporate tax. Other stories I have come across are where a couple moved from San Fransisco to Mexico while still earning US dollar from their silicone valley companies and significantly reduced their time to FI that way.

You can also check out my post here where I explored many other options to quicken my path to FI.

There are probably lots of other ways but these are the main ones I’ve come across.

How to withdraw

Once you’ve reached your version of financial independence and you’re ready to start withdrawing from your portfolio there are a few things to consider in order to protect your portfolio from something called sequence of return risk.

Protect your portfolio in the first 5 years of retirement

Your retirement portfolio is at most risk of failing in the first five years of retirement. Even if you only withdraw at the safe withdrawal rate of 4% (which has a success rate of 95%) there is a 5% chance it will fail in the long-term and your portfolio will run out of money in 30 years time. This can happen if you retire right when the market crashes and you are forced to withdraw/sell at a loss and even in the upcoming “up” years your portfolio cannot recover and eventually over 30 years you will run out of money (unless you go back to work and top it back up again). This is something called the sequence of return risk. Never fear – there are ways to mitigate this.

1: Least ideal: Go back to work to top up your portfolio

2: Slightly more appealing: Cut expenses or move somewhere cheaper so that you don’t need to withdraw as much to live off of

3: Least impact: Hold a cash cushion of 1-3 years of living expenses that is invested in something outside of the stock market (like a “high” interest savings account). Using this cash cushion for your living expenses in the down years means you do not HAVE to sell at a loss and you can wait for the market to recover keeping in mind that stock market crashes tend not to last more than 2 years of continuous declines.

1-3 years of living expenses can be a lot (say 40,000€ – 120,000€), which would further add to the time to financial independence but there is a way you can reduce the amount needed with something called a yield shield.

The idea is that you temporarily pivot your investments to high yielding (though lower performing) assets for the short term. Things like preferred shares, real estate investment trusts (REITs), corporate bonds and dividend stocks. This can mean that your portfolio goes from returning dividends of something like 2.3% to closer to 3%, which if you have 1 million in your portfolio means the difference between 23,000€ to 30,000€. So if you need 40,000€ to live on you can use the 30,000€ from your dividends and only withdraw 10,000€ from your cash cushion meaning you only need 30,000€ extra as a cash cushion to weather 3 years of a market downturn.

Holding a yield shield means your portfolio is slightly more complicated to maintain as you are invested in a larger number of asset classes but once you have passed your first 5 years in retirement you can pivot your assets back to a simpler spread of ETFs.

Taxes on withdrawal

In an ETF portfolio, as mentioned above, you will need to pay exit tax on dividends every year as well as exit tax on gains every 8 years (whether you have sold or not). Once you do actually sell/withdraw you will get a credit for the deemed disposal rate you paid on the 8th anniversary.

To clarify some terminology:

A dividend is an amount of money a company pays out to its share/stock holders at a set schedule (usually quarterly or annually). Dividends are paid at the set schedule identified in the fact sheet of the fund.

A gain is an increase in value of shares you own compared to when you bought. So if you bought something for 10€ and when you sell it it’s worth 25€ you have a gain of 15€ which you need to pay exit tax on. Typically you only realize a gain or a loss once you sell the share/stock . However in an ETF in Ireland you need to pay the tax on gains as a deemed disposal on the 8th anniversary of owning the stock/ETF.

Deemed disposals

I have not filed deemed disposals yet as I just started investing in ETFs in Ireland less than a year ago.

What I have gathered to date is that Degiro should provide an annual report showing your portfolio holdings, purchases and any gains or losses.

Keep this report until your 8th year of holding the investment. Using this report you could work out your gains for the year on those investments.

You then calculate your 41% on those gains and file and remit it to Revenue.

Repeat this process every year after the 8th year.

I believe it is a laddered approach where in year 8 you pay the exit tax on gains from year 1, in year 9 you pay the exit tax on gains from year 2 and so on.

You can pay the exit tax from your investments if you don’t have the cash to hand outside of the investments, though this will reduce your compounding effect over time.

I am not 100% on this so please correct me if I’m wrong.

Sense checking for the long haul

At the beginning of each year of retirement, it’s a good idea to re-check the chances of success of your current portfolio. There is a handy calculator called FIREcalc which cycles through 119 different scenarios based on criteria you enter and tells you the current rate of success where your portfolio will not run out of money in the next 30 years.

If the rate of success is lower than you’d like, you can always carry out some of the back up plans mentioned above in the “how to withdraw” section.

ANNNDDD that’s a wrap!

Hopefully this will be a post that you read and re-read through your investing journey. I actually learned more myself by writing it so I got something out of it too 

I’d love your feedback. If you found this helpful or if there is something you’d like me to elaborate on, please leave a comment below.

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When I was planning our mini-retirement in Portugal I thought I’d chance my arm and try to schedule a meetup with FIRE YouTube stars Amon and Christina from the “Our Rich Journey” channel. Luckily our schedules lined up and they graciously agreed to meet my sister and I for coffee. This post covers most of what we talked about.

At least all that I can remember almost a week later.

Who are they

For those of you who don’t know, Amon and Christina successfully retired early at 39 and 41 from the San Fransisco Bay Area to Lisbon, Portugal. They are the poster family for the FIRE nay-sayers who say they can’t retire early because they don’t earn high incomes or because they have kids.

Amon and Christina worked civil service jobs and have two kids. It took them just 8 years to build up their retirement portfolio. Even with Christina taking time off to get a law degree from UCLA when their girls were 3 and 5.

They avoided debt at all costs and side hustled like crazy.

They house hacked by taking overseas government postings in Spain and Japan where their housing and childcare costs were covered or subsidized. This allowed them to save 70% of their income.

They flipped houses in the San Fransisco Bay Area where they made a profit of 400,000$ from 3 properties. Check out this video for all the financing details and before and after pics.

They did all the renovations themselves and bought and sold things on Etsy and so on.

When they were about 1 year away from reaching FIRE they started a YouTube channel. They did this so they could share their journey and help share the knowledge they had acquired. In under 2 years they have now reached 184,000 subscribers and amassed almost 8.2 million views on their videos!

What we talked about

Retirement location

We started off talking of my experience so far in Portugal and how our mini-retirement was going.

How the mini-retirement reconfirmed that I love where I live and am willing to work a few more years in order to afford a retirement there.

Amon and Christina said that they built their retirement portfolio to the point that they could retire at the San Fransisco Bay Area’s cost of living. This afforded them the option of picking a much wider variety of locations that suited them.

At this point they really can’t see themselves returning to the US.

Working during retirement

I noticed they had started providing paid consultations and asked how that was going.

They said that they currently get hundreds of questions a day and thousands of questions per week. The consultations were kind of a way for them to politely decline answering so many individual questions.

I said I am considering starting to provide consultations myself but trying to work out the legalities. Revenue confirmed that providing generic financial advice is not regulated. My solicitor confirmed the same. Though my solicitor recommended getting professional indemnity insurance, which I am in the process of looking into.

Amon joked that Christina is a lawyer so obviously they have this in place to cover themselves too.

I mentioned that a lot of FIRE blogger/vloggers continue to work once they “retire”. They even go on to make more than they made when they were working full time jobs. I asked if they knew what they would make now in retirement, would they have pulled the trigger and retired sooner.

Christina said possibly but it’s hard to say as they are looking back from a position of full comfort knowing that they don’t NEED to work if they don’t want to. This really stuck with me.

I was trying to figure out a way to stay home with my son as much and as soon as possible. We looked at living off my husband’s income while I stayed home and tried to cover my own expenses through consultations via the blog. I thought, if this is what I plan to do once I “retire”, why not start now and retire from my 9-5 now. I can work evenings and weekends and mind my son during the day.

Amon said that they weren’t looking to run their channel as a business. They are in a position where they could really take off but it is not their priority right now. They like being able to pick and choose which topics they cover and make videos as and when they please.

Obviously if you quit and spend all your time building a business then you have much higher chances of success. However, both my husband and myself like the idea of being in Amon and Christina’s position of full financial freedom so that we’re never under stress from a financial perspective. Especially as we get older and our families are getting older and we could start to experience health issues ourselves. It’s nice to think that we could be there to support family or take better care of ourselves if we had the time and space to do it.

I still plan on starting the consultations but will go back to work and do it on evenings and weekends instead as a way to get started and see how it goes.

If it gets to a point where it can become my full time job and I can continue working towards full FIRE then I can re-evaluate at that time.

In terms of Amon and Christina’s consultation experience they said that it’s really interesting. They get really highly educated people asking for guidance. There is usually a black and white answer to their questions. A lot of people actually already have the answers within themselves but just need a push to act.

Living off one income

Some videos mentioned that they lived off one income at times and I wanted to know more about their experience. Personally I’ve been trying to figure out how to continue working towards FIRE while having one of us stay home with our son. They said they went down to one income when they were in Seville the first time as well as when Christina went back to school to become a lawyer.

They refused to go into debt and so they side hustled like crazy to afford their lifestyle.

Amon and Christina even lived in two places while Christina was back at school. With Amon flying over and back almost every weekend by hacking a Jet Blue point system which allowed unlimited flights. They laughed saying they were not offered the same scheme a second year in a row.

Partner’s with different spend styles

I asked if they were both as interested in FIRE as the other or if one was more the driver. They said that luckily there were both as interested as the other but that they often get questions about having a partner that’s not on the same page.

I put my hand up saying that I am that person. My husband and I have very different spending habits but have slowly merged on our path towards FIRE. I have a lot to say on this topic and will write a whole post about it at some point.

Vlogging

Amon said that when he was young he used to get embarrassed when his parents would talk about work. He then joked that this feeling seems to be universal no matter what you do. Even his kids now role their eyes when Amon and Christina talk about their channel. So not even being YouTube stars is cool enough for your kids.

They mentioned that it was weird that people in Portugal are starting to recognise them. They get approached at least once a week by people who watch their channel. Their kids’ school now knows about their channel. Even the staff in their local coffee shop discovered that they were on YouTube.

My sister and I mentioned that we were nervous/excited coming to meet them and they laughed saying that was so weird.

As mentioned earlier they said that they don’t want to HAVE to record videos. That they enjoy making the videos they want to make. They scroll through various comments and questions and pick out topics that would benefit the largest audience but also that are interesting for them to talk about.

I asked if they used scripts as they are so well spoken on their channel. They said to my amazement that no they just talk about the topics they are familiar with and they have each other to add things in that the other may miss.

Having talked with them in person though I can see that they really are just very well spoken. The way they are on the vlog is the same as they are in person.

Helping others

We also talked about our main reason for vlogging and blogging. For both of us it is to help others.

I started this blog as I spent hours upon hours researching about FIRE and investments in Ireland and found very little Irish specific content. There are plenty of blogs and other resources that show you how to retire early with various tax free withdrawal strategies in Canada and the US but I could find nothing on the Irish front. Hopefully sharing the knowledge I am acquiring will benefit others too. It’s also a great way to look back on my findings as sometimes I forget what I had researched.

I talked about how the book Your Money or Your Life was transformative for me. Specifically around aligning spending with your values and life’s purpose but also about redefining our definition of work.

I asked if they had heard about Maslow’s hierarchy of needs. They laughed as Christina was a psychology major so of course she had. We talked about how financial freedom allows you to focus on the self actualisation element of the hierarchy. Where you no longer focus inwards on base needs and comforts but start to look outwards in how you can contribute to society and help others. This is the beauty of being financially independent.

We talked about future goals or dreams on helping others with financial literacy. Christina had considered trying to teach courses at a college level. Amon and I agreed that courses would be good but we weren’t sure that college is the right time. Looking back at college ourselves, we thought that even if someone had come in and told us about FIRE or investing, we probably wouldn’t have been in the right headspace or point in our lives for it really to sink in.

For me I felt like if I had heard about FIRE in my mid-20s when I was working full time and for the first time my income exceeded my needs, I would have gladly welcomed some knowledge around where to put the excess money.

Though I was always one to live below my means. I can’t say the same for most others I see around me. Perhaps that is where the financial literacy piece needs to start. To help people get to the point where they do have excess cash rather than living paycheque to paycheque.

My sister joked about how governments and corporations don’t want us to be financially literate. Instead they want us to spend and be mindless consumers, churning out endless taxes and buying endless products.

I also joked that Mr. MH has often said that FIRE wouldn’t work if everyone did it. The stock market would fall apart if everyone just bought enough to fulfill their base needs and a few luxuries. Amon reassured us that this would never happen as we looked around the full coffee shop and said that people will always spend money.

I mentioned that I feel a bit hypocritical as I am into sustainability but am banking on others continuing to spend money and consume the earth’s resources so that my investments in the stock market continue to do well. Amon consoled me saying that with the extra time I would do good with the money. I hope the impact I make will outweigh the bad over time!

Families abroad

We also talked about living away from family.

Amon said that he was lucky as both his Dad and brother moved to Japan when they were living there. He’s working on convincing them to come to Portugal now.

Christina’s family is back in the San Fransisco Bay Area and my family is in Canada. It can be hard being away but we joked that since having kids we see a lot more of family than we did before.

Christina said that her family didn’t even have passports before they had kids. Now they have been bitten by the travel bug and are travelling a lot more.

I had been in Ireland for 4.5 years before I had our son and no sign of my parents. In a little over a year since we had our son, they have flown over 3 times! We were also in Canada this summer and so in the last 12 months we actually spent 3 months together. If I lived just 1.5 hours away as I did before, we never would have seen each other as much.

So in some ways I think that living abroad lets you spend more time with family than if you took proximity for granted and only went home the odd weekend.

Siblings following the FIRE path

Amon asked my sister if she was also on the FIRE journey. She said yes but not as aggressively as me. Amon then went on to say that his younger brother is also following in his footsteps. He is on target to achieve financial independence at a young age too.

My sister mentioned that herself and her husband are looking to flip houses at the moment. Her husband is in construction and so will likely do most of the work himself.

Amon mentioned that they had been involved with real estate but as they neared FIRE wanted a more passive investment and slowly edged their real estate holdings into ETFs.

Wrapping up

Amon and Christina had to get going to meet their girls for lunch as at this point almost an hour and a half had passed. The beauty of being retired now allows them to go home and make lunch for their girls who are within walking distance of their school.

It sounds like a dream. Being financially secure, working on things that make you feel productive, making a contribution to society, meeting up with like minded people, travelling, visiting with friends and family, being present and not stressed around your kids.

We also mentioned the study called Ask the Children, where over 1000 children aged 8-18yrs with working parents were given a “one wish question.”

“If you were granted one wish and you only have one wish that could change the way your mother’s or your father’s work affects your life, what would that wish be?”

The majority of adults guessed that their children would wish for more time together. But for the majority of children, their one wish was that their parents would be less stressed and less tired.

Children tend to see the world more simply than we do. If we were less stressed and less tired, surely the time we actually spent with them would be more focused and of higher quality.

This is what financial freedom affords!

Things to see and do

Last but not least we asked for a few things to see and do in our last days in Lisbon. Here were some of their suggestions:

• go to the theatre. They went to a show for 4 box seats at 80€ with excellent stage production albeit in Portuguese
• go to a spa
• check out non-touristy areas like
  • Alameda on the green line
  • Rato at the end of the yellow line and
  • Belem where you should rent bikes to explore

And there you have a 1.5 hour conversation “condensed” into almost 3,000 words (face palm).

It is so rewarding and energizing meeting up with like minded people. Check your area for local meetups if you haven’t already or set one up if there isn’t one. It is something I greatly look forward to and always get so much out of.

What is the FIRE movement?

As I mentioned in my About Page , I first heard about the FIRE (Financial Independence/Retire Early) movement on a radio show where fellow Canuck, Kristy from Millennial Revolution briefly covered the topic which explained how herself and her husband retired in their early 30’s and have been travelling the world on their investment income for the past 4 years. They are only 1 of many couples, families and individuals I have since come across who are following the same principles to gain financial independence well before the traditional retirement age, all doing very different things with their time.

At a high level the concept is based on having enough investments where the annual returns cover your annual expenses so that you never touch the principal and your funds never run out.

How much do you need?

Studies have shown that if you withdraw 3-4% of your investment/retirement portfolio per year there is little to no chance of you running out of money as your investments will generally bring in more than that and so you are never touching your principal investment.

In order to figure out what this number is for you, you need to take your annual expected retirement expenses and multiply them by 25. This is likely 10-20,000 less than your current annual expenses per couple – read on to see how.

If we take the average Irish expenditure as per the central stats office’s 2015 survey of 40,000€ and take off 10,000€ that comes to an investment of 750,000€. Now when I first saw this figure I was very deflated but it’s actually much more achievable than you think considering the goal is to retire years before you turn 65 (or a typical 40 working years).

Below are my estimations on how many years would be required to save 1 million (live off 40,000€/year), 750,000€ (live off 30,000€/year) and 500,000€ (live of 20,000€/year) depending on what you think you could live off or supplement your income should you want to continue working. This is if you are starting from zero and does not take into account any liabilities or assets you may currently have.

I’ve included 4 growth variations. Historically the stock market has averaged 9-11% growth, if you are investing for the long-term, you should be able to get these returns as well – though historic trends are no guarantee of future returns it is all we have to use as a basis for projection.

Irish Growth

This chart shows 7.1% growth which is the likely growth you will see in Ireland if you invest in Irish or EU domiciled exchange traded funds (ETFs) – which I will expand on below. This takes the typical 9% minus 1.9% for inflation (this is the average inflation for Ireland in the last 30 years). This leaves us with 7.1%. I have also taken deemed disposal into account in the growth for this one. Deemed disposal is a tax legislation for Irish and EU domiciled ETFs where you need to pay 41% on any gains 8 years after the gain was made whether or not you have actually sold any funds. You may pay for this tax however you wish but for my analysis I am assuming you have no extra funds available outside of your investment and the tax will come out of the investment fund reducing the overall growth rate.

This chart looks at the same thing but accounts for inflation differently. Instead of knocking it off the growth rate I left the growth at 9% but increased the withdrawal amount by the inflation rate to see if it made any difference. It adds an average of 1.55 years to the time to financial independence. This also includes deemed disposals against the growth.

Canadian Growth

This chart shows 7% return which is the likely growth you will see in Canada. This is a more straight forward 9% minus 2% for inflation (the historical inflation for Canada in the last 30 years) with no deemed disposals included.

This chart looks at the same thing but accounts for inflation differently. Instead of knocking it off the growth rate I left the growth at 9% but increased the withdrawal amount by the inflation rate to see if it made any difference. It only adds an average of 3.6 months to the time to financial independence.

Impact of savings rate

In all cases the time to retirement is most impacted by the earlier increases in savings rate. For example increasing your savings rate by 5% from 10 to 15% gets you to retirement 15%-18% faster depending on the final withdrawal amount but when you increase your rate from 75% to 80% it only reduced time to retirement by 4%-7% depending on the final withdrawal amount.

The lower return at the higher rates is because you are not benefitting from compounding interest for as long, so your portfolio growth is mainly from your contributions rather than interest at the higher savings rate but that is offset by faster time to financial independence.

Ways to Reduce Your Retirement Number

As mentioned above, even if you live off 40,000€ now, you will likely need much less once you and your partner are no longer working as you are actually paying to work. You pay for your commute, your work clothes, work lunches, extra take out as you are too tired to cook, cleaners for your house, childcare etc. I’d estimate that you could knock off 10,000€ annually should you no longer need to pay for these things. Since I have been on maternity leave our household expenses have gone down by 550€/month at last check, and that was before we cut down on meat and suspect that figure is actually 750€/month (9,000/year) with just one person no longer in work. I need to analyse where those savings are coming from but will save that for another post.

Additionally, should you wish to partake in geo-arbitrage (living somewhere else that is cheaper for the same standard of living), you could knock another 10,000€ or so off. Looking at this cost of living comparison website it gives you an idea how much farther your money would go in another city. For example: You can get the same standard of living in Faro, Portugal for 1,642€ less per month compared to Cork, Ireland (19,000€/less per year) – that and better weather ;). This even works to compare different cities in your own country.

Another option is, say you manage to save 50% of your household income (live off one persons salary), once you get to 500,000€ in 10-11 years, one spouse could “retire” to stay home with the kids while the other keeps working. Or you both pair back your hours to part time.

If 10-11 years seems too far off, you could also partake in mini-retirements. Once you have a bit of money invested and can afford to take a few months off work, you and your partner or you alone could take a mini-retirement to pursue some other projects, travel for an extended period of time, focus more time on your family, pursue a job you like better, go back to school or just recharge if all you think about is time off.

The options are endless once you have a bit of financial freedom/ independence.

Ways to Reduce Your Time to Retirement

At a high level, though this seems obvious, you could either earn more money – which you would in turn invest or reduce your spending, again to increase your savings rate. Or better yet some combination of both.

There are many ways to go about doing both including side hustles, negotiating wage increases, and various life hacks to reduce your highest expenditures, which in Ireland are: housing, transport and food (making up 50% of the average household expenditure).

Stay-tuned for future posts on these ideas.

What do you invest in?

Most of the FIRE bloggers invest in some proportion of equities/stocks and bonds using self directed brokerage companies. The simplest/laziest investing approach is to invest in stocks using low cost exchange traded funds (ETFs) – these are index funds which essentially invest in the whole stock market. I will go into my Canadian and Irish portfolio splits in future posts.

These ETFs historically have performed as well if not better than individually selected stocks or managed funds, the idea is that the stock market performs at about 9-11% per year over long periods so if you are invested in the whole market you should get these returns too. These are meant to be long term investment vehicles as you need time to weather out any downturns in the market. You also need to be ok with leaving your investments untouched especially during downturns as you need to allow time for the market to recover as it always has – as per below (Irish stock market in green and Canada stock market in blue), you can see that in the history of the stock market, it has always recovered over the long term, say 10-15 years after any downturn (though we’ve yet to see a full recovery from the crash of ’08 in Ireland just yet).

Depending on how long you have before you plan to withdraw you will want to invest the highest percentage of your portfolio in stocks (higher risk/higher return) and only a small percentage in bonds (lower risk/lower returns). Personally I am investing 100% in stocks for now and will rebalance my portfolio to include some bonds closer to my withdrawal date. When you are about 5 years from retirement you will want to have a split of about 60% stocks and 40% bonds, or if you plan to keep making some income you can leave a higher percentage in stocks.

Investing in ETFs in Ireland is a little more time consuming and requires more administration than some other investment vehicles, in that your gains and dividends are not automatically reinvested for non-accumulating ETFs and you have to file taxes every year but I will post details on this process as I navigate the system myself. For Canadian readers: In Ireland, you do not need to file taxes every year unless you have any other income outside your salary so filing taxes is expensive and more complicated to figure out yourself.

Investing in ETFs in Canada is much more straight forward.

There are other investment vehicles like pensions, peer-to-peer lending, real estate etc but I will go into why I’m not opting for these in future posts.

Why Retire Early?

I used to think that winning the lottery would be a curse as I personally get so much out of making goals and working towards them and I felt like winning the lottery would take the work/reward element out of the equation and I would feel lost. I thought, there is only so much travel you can do before it gets old, and only so many material things you can accumulate before you have everything you’d ever possibly need, and then what?

The same thought process would go for the idea of retiring early, until I probed a bit deeper and asked myself – if money was not needed, what would I do with my life? After all, humans need work to give purpose, feel productive, remain socially engaged and creative.

If you’ve ever come across Maslow’s hierarchy of needs and motivation, no longer needing money kind of puts you further along the path to self-actualisation and transcendence needs where you think and act more on behalf of others rather than yourself.

For me I think I would spend more time helping people either with finances or volunteering with the homeless, and become more active in the environmental activism community, maybe find a non-profit (typically low paying) environmental company that could benefit from my analysis skills – mixed in of course with more time with family and friends, outdoor adventures, travel and maybe some interior design work/flipping houses.

I recently read a finance book* which mentioned that most people never really stop to think about what they’ll do when they retire and so when that day comes, they feel lost and don’t know how to pass the time, he commented that one of his neighbours goes into his lawn to pick up sticks every day – this is such a waste of life! We have only one life, and we rarely question the status quo of going to school, getting a good job, work 40 years, retire. What if you could design a life where you retire sooner and make an impact or see the world while you are still young and fit enough to enjoy it?

What do you think? Are you as intrigued and inspired by the FIRE movement as I am? What would you do with your time if money was no longer needed? Leave a comment below!

* The link to the book is an affiliate link so if you buy it, I will get a small portion of the book price.