Hi,
Just looking for some opinions, but also hoping that writing this out will help to clear up my thinking.
I'm mid-thirties and married with two kids (enough!), but living in Ireland. Our tax laws aren't favourable to relying on stock market returns. 33% capital gains tax when selling/harvesting and approx. 50% income tax on dividends (depending on a few variables). At my age, I can only put 20% of earned income (investment/passive income not counted) in a retirement, tax sheltered account. Even that is somewhat risky, as our government has/is applying levies to private retirement accounts when money runs short. This is likely to be a recurring theme, as we have a massive pensions time bomb on the horizon and private pension funds are a soft target. The joys of democracy, where everyone thinks only in election cycles.
As a result, I've favoured property investment, and use a few strategies to help minimise tax. My take on property is that:
1) Over the longer term, and in strong locations, it generally keeps pace with inflation. I bought in close to market bottom following one of the worst recessions in modern history, so that will help.
2) The rental returns are growing much faster than inflation, however I'm ignoring that, as it isn't sustainable without wage growth.
After accounting for all expenses, sinking fund (for once off large repairs) and having most properties independently managed, my net property income is $35,000/year. I could push this up to $41k by taking on more of the management myself (which I enjoy).
There is another investment property that will add approx. $12,000/year in 15 years, when the mortgage is paid off. I'm currently ignoring it, as it is self-funding. My income figures are before tax. I very conservatively need $35k to cover my half of the expenses, including a large sum for child care. My wife covers the other half. There would be some shortfall due to taxes due on my income. A sizeable chunk of my expenses is spent servicing my half of our home mortgage ($75k)
My wife has a good job, has her own small business and some investment properties (hers bring in $18k net). She loves her job and intends only on reducing her hours rather than retiring (still has some property loans). She hopes to move to a 3 day week next year. Despite my best efforts, she hasn't fully bought into the FIRE concept (although is sensible). She likes her work, which I think has a big bearing on motivation. Based on my calculations, she will be very close to FIRE at age 47, without any major change and based on working reduced hours.
I really don't want to continue working at what I do. The industry in which I work has changed massively since I started, to the point where I am living in fear of the next e-mail or project. I could write a book about all that is wrong and one line about what is good about it. My options are:
1) Stop in 12 months, knowing I may have a $7k/year shortfall ($2k/year shortfall if I take over full property management). I have lots of options for consulting at what I currently do, albeit for a lower rate per hour. As I will be consulting, I can control the types of projects/people I work with, which would have a big impact. Consult say 3 days per week and use that income to pay down all remaining loans for the next 7 - 10 years. This will have both of us working 3 days per week, so we can spend 4 days together.
2) Work full time for another 5 years and pay down all loans/invest. That would leave me with no loans and an income well above my expenses. As my kids would still be very young and my wife would be working, I'm not sure how much extra freedom I would have. Perhaps I could look at various business opportunities that might be of interest whilst I?m waiting on my wife to join me.
I know there is no universally right answer. My main concern is the loss of identity and loss of consistently strong/regular savings if I call stop in 12 months. As my work has always been very intense, I haven?t developed a wide circle of friends or hobbies.
