A shocking thought visited me today. ‘I could retire now’. This shocking thought was immediately followed by an equally shocking one, ‘meh, I don’t want to retire right now’.
In my current situation retiring would mean a move to a different country and a significant change in lifestyle. My reasons for not wanting to retire are a little cliche, so instead let me tell you what I’d need to do if I wanted to retire now.
- Remortgage my current home to 25% LTV buy-to-let mortgage
My home is worth around £300k with a £180k mortgage outstanding on it. If I were to mortgage it up to £225k (75% value), the funds released would amount to £45k. I am also extending the mortgage term to maximum length possible of 30 years to reduce monthly payments. 25% LTV is the lowest amount most banks will allow for buy-to-let mortgages.
- Purchase a second property abroad, as an investment
£45k is a good amount to purchase an investment property within a medium-sized city in continental Europe. Yes, you guessed it, if I am to retire today, it’s not in London. So, I am buying a studio apartment, probably in Poland, and renting it out to some unsuspecting poor student. All being well, the property would generate approximately £1.8k profit per year.
- Rent out my London flat
The flat is likely to bring in approximately £1.2k per month. My mortgage costs, after increasing the debt and spreading it over 30 years will result in approx £830 pcm cost. After an allowance for service charges, building insurance and ground rent, the property will make a small profit of around £3.5k per year.
- Move into my family home OR purchase a tiny home
I own a house in Poland, which I could probably live in – it’s a large property and it’s currently inhabited by my parents on the ground floor, B&B on the first floor and family guest rooms on the top floor. I could also live in the barn, it’s swanky. Alternatively, I could work for another 3 months saving energetically and blow £5-£7k on a tiny home and park it in my family’s garden or a field somewhere (I own a couple of these in a middle of nowhere rural Poland, before you ask).
- Leave my current investments untouched until I actually do reach the retirement age.
You might think that increasing debt on your property in step 1 is counter-intuitive and I don’t blame you. My intention with this is that the property will now have to work for itself by hosting tenants and cutting down the running costs does in fact reduce the risk. The funds released though the process of increasing the liability on this property allow me to obtain a second asset with much less liability, which can be seen as another risk mitigator.
If you are in your 70s this approach is unlikely to work for you. But I am 32 – by the time this mortgage is paid off, I will still be below the standard retirement age. Both the London property and the other country property would continue to grow in value assuming normal market conditions.
To hedge myself against potential issues my cash investments would be untouched and divided as they are – between a number of low risk funds and medium to high accounts in various currencies. The 4% rule does not apply here. I’ll tell you why in another post.
Here are some important questions which I have not answered when plotting out the scheme above:
What about health insurance?
I am a citizen of two countries – based on my work record in the United Kingdom I would not require additional health insurance regardless of my working situation. Based on the type of property I already hold in Poland (farming land), my health insurance there is heavily discounted and comes to approx £100 per quarter. This leaves me with dental costs and travel insurance only. I can settle anywhere in Europe where healthcare reciprocatory agreement with either of the two countries is in place. Should I opt for a country outside of Europe, I would need to account for health insurance.
What about the cats?
Where I go, they go. This does mean that I would not be looking to live outside of Europe and budget for their food, care, vet bills etc. At present they are healthy, energetic and low maintenance. But 10 years down the line they might require a lot more medical care and attention, even if I do hope for them to remain healthy throughout their nine lives.
What about the boyfriend?
Same as with the cats, where he goes, I go, where I go, he goes. Plus, he’d come with an income of his own so it’s not like he’d be freeloading on my already small budget.
Can you actually live on £5k in Europe?
My annual income based on the assets listed above is tiny, right around £5 per annum. On the positive, this keeps me below income tax threshold which is nice. On the negative, I might need to start growing some food.
Ultimately however, yes – you can live on £5k in central and eastern Europe, but it is a no-frills life. I am in a comfortable situation where I already have one mortgage-free, income-generating property to shelter in and therefore can do away with worrying about mortgage or rent. I also have other income-generating assets not mentioned in this post as well as skills which I am happy to pawn off for side income.
And I am not unique – average person in Eastern Europe brings home around £13k and from that covers everything from rent/home mortgage to food and transportation. Usually the housing cost is the biggest one, so £5k is actually doable.
However, I am not after the simple life right now. As said, I am (only) 32 years old and despite knowing that I could possibly pull a plug on my existing life and pivot, I am unwilling to do so anytime soon.
Knowing that what I have is not my only option though is reassuring, and the above calculations being in fact my ‘worst case’ scenario make me feel at ease. And if you do some maths too, there is a good chance that you too are in a situation comfortable enough to, if you want to, have a huge lifestyle change and be fine.