Retiring at 45 or 50 - How much per month would you need.

Dredd_J

We are both thinking of retiring in the next few years. Currently 45 yo but want to retire by 50yo at the latest.

We both have good amounts tucked away in our pensions and have a lot of savings and a house in Spain.

Having spoken to a friend in finance he reckons we would have about €50k per year after tax from our combined pensions at the moment, but we would not get the state pensions until 68.

We are both working since 18yo and paying prsi since then.

Just wondering if we moved to Spain, would we still be entitled to the contributory state pension when we reach 68, and would we have to come back to Ireland for it? Or even stay in Ireland.

ANXIOUS

You can't access your retirement account until 50 at the earliest. You mention your friend suggested 50k after tax, I think that seems very high you won't have the state pension for 15 years and to get a pension of 50k before tax you would need to purchase an annuity if€1.447 million.

Dredd_J

Thats 50k between us both.
We have savings now to do us until age 50, but probably wont be retiring til 50 anyway.
We've both almost always put the max into our respective pension funds, and my company gives me another 7.5% on top and has done for the past 25 years. So I would be very disappointed with any less than €50k after that anyway.

Ill be calling in to see a financial adviser in the next few weeks anyway but its nice to get answers to a few questions in advance. I think it will probably give me more questions to ask the financial adviser when i do see him.

The big thing is that if we retire to spain at 50, then at 68 are we still going to get the irish contributory pension, even if we stay living in Spain.

murphaph

You won't be entitled to the full pension if you only make PRSI contributions for 32 years. You need an average of 48 reckonable contributions a year (average). You won't have that if you stop working 18 years before retirement age obviously. Strangely the system favours late entrants to the workforce, rather than early retirees. Starting work so young actually works against you! In contrast someone can come to Ireland at age 58 and work just 10 years and be entitled to a full state pension whereas you would not, despite working for 32 years. Quirk of the system. You should check that and bear in mind, the rules can change so you wouldn't want your plan to hinge on getting by until the state pension kicks in. The state pension might be worth a lot less in real terms by the time you turn 68.

What sort of pensions do you have? DB or DC?

25k each also seems high to me if retiring at 50. As ANXIOUS says, to buy that sort of annuity you'd need a huge lump sum.

You would of course still be able to claim your state pension from Spain, or anywhere else really. Don't forget to factor in whatever mandatory health insurance may be required in Spain.

Addle

Is the something about putting up a certain amount of 'stamps' in the few years before you reach 68 in order to be entitled to a contributory pension?
I think so, and I think an 18 year gap would disqualify you.

Can you really rely on what you think you'll be entitled to then anyways?
Who knows what the rules will be by then?

Henry Ford III

You'll be entitled to your contrib. state OAP regardless of where you live.

The problem is that your pension pot would need to be huge - I'd guess well over €2m to provide €50k p.a. net, and you'd need to be very high earners and have been paying max. AVC's, as well as a generous employer contributions, into your pensions from day 1.

All the above assumes you've been an employee since youwere 18. Self employed can't retire until age 60 unless there's extreme ill health.

ANXIOUS

I'd find it strange that you have been in a DC plan for the past 25 yrs they are relatively new. 25k pension before tax is still €720k that's before your lump sum which with your service will be something like 1.5 times final salary. So you are getting nearer a million. Then you have to think do you want an annuity as most only come with a a gaurantee period of 5 yrs.

You are maxing your contributions which isn't that much in theory. It's maxed at 115k and 25% for your age so you are contributing a maximum of €28,750k. That's if you are on 115k, then you add 7.5% €8625 gives you a maximum per year of approx 35k.

That's before the pension levy, management charges and investment losses/gains.

I think your goal isn't workable.

You will get the state pension possibly not the full amount. I can't remember off hand what the criteria is.

Dredd_J

They are both DC. Always have been.
When I started mine I got the extra 7.5% only if I put 7.5% in too. But they changed that some years ago to give the 7.5% even if you didnt contribute yourself. Maybe the pension type changed then. But that didnt matter as I always put the max in myself anyway.
They are quite hefty funds and were always in the strong growth/ high risk category until about 2 years ago when changed to low risk options.

A few years ago I was told that i had to reduce the amount I was contributing because of some adjustments in the budget that meant it wasnt tax efficient for me to keep contributing what i was. Come to think of it, this happened a few times after budgets.

I was hoping the contributory state pension contributions (PRSI or USI or whatever it is these days) could be continued from my other pension even after stopping working. Good to know at least we'll still get it living in Spain anyway.

And even if we dont get the full state pension i would think we would get a high percentage of it.

I just hate the idea of paying PRSI all those years, and a LOT of PRSI only for it to have been of no benefit.

There will be no mortgage, so accommodation shouldnt be a huge cost when we do move to Spain.

Maybe its a pipe dream, but both of us just feel like quitting our jobs and taking it easy instead of working til we are too old to have a bit of fun.
I suppose looking at my uncle retiring at 68 last year and now being hardly able to walk or leave the house, when he does have the means to travel and enjoy himself has been an eye opener.

coylemj

murphaph wrote: »

You won't be entitled to the full pension if you only make PRSI contributions for 32 years.

That old system of averaging will be gone by the time the OP and his partner are claiming the state contributory pension, they will be entitled to a full contributory state pension with >30 years contributions. As he and his partner are now 45, it means they fall under the new system which will apply from 2020......

A ‘total contributions’ approach will be introduced replacing the current yearly averaging system. The level of pension paid will be directly proportionate to the number of social insurance contributions and/or credits made by a person over his or her working life.

......

If you were born on or after 1 January 1954 the following changes apply;

Once you have paid 520 full-rate contributions (10 years), the minimum State Pension will be payable (i.e. 10/30 ths – or one third – of the maximum rate). For each additional complete year of contributions you will gain 1/30 th of a pension up to a maximum of 30/30 ths. A total of 30 years contributions and/or credits will be required in order to receive the maximum State Pension.

Click this link and scroll down to the section headed 'Changes to State Pension from 1 January 2020'

http://www.welfare.ie/en/pages/national-pensions-framework--changes-to-state-pension-cont.aspx

murphaph

Ah thanks for that. Good news for the OP. Now if only the noncontributory pension would be reduced to actually reward people properly who've contributed to the pot.

GerardKeating

ANXIOUS wrote: »

I'd find it strange that you have been in a DC plan for the past 25 yrs they are relatively new.

I working for an Insurance company about 25/30 years ago, and there were certainly both DB and DC pension plans.

Perhaps the OP's employer (even then) could see the writing on the wall for DB plans.

therecklessone

No offence OP but you sound like you have a very sketchy knowledge of the details of your pension, so the best advice anyone can give you here is to talk to an expert.

Does your company provide any guidance in this matter? There should be guidance material available explaining the pension, and surely you receive yearly statements?

Who manages the fund on your/the company's behalf?

murphaph

Indeed. You should know what your fund is currently worth. The fund managers can provide that information at any time. I just recently got a statement from my fund managers for a pension paid into while working for a company I left 10 years ago.

At the end of the day you buy an annuity (pension) with that fund so it's easy enough to see what it will buy you today. 5 years isn't that far away and if you really intend to retire then, then you should have shifted your fund to low risk investments, so it's not going to grow much in the coming 5 years.

You don't appear to have any other source of income (for example my pension plans include rent from a few properties because whatever people say about property, rents broadly follow wages, with little ups and downs along the way, so I can safely say "I'll have 0.25 average salaries from that unit + 0.4 average salaries from that unit" and so on so I am reasonably confident of comfort into our old age. My state and indeed private pension(s) from Ireland & Germany will be a bonus. I am not factoring them in to my calculations too much as I don't trust the powers that be to deliver what's promised).

Have you checked out the situation with medical insurance in Spain? I'd be surprised if they were happy with people rocking up there to retire and all of a sudden becoming a burden on their health system. My mother has considered retiring in Germany to be near the grand kids and she would need to pay (mandatory) health insurance from her own pocket to be allowed to reside here. German pensioners have this premium paid for them by the state as a perk of having contributed to the system. Spain may well have similar rules that could eat into your pension.

Dredd_J

tbf we do know how much is in the funds. What we dont know is how much it will grow to by the time we retire, or how much that will get us then.

We wont be talking to our respective employers about pension options at this stage because its a sensitive matter and in my company anyway the walls have ears.

My main concern was that if we moved to Spain (We wouldnt be the first people to retire to Spain and my partner is Spanish) how would we stand with the contributory state pension. And thanks guys for calming some of my fears on that. Because if things went bad at least at 68 we would have some fall back.

We do have other savings and investments besides the pension fund, so would be using these to cover any shortfall. We bought an apartment in London a few years ago and my daughter is living in it while she is at Uni over there. After she is finished we will either sell it or rent it. Maybe renting it might be a good option to carry over for retirement.

murphaph

Whatever you have in your DC funds will not (or shouldn't be in a position to!) grow if you are serious about retiring in 5 years. It should be invested in low risk, low return products at this stage, so you already have a pretty reasonable idea what it will be worth. My DC pension statements include 3 projections of fund worth, one low, one medium and one high risk.

My statement also shows an estimated monthly pension based on each of the three projected fund values. I'm surprised your fund managers don't provide at least such a projection. Maybe they do, but only on request?

Your plan isn't too far fetched but I don't think you'll have a great standard of living between retiring and receiving your state pensions (which will add up to over 2k a month for a couple at current rates). It's all well and good to say "I'll retire to Spain" and it's probably cheap enough there BUT you will also want to be able to travel and then you need "proper" money.

Dredd_J

murphaph wrote: »

Whatever you have in your DC funds will not (or shouldn't be in a position to!) grow if you are serious about retiring in 5 years. It should be invested in low risk, low return products at this stage, so you already have a pretty reasonable idea what it will be worth. My DC pension statements include 3 projections of fund worth, one low, one medium and one high risk.

My statement also shows an estimated monthly pension based on each of the three projected fund values. I'm surprised your fund managers don't provide at least such a projection. Maybe they do, but only on request?

Your plan isn't too far fetched but I don't think you'll have a great standard of living between retiring and receiving your state pensions (which will add up to over 2k a month for a couple at current rates). It's all well and good to say "I'll retire to Spain" and it's probably cheap enough there BUT you will also want to be able to travel and then you need "proper" money.

The projections are for retiring at 68 on mine.
I have an appointment with a financial adviser tomorrow, so hopefully he'll answer any questions I have. And I have a lot more question thans to the good people in this thread. I'll let you know how i get on.

murphaph

Best of luck. I'd be interested to hear anything of note he has to say about early retirement. I certainly don't plan to slog on until 68 either!

bcklschaps

Very interesting Thread.

Would love to bail out of the rat race too .. before I have completely lost my MOJO... (hopefully I will still have "it" when I'm 50!!)

So in summary you can cash in your private pension at 50yro .. and a take a max lump sum of 1.5 years salary and then the rest is paid to you per week in perpetuity based on how much you have in the pot divided by some magic number (the likely age you will kick the bucket at)

The state Contributory / non-contributory pensions kick in at 68yro... if you have paid a full 30 years of PRSI contributions you get (at present) €230 per week, regardless of any other income, but the combined income is taxable...and a pro-rata bit of it if you didn't manage the full 30yrs.

If you didn't pay any PRSI, you might be still able to get the €219 non contrib pension... if you earn less than (currently) €200 a week by any and all other means.

Presumbly you can get a bit of the Contrib pension and maybe a bit of the non contrib pension upto a max of the non contrib limit of €219

So really its a case of work for the "man" until you drop .. or else live the free life of a rover .. but in near destitution :-(

coylemj

bcklschaps wrote: »

So in summary you can cash in your private pension at 50yro .. and a take a max lump sum of 1.5 years salary and then the rest is paid to you per week in perpetuity based on how much you have in the pot divided by some magic number (the likely age you will kick the bucket at)

Retiring off a DC pension at age 50 is not a realistic option these days. Because interest rates are low, annuity rates are correspondingly low and if a 50 year old went to purchase an annuity these days, the pension you'd be buying would be abysmally low. Throw in a spouse who'd need to be protected with a 50% survivor annuity (effectively a widow's pension) and the starting number would be even lower.

murphaph

bcklschaps wrote: »

Very interesting Thread.

Would love to bail out of the rat race too .. before I have completely lost my MOJO... (hopefully I will still have "it" when I'm 50!!)

So in summary you can cash in your private pension at 50yro .. and a take a max lump sum of 1.5 years salary and then the rest is paid to you per week in perpetuity based on how much you have in the pot divided by some magic number (the likely age you will kick the bucket at)

The state Contributory / non-contributory pensions kick in at 68yro... if you have paid a full 30 years of PRSI contributions you get (at present) €230 per week, regardless of any other income, but the combined income is taxable...and a pro-rata bit of it if you didn't manage the full 30yrs.

If you didn't pay any PRSI, you might be still able to get the €219 non contrib pension... if you earn less than (currently) €200 a week by any and all other means.

Presumbly you can get a bit of the Contrib pension and maybe a bit of the non contrib pension upto a max of the non contrib limit of €219

So really its a case of work for the "man" until you drop .. or else live the free life of a rover .. but in near destitution :-(

Non contribututory pension is not paid to anyone outside the state AFAIK.

Dredd_J

Well looks like we are good to go.
Things are looking better than I thought even.
Have to be quick, but will post over the weekend

SBarrett

bcklschaps wrote: »

Very interesting Thread.

Would love to bail out of the rat race too .. before I have completely lost my MOJO... (hopefully I will still have "it" when I'm 50!!)

So in summary you can cash in your private pension at 50yro .. and a take a max lump sum of 1.5 years salary and then the rest is paid to you per week in perpetuity based on how much you have in the pot divided by some magic number (the likely age you will kick the bucket at)

You can only mature your pension at 50 if it is company paid and the trustees allow it. Personal pensions cannot be cashed in before 60 unless due to illness.

You won't be 150% final salary tax free lump sum either as you won't have the years service to earn that level of lump sum.

The annuity rate you will get for a 50 year old, non indexing pension with a spouses pension of 50% of his own is about 3.1% i.e. for every €1,000 you give to the insurance company, they will pay you €31 for the rest of your life and €15.50 to his wife if he dies first.

Of course, he could got the ARF route and manage it himself. He can get 25% of the fund as a lump sum and the imputed distribution won't kick in for 11 years.

Dredd, best of luck with it. I think most would love the option of early retirement at 50.

Steven