How's your pension?

anewme

Roughly we were told as a rule of thumb that currently you will get 4K pension for every 100K invested and that seems to bear out roughly on most of the calculators.

So for a lump sum of roughly 400K will give a 100K lump sum plus a 12K pension.

I'm going to try to fund the pension and let the mortgage run its course (I was overpaying) as Im on ECB plus.5 and thats the cheapest money Ill ever get.

Augeo

Augeo wrote: »

Pension overpayment calculator... https://www.ccpc.ie/consumers/tools-and-calculators/extra-mortgage-payments-calculator/

I doubt there's a variable rate on the market that would make overpaying a pension better value than 40% relief on pension contribution TBH.

5k into a pension this year would likely grow to 20k in 30 years with 5% net growth per annum.

That'd be potentially a grand per annum extra every year in retirement.

Roughly & crudely

While I fully agree that a pension is vital and it does save on tax it's saving you 40% in reality. You can take out some in a lump some tax free but you will pay tax on the rest as you receive it the same as you would a salary. I know of people paying the higher rate of tax on their pension.

Yakult

Like **** I would trust my pension in this country and the robbing financial institutes. Have mine tucked away in a fireproof/waterproof safe hidden on my property. Each year I deposit 40% of my yearly earnings in to it. It's getting full so may have to invest in a second safe.

Nijmegen

Marley Agreeable Baker wrote: »

While I fully agree that a pension is vital and it does save on tax it's saving you 40% in reality. You can take out some in a lump some tax free but you will pay tax on the rest as you receive it the same as you would a salary. I know of people paying the higher rate of tax on their pension.

So it's about tax planning. There's a great thread on askaboutmoney talking hypothetically about the maximum pension fund you could build if you maxed pension contributions from age 35 to retirement (€1.8m is the answer).

Do a 50:50 ARF/Annuity with a lump sum, you'll take out €450,750 and pay €50,150 to the government in tax (ie, 11.12%) and then get yourself an income of about €5,584 p/m or €67,008 per year. Yes you will pay top rate of tax on that €67k, but over 70 you're gonna be paying €4,581 less in tax than someone earning the same bread before retirement. So you'll have an effective tax rate there of 25.2% vs a punter in work of 32%.

Lets say you live 25 years past retirement, to the ripe old age of 93. €1.675m in pension payments, €1.253m net and €421,825 in tax. Plus you got your €450k and paid €50k in tax. So total earnings €2.12m, total tax €472k, an effective tax rate of 22.26%.

Earn €2.12m as a regular income and you'll pay €1.08m in tax, 50.94%. A difference of 28.68% or €608k in tax.

Now that's maximising your pension. Not everyone will ever do that, but the tax savings scale. Another strategy is to earn in the higher rate of tax but create a pension you drawdown at the lower rate, for example; as well as taking your lump sum out.

car_radio19834

car_radio19834 wrote: »

I just checked.

On a 250k mortgage over 30 years with 2.8% rate, overpaying by 350 per month would save 45k.

That 5k might turn into 20k, but bringing inflation into account and fees and annuities you'd be lucky to get your money back.

Net growth, after fees.
Who mentioned annuity?

Viscount Aggro

I already retired from one job, took my retirement benefits at age 50, last year.

Started another job recently... getting 30K per annum from the pension.
Will see how long I can last the job.

touts

After the last recession I came to the conclusion that over the next 30 years it is likely there will be another 2 recessions and the age of retirement will be raised to Mid 70s and most likely means tested so that anyone with a private pension won't get a state one.

So based on thst I assumed that I will get nothing from the state. I then started to pay extra into a fund to compensate for that. If I am wrong happy days. But now I'm 10 years into the top up and I have built up a nice little extra fund.

The J Stands for Jay

delboythedub wrote: »

Well done and you should go on line and check how your pension is doing regularly. Mine dropped €10.000 in one year and then i learned to keep a very close check on it. It always nice to know that you will have a few quid in your pocket when you retire and have time to enjoy it. I retired 2 years ago.

You should avoid checking on it. It'll just make you do something daft in response to a bit of a drop.

The J Stands for Jay

Fccwontletmebe wrote: »

Just have a few questions if someone can answer.
1) when can you take a limp sum out of the pension?
2) At what age can you start drawing down on the pension and properly retire with it?

I’m current saving a little over 2 grand a month and not paying into my works pension which matches 8%.

I really don’t want my money caught up in something out of my control until I’m 65.

I’m 31 and have savings of nearly of 100K and no mortgage.

I just don’t think it’s right for me even with the tax breaks. I plan on retiring at 55 at the latest. But more than likely 50 and pick a few contract roles every so often.

You can retire from a work pension at 50. Go get that free 8% you're missing out on.

AndrewJRenko

Yakult wrote: »

Like **** I would trust my pension in this country and the robbing financial institutes. Have mine tucked away in a fireproof/waterproof safe hidden on my property. Each year I deposit 40% of my yearly earnings in to it. It's getting full so may have to invest in a second safe.

Have you calculated how much you're losing to inflation each year?


Have you calculated how much tax relief you're missing out on?

McGaggs wrote: »

You can retire from a work pension at 50. Go get that free 8% you're missing out on.

Broadly yes, but subject to some important qualifications;


1) That your employer's pension rules allow this
2) That you've actually left that employment that you want to retire from

The J Stands for Jay

AndrewJRenko wrote: »

1) That your employer's pension rules allow this
2) That you've actually left that employment that you want to retire from

I'd be surprised if there were many DC schemes that wouldn't allow early retirement, and I think that in retiring early, you'd be leaving that employment to be retired. Neither is a given, but both good enough to run with in a comedy/rant forum.

chases0102

Pensions a bit of a minefield here, too - this thread is both scary and illuminating.

Pre 2011 teacher here, would love to retire at 60. Just 2 years into 30 year mortgage, not overpaying (yet - keep planning on doing it!) are AVCs my best bet to retire when I want to?

randombar

Two questions come to mind.

Using your pension fund to invest in a property, pros and cons?

Public sector defined benefit pension for people starting out / switching jobs e.g. teacher, is the defined benefit still worth it?

Also agree with most above, paying into your pension is BY FAR the best form of investing you can do, if you're on >40k per year you are instantly doubling your money.

The J Stands for Jay

GaryCocs wrote: »

Two questions come to mind.

Using your pension fund to invest in a property, pros and cons?

Public sector defined benefit pension for people starting out / switching jobs e.g. teacher, is the defined benefit still worth it?

Also agree with most above, paying into your pension is BY FAR the best form of investing you can do, if you're on >40k per year you are instantly doubling your money.

Pros: guy in the pub said you can't lose with property.
Cons: zero diversification
Expensive
You can't use the property yourself
You've already missed the boat

topmanamillion

chases0102 wrote: »

Pensions a bit of a minefield here, too - this thread is both scary and illuminating.

Pre 2011 teacher here, would love to retire at 60. Just 2 years into 30 year mortgage, not overpaying (yet - keep planning on doing it!) are AVCs my best bet to retire when I want to?

First off you need to figure out what you're pension shortfall will be i.e what you'll get from the public service pension compared to what you'd like to earn in retirement.
Cornmarket have a tidy monopoly through the unions and their business is selling a product.

You need to remember with AVCs that your money is locked away until you're 60 and is no benefit to you now.

Also, even then you can only draw down 25% of the fund tax free on retirement. The rest is subject to your marginal rate of tax or goes into another fund/investments to provide an income depending on how they perform.

AVCs are attractive with the tax relief element but its certainly possible to over pay into them.

In your position I'd try and shave years off your mortgage as you can make substantial savings in interest by even just taking a few years off it's length. You'd have the option of using those savings to top up your pension if that's what's best for you.

I'm in no way saying don't get an AVC just be aware of the ongoing charges, fees and what happens when the AVC matures because you don't just get it all handed back to you tax free at 60.

Nijmegen

GaryCocs wrote: »

Two questions come to mind.

Using your pension fund to invest in a property, pros and cons?

Public sector defined benefit pension for people starting out / switching jobs e.g. teacher, is the defined benefit still worth it?

Also agree with most above, paying into your pension is BY FAR the best form of investing you can do, if you're on >40k per year you are instantly doubling your money.

The obsession with property is not at all matched by the returns on property over time versus other classes of asset. Also, where you can use €300k to buy one property you could use it to buy effectively 100-500 or so different assets, some of which follow the property market as a proxy if you like and some of which have nothing at all to do with it in case it goes wallop. Interesting article in The Economist recently about how the obsession with property ownership is bad for individuals and society, but probably the key thing for you as an individual is that there are better returns elsewhere. I think people fall back on property because they can see and understand it. That doesn’t make it a good investment. https://www.economist.com/leaders/2020/01/16/home-ownership-is-the-wests-biggest-economic-policy-mistake

Public sector new entrant DB is a lot less lucrative than it was - based on career average earnings vs final and all that. Lot of terms and conditions. It would annoy me sitting next to the aul fogeys who voted for that deal and are retiring on better benefits than me. But at the same time it’s still a DB pension, which basically no longer exist elsewhere; you saw the public service come through the deepest recession we’ve had without a compulsory job loss - how do you price that? All well and good talking about building up your PRSA fund till you lose your job because China got the flu. And I would bet that the current new entrants will get a better deal over the span of 20-30 years of vote buying before they retire.

AndrewJRenko

McGaggs wrote: »

I'd be surprised if there were many DC schemes that wouldn't allow early retirement, and I think that in retiring early, you'd be leaving that employment to be retired. Neither is a given, but both good enough to run with in a comedy/rant forum.

Not many people get to really retire at 50. You'd want to have a very, very large fund to allow that.

For many people, the 'retirement at fifty' is really a tax planning measure. You're not retired, as you are still working, but you can absolutely legally 'retire' from a previous employer to access the pension money from that employment.

But you're probably going to continue working with your current employer.

That's why I pointed out that you need to have left or be ready to leave the employement of the fund that you're planning on retiring from.

randombar

Nijmegen wrote: »

The obsession with property is not at all matched by the returns on property over time versus other classes of asset. Also, where you can use €300k to buy one property you could use it to buy effectively 100-500 or so different assets, some of which follow the property market as a proxy if you like and some of which have nothing at all to do with it in case it goes wallop. Interesting article in The Economist recently about how the obsession with property ownership is bad for individuals and society, but probably the key thing for you as an individual is that there are better returns elsewhere. I think people fall back on property because they can see and understand it. That doesn’t make it a good investment. https://www.economist.com/leaders/2020/01/16/home-ownership-is-the-wests-biggest-economic-policy-mistake

Public sector new entrant DB is a lot less lucrative than it was - based on career average earnings vs final and all that. Lot of terms and conditions. It would annoy me sitting next to the aul fogeys who voted for that deal and are retiring on better benefits than me. But at the same time it’s still a DB pension, which basically no longer exist elsewhere; you saw the public service come through the deepest recession we’ve had without a compulsory job loss - how do you price that? All well and good talking about building up your PRSA fund till you lose your job because China got the flu. And I would bet that the current new entrants will get a better deal over the span of 20-30 years of vote buying before they retire.

The property motivation for me is the income that is kind of linked to inflation as well as the asset at the end. If you live to 100 you have an income from that without fear of the fund running out. I definitely agree about the diversification all right.

Mad_maxx

touts wrote: »

After the last recession I came to the conclusion that over the next 30 years it is likely there will be another 2 recessions and the age of retirement will be raised to Mid 70s and most likely means tested so that anyone with a private pension won't get a state one.

So based on thst I assumed that I will get nothing from the state. I then started to pay extra into a fund to compensate for that. If I am wrong happy days. But now I'm 10 years into the top up and I have built up a nice little extra fund.

Probably be more grim than that, those with private pensions will be labelled fat cats and have their retirement fund tapped to cover those who couldn’t be bothered investing in their retirement