What is a reasonable pension pot?

positron

I would love to have that problem

garrettod

howamidifferent wrote: »

You could subtract the state contributory pension from the €30k to needing ~€450k

You could, if you are confident that the state pension will still exist in its current form, when you retire.

Jim2007

garrettod wrote: »

You could, if you are confident that the state pension will still exist in its current form, when you retire.

It is reasonable to assume that the state pension will still be there. Most likely will be that it will not be increased over time, so it’s value will decrease.

For example, when I moved to Switzerland 30+ years ago they had only recently introduced the three pillar approach that is becoming popular in EU countries these days. At the time if you were careful with your money you could probably still live of the state pension, but today I’d say it might cover say four or five months living expenses.

That is why it is important to regularly review your retirement plans and make adjustments for any changes that have occurred.

sportsfan90

I’m working off the presumption that the state pension won’t be there by the time I retire (I’m 30). That’s not a prediction, it’s more preparing for what might be the case.

If it is still there, well and good, but a lot of my friends aren’t paying anything into pensions because they reckon the state pension in 30 or 40 years time will be enough to support them. Pure head in the sand stuff!

The J Stands for Jay

sportsfan90 wrote: »

I’m working off the presumption that the state pension won’t be there by the time I retire (I’m 30). That’s not a prediction, it’s more preparing for what might be the case.

If it is still there, well and good, but a lot of my friends aren’t paying anything into pensions because they reckon the state pension in 30 or 40 years time will be enough to support them. Pure head in the sand stuff!

I'm working off the assumption that the state pension will never increase from its current rate. That would seem to be the politically logical thing to do. The government need to control the costs, but there's massive opposition to increasing the pension age. Just do nothing, and the problem goes away (NB, this is the only situation in life that this advice may actually work for).

Raoul Duke III

Jim2007 wrote: »

For example, when I moved to Switzerland 30+ years ago they had only recently introduced the three pillar approach that is becoming popular in EU countries these days. At the time if you were careful with your money you could probably still live of the state pension, but today I’d say it might cover say four or five months living expenses.

Can you expand on this 'three pillar approach' please?

Raoul Duke III

McGaggs wrote: »

I'm working off the assumption that the state pension will never increase from its current rate. That would seem to be the politically logical thing to do. The government need to control the costs, but there's massive opposition to increasing the pension age. Just do nothing, and the problem goes away (NB, this is the only situation in life that this advice may actually work for).

The problem doesn't 'go away' though.

The real problem is that the percentage of the population that are pensioners will continue to go up. Hence why we need to take responsibility for funding our own retirements....

Jim2007

Raoul Duke III wrote: »

Can you expand on this 'three pillar approach' please?

Pillar 1: State Pension
Pillar 2: Employment Pension
Pillar 3: Private Savings

The AE System is basically the start of Pillar 2 in Ireland

Pillar 3 is usually some kind of tax efficient product- savings account, investment fund, life style fund etc…

The objective is the Pillar 2 becomes the main source of pension income.

Raoul Duke III

Jim2007 wrote: »

Pillar 1: State Pension
Pillar 2: Employment Pension
Pillar 3: Private Savings

The AE System is basically the start of Pillar 2 in Ireland

Pillar 3 is usually some kind of tax efficient product- savings account, investment fund, life style fund etc…

The objective is the Pillar 2 becomes the main source of pension income.

One of the oddities (I find) of Ireland is that there is a large cohort of the workforce that often have little to no pension coverage i.e. Pillar 2 but can quite often have large savings i.e. Pillar 3.
Which seems incredibly tax-inefficient to me. Could be a consequence of the need to put large house deposits together?

Personally I prioritise pension contributions over savings. Not that there's much left over in any case.

Grassey

Raoul Duke III wrote:

Could be a consequence of the need to put large house deposits together?

I'd say its financial ignorance. People who don't see the value in paying for advice (because you can get it off some random lad on boards), the fees they had this 1 time on some inappropriate product were huge ergo all products are there to rip you off, they want low risk huge returns so wonder why if they are in a 'default company investment strategy' that the fund never grows but God forbid they review and select their own funds etc.
Then add in the 'better under my mattress' incase of emergency (hot-tub/holiday/extension) cohort.

garrettod

Jim2007 wrote: »

It is reasonable to assume that the state pension will still be there. Most likely will be that it will not be increased over time, so it’s value will decrease...

I think that's probably the most optimistic outlook that can be taken.

Due consideration needs to be taken of things like the real rate of inflation, so by extension how much the buying power of the future state pension might be, asking with the needs of the individual - will they have a debt free home, or need to pay rent in their retirement, will they be able to provide for nursing home or healthcare needs etc.?

The current arrangements for the Irish state pension are clearly not appropriate anymore - with the population ageing, and life expectancy increasing. Its simply a liabilitity that the Irish State won't be able to afford to service in the future - so will have to either increase taxes or borrow, to fund it - or else reduce the future obligation.

Hence, making personal pension arrangements is essential - and that's not me trying to promote the sale of pensions. I've no conflict of interest here, for record.

Jim2007

Grassey wrote: »

I'd say its financial ignorance. People who don't see the value in paying for advice (because you can get it off some random lad on boards), the fees they had this 1 time on some inappropriate product were huge ergo all products are there to rip you off, they want low risk huge returns so wonder why if they are in a 'default company investment strategy' that the fund never grows but God forbid they review and select their own funds etc.
Then add in the 'better under my mattress' incase of emergency (hot-tub/holiday/extension) cohort.

I would not consider the Irish to be any different to the rest of Europe in that respect. Yes the average Swiss tradesman will retire with a pension pot of around 500k or more, but it is mainly because it is mandatory and the funds themselves are highly regulated rather than anything else.

The main difference is that unlike the Anglo Sphere, most of Europe does not encourage property investing as a means of saving.

Fils

I’ll keep adding cars to my vintage and classic car collection than looking at a figure in an account.

Jim2007

garrettod wrote: »

I think that's probably the most optimistic outlook that can be taken.
.

We can only speculate, but politicians do what will get them elected and taking away or reducing pensions will not get them there and even more so as the population ages.

Of course it is very likely that everyone including pensioners will have to pay more taxes.

Jim2007

Fils wrote: »

I’ll keep adding cars to my vintage and classic car collection than looking at a figure in an account.

The problem with these type of alternative investment is that their entire value is based on perception and limited demand.

If you are as old as I am you’ll have had Meccano in your childhood and every boy’s dream was to own a set 10. About 10 years ago the price of these second hand sets went through the roof, people were paying 4000 Euro for them and paying to have 40kg of metal shipped to them from around the world. Today you’d be luck to get a 1000 Euros for one. Everyone who wanted one now has a couple of them and the following generations see no value in them.

No matter what your approach a failure to diversify is always a risky strategy.

Fils

I wouldn’t know much about meccano only that it’s a kids toy. You cannot possibly be comparing this to classic cars.

kegblag

Jim2007 wrote: »

We can only speculate, but politicians do what will get them elected and taking away or reducing pensions will not get them there and even more so as the population ages.

Of course it is very likely that everyone including pensioners will have to pay more taxes.

One worry would be the ease that the pension levy was introduced.

I think that took a chunk of around 3% by the end, be around a years worth of pension income for me eventually. What was worse I know some younger people reacted to the levy to making minimum investments (to get the employer's match) so they're in worse trouble.

People complained, but it was one of the easier austerity measures to introduce. People with adequate retirement pots are in a minority - they could be hit again particularly as we're likely heading for a period with a populist government.

Out of interest, in Switzerland is there any equivalent to the UK ISA. I thought Ireland was particularly bad at encouraging private investing, e.g. ETFs seem complex for taxation here, but maybe we're typical.

Furze99

Re OP if you're started pension in your early 30s and intend to work & contribute to it till say 65/66/67 whatever, then you'll likely be in a reasonable position depending on your lifestyle and expectations. But there's a whole heap of unknowns and one is basically trusting in a financial system and tax framework that may or may not change over time. The way I look it, I put aside what I can from year to year, so that we can avail of deferred tax. If it keeps its value and grows at least as much as inflation then I figure things are going OK. Remember the mantra that investments can fall as well as rise and that the government may dip it's hands in again - no guarantees.

In some ways providing for yourself in this state can be viewed as a bit of a mugs game. When you get to the stage that you or your partner may need nursing home care, under the current 'fair deal' scheme - your assets will be creamed off whilst those who haven't really bothered too hard will get much the same care. The old squeezed middle tend to carry the burden - if you're super rich you'll be grand and poor will be looked after. Ditto for the squeezed middle but don't expect have much left to show for it.

Feria40

Furze99 wrote: »

Re OP if you're started pension in your early 30s and intend to work & contribute to it till say 65/66/67 whatever, then you'll likely be in a reasonable position depending on your lifestyle and expectations. But there's a whole heap of unknowns and one is basically trusting in a financial system and tax framework that may or may not change over time. The way I look it, I put aside what I can from year to year, so that we can avail of deferred tax. If it keeps its value and grows at least as much as inflation then I figure things are going OK. Remember the mantra that investments can fall as well as rise and that the government may dip it's hands in again - no guarantees.

In some ways providing for yourself in this state can be viewed as a bit of a mugs game. When you get to the stage that you or your partner may need nursing home care, under the current 'fair deal' scheme - your assets will be creamed off whilst those who haven't really bothered too hard will get much the same care. The old squeezed middle tend to carry the burden - if you're super rich you'll be grand and poor will be looked after. Ditto for the squeezed middle but don't expect have much left to show for it.

This last paragraph is so true.

Try your best and work hard to put a little pot together. Retire, require a nursing home a short few years later and the state will take a nice chunk off you.

This would be absolutely fine, indeed appropriate but someone who has no pension pot will get the exact same out of the system.

Clearly a person could have little or nothing in retirement for all sorts of reasons. Countless valid reasons.

But it all just seems a little unfair

colm_c

bob mcbob wrote: »

I will add my experience in here as someone who financially can afford to retire but have not done it fully yet.

This is not for everyone but just want to share.

I started investing in a pension in the 90's and built up a reasonable pot 20/30K or so. With my spare cash I started investing in stock market funds. After a while I noticed that the cash I was investing in funds was growing a lot faster than my pension fund. Due to employment changes (in 2000 I went freelance) I stopped paying into a pension fund and instead built up a pot thru stock market funds and stock market investments.

Where do things stand now from my experience -
- investing in stock market funds, I have primarily invested for growth and I have seen my investments double every 8 years or so. I have not had any need to dip into this as yet
- stock market - this started for growth and now is more towards income. The income from this could pay my yearly living expenses.
- pension pot - as I said I stopped paying into this around the year 2000 and it was then valued at 20-30 K now 20 years later it is valued at 30-40K. There is no comparison with this and my other investments.

So my experience is - pension funds are good for tax and employers contributions but their performance leaves a lot to be desired.

You should look at a self directed prsa or epp, where you can choose the stocks/funds for your pension.

Best of both worlds, tax benefits and growth.

Jim2007

Fils wrote: »

I wouldn’t know much about meccano only that it’s a kids toy. You cannot possibly be comparing this to classic cars.

There is no difference. They are all collectors items with no intrinsic value and every generation has their own collectibles and once a demand is satisfied there is no guarantee that it will be easy to dispose of a collection when you need to do so.

It would be very unwise to concentrate your wealth in any item whose value is defined by perception.

Jim2007

kegblag wrote: »

One worry would be the ease that the pension levy was introduced.

The levy is no different to any other unknown in the forecasting exercise. Tax rates change, rates of return change, valuations change. There is nothing special about a levy except people’s perception.

It does not matter what the cause of the impairment was be it a levy, a 20% drop in the stock market or the default of a bond you still have to deal with the outcome in the same way.

Out of interest, in Switzerland is there any equivalent to the UK ISA. I thought Ireland was particularly bad at encouraging private investing, e.g. ETFs seem complex for taxation here, but maybe we're typical.

Yes there is something similar, but Switzerland actively discourages property investing in any case, so there is no capital tax on gains from equity investing.

The J Stands for Jay

Jim2007 wrote: »

there is no capital tax on gains from equity investing.

That's definitely making your third pillar more attractive than here; either 41% tax on funds and ETFs, or for equities 33% CGT in growth and income tax on dividends.

Jim2007

McGaggs wrote: »

That's definitely making your third pillar more attractive than here; either 41% tax on funds and ETFs, or for equities 33% CGT in growth and income tax on dividends.

Yes but on the other side there is little or no support for home ownership:
- No mortgage relief
- Home owners are deemed to have additional income equivalent to the rental value of the property and pay income tax on it
- Wealth tax must be paid
- etc

The J Stands for Jay

Jim2007 wrote: »

Yes but on the other side there is little or no support for home ownership:
- No mortgage relief
- Home owners are deemed to have additional income equivalent to the rental value of the property and pay income tax on it
- Wealth tax must be paid
- etc

I would argue that the support for housing here is worth less than the extra tax on investing. But on paper, property ownership is supported.

AndrewJRenko

Jim2007 wrote: »

- Home owners are deemed to have additional income equivalent to the rental value of the property and pay income tax on it

Amazing idea. Can't quite see it taking off here.

Does this happen anywhere else in the world, I wonder?

The J Stands for Jay

AndrewJRenko wrote: »

Amazing idea. Can't quite see it taking off here.

Does this happen anywhere else in the world, I wonder?

If people are tax incentivised to rent, is there any tax incentive for landlords? Or does the demand alone make it an attractive market?

Geuze

AndrewJRenko wrote: »

Amazing idea. Can't quite see it taking off here.

Does this happen anywhere else in the world, I wonder?

Imputed rental income was subject to income tax here until 1969.



https://www.jstor.org/stable/24437265

See page 3 here:
https://www.esri.ie/system/files?file=media/file-uploads/2015-07/WP033.pdf

Jim2007

McGaggs wrote: »

If people are tax incentivised to rent, is there any tax incentive for landlords? Or does the demand alone make it an attractive market?

Not in Switzerland, but pension funds are required to hold large blocks of rental property.

Geuze

AndrewJRenko wrote: »

Amazing idea. Can't quite see it taking off here.

Does this happen anywhere else in the world, I wonder?

See page 4 / page 110 here:

http://www.tara.tcd.ie/bitstream/handle/2262/59019/somerville.pdf?sequence=1