Pension Shortfall

Rescueme · 31-03-2022 7:41am #1

Hi

Current situation:

Married - both in our late 40's earning combined income of circa 150k per annum. 1 self employed.

Current combined pension pot = Circa 300k. Both paying into a company and personal pension separately - separate to the 300k - combined value of approx 40k.

No mortgage, house value circa 450k.

No other debt eg Credit card, loans etc. We only buy what we think we can afford and dont live extravagantly.

2 dependents in primary school.

Savings of approx 100k in various accounts.

I had a bit of a panic earlier in the week when I started to look at our pensions etc. I know hindsight is a wonderful thing, and we should have been looking at this previously - think life / family etc just took over.

I briefly spoke to an independent pension broker earlier in the week, and she mentioned I should be trebling what I put into my pension - ie to circa 3k per month. I nearly passed out to be honest!

I am not 'good' in this space in terms of understanding all the nuances - but can anyone advise or guide what would be a good strategy for us now? Or have we left all this too late??

Ive had sleepless nights since I heard this!

Thanks

RM

31-03-2022 7:59am

2 things

1. The amount recommended maximises the tax benefits. 3000 euro in the pot(from gross pay) costs 1800euro off net pay.

2. Deep down the pension broker is a sales person on commission

31-03-2022 8:12am

So firstly, what do you mean by “pension pot” of 300k? Do you mean that your combined savings is 300k and you’re keeping that for your pension? Or is it that from a previous job, you had pension contributions paid by an employer and the estimated value right now is 300k?

Obviously the older you are the more expensive it is to invest in a pension if you want say 2/3rds of your current income on retirement.

Which brings me to the question- exactly how much of an income in retirement will 3000 per month investment actually get you, did the pension advisor say?

While I’d be concerned I wouldn’t be having sleepless nights quite yet- you’re in a better position than many.

There’s some more questions such as:

Is there a chance of future inheritance coming your way?

When do you want to retire ?

What sort of income did you agree would be right for you and your partner?

Rescueme · 31-03-2022 10:02am

Thanks for your replies

300K is currently in a pension investment bond - this was predominantly a fund I had accrued from a previous employer.

2/3 of our current income on retirement would be fantastic - and I do understand we are in a better position than most given we have no debts and a roof over our heads - for that we are grateful.

I would love to retire in circa 10 years, all going well. Other half happy to keep going until mid 60s.

Inheritance wise - I suppose its never guaranteed, but we both have both parents around - so there will be something there when the time comes. I wouldnt like to speculate what would be there on either side though. Both sides have own homes and siblings.

Just want to understand if I do need to try and put 3k a month away for pension - it will leave very little for anything else.

Thanks

bigmac3 · 31-03-2022 10:05am

Why not max all contributions now and use remainder plus savings to live, maximising tax efficiency.

backwards_man · 31-03-2022 11:06am

Work out how much you want to live on monthly in retirement and work backwards from there to see how much you need to draw down from a pension. The 2/3s annual salary is only a benchmark, for high earners it could be too much to aim for monthly. Since you own your own house your expenses in retirement will be lower than some peoples. You possibly have an inheritance coming in the next 20 .

Use an online pension calculator to work out what amount you need to fund that for 30 years. Your expenses from 60-75 will be greater than from 75 onwards, assuming you will be more active earlier in retirement than later, travelling etc. factoring declining health, mobility you will spend less. Honestly its not worth losing sleep over at this stage, you are doing well financially. Remember you get 40% tax relief on pension contributions so 3K pm only costs you 1800. The closer you get to retirement age the more you should put into your pension.

Jim2007 · 31-03-2022 12:51pm

https://www.boards.ie/discussion/2058239636/pension-shortfall

Well I spent over three decades working in the Swiss financial services sector and we tend to be very conservative about these things and our starting position just from the initial numbers would be:

You should be contribution around 2,300 per month net to your pension (so not so different to your Irish advisor) and you should be pushing 25% in the final decade before retirement.
To retire in your early 50s and maintain your current lifestyle, you'd need to have a cumulated assets of about 3,000,000

From there you would start rolling the figures back depending on your circumstances - you already have assets of 850,000, what is the projected value of your current pension and so on. Can you cut your living conditions going forward? and so on.

31-03-2022 12:54pm

Absolutely inheritances not guaranteed you’re correct-= but do have a think of what might be “likely” in the very (hopefully) distant future.

As you’ve no mortgage the equivalent at least should be going into a pension plan now but as someone said above maximise your tax breaks on contributions as it will cost you less.

The earlier you start now, the sooner you’ll retire.

Consider semiretirement funding yourself from a part time work salary and part pension (assuming you’ll have in demand skills) - you can still add to your retirement savings whilst working part time so worth considering too.

Obviously you’ll have expensive education fees etc coming up in next 10 years so plan for those too in a separate investment now.

Finally. if you’re not overly precious about your house or where you live, you could release equity on current house in years to come by downsizing to a smaller home once the kids are gone, giving you maybe an additional 100_150k - but that’s all a very personal choice- people can love their homes but cost savings on heating and repairs can influence a move to a smaller house or apartment for retirement.

31-03-2022 12:56pm

Essentially stop worrying as you’re in a good place, but defiantly start doing something

Henry Ford III · 31-03-2022 9:36pm

https://www.boards.ie/discussion/comment/118859477#Comment_118859477

Just a reminder that all fees/charges/commissions MUST be disclosed prior to sale.

As long as you're happy with whatever renumeration structure is proposed I can't see any issue.

Discount brokers are of course available but they'll be execution only, so the whole advice area gets of necessity ignored to minimise cost. They'll do whatever you tell them to do, even if it's manifestly the wrong thing.

So chose wisely.

893bet · 01-04-2022 11:38am

https://www.boards.ie/discussion/comment/118859919#Comment_118859919

i am estimating you have a net income of excess of 8k per month.

With no mortgage or debt……why are you spending all this money on if you are not extravagant?

A 3k contribution per month will only cost 1800 net to you leaving excess of 6k to live. It’s a huge amount of money.

JimmyVik · 01-04-2022 12:06pm

I think you are in a good position already.

Heres an example I was given last year when asking about what I needed to retire. Thes number may not be exact but i'll get them as close as i remember. And the worked example oif for a single person. Double everything for a couple with similar jobs and pensions.

Say you take home 4k (Im just assuming thats average). Put 1k (or whatever your max is) of that into your pension and you take home 3k and also get the benefit of the tax relief into your pension too.

Learn to live on 3k. eg you pay your rent/ mortgage, insurance etc out of it too.

Any raises you get, invest them. Dont get used to living on them.

By the time you retire we will say your pension pot is worth €800k.

Via an ARF you can withdraw 4% of that every year and you should be ok.

So thats 32k per year. or 2.6k per month.

You should have no mortgage or certain other expenses at that stage. If you are renting thats a different story.

So you are used to living on €3k (minus mortgage and insurance etc). €1.5k

In retirement you are living on €2.6k (no mortgage, insurance, savings etc)

Now double that up for a couple.

The big factor here is that you should have far less expenses after retirement.

Of coure this is just the example he worked out on the board for me, and everyone will be differemt, but worth considering but plugging in your own numbers.

Pension Shortfall

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