Another Pension or Cash question....

C

coolaboola12

Registered User
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317
Hi All

I know this has been debated to death but i just wanted to ask it in case it differs in my situation.

im 43 and earn 100k and have a pension pot of only 120k. I have a good bit of disposable income each month and up until now was saving it as mostly cash (i have 100k cash). I do already pay 5% into pension to get the companies 7%.

My strategy at retirement would be to spend more money in the earlier years 65 - 75 for example and then much less as i get older so in the first few years i would most likely be spending 40 - 50 k per year so if this was to come from a pension then it would be taxed at the higher rate.

Would you recommend maxing out my pension contributions for the next 20 years to build up the pension pot or should i continue saving cash....

Note : we have a small mortgage on a very good rate so dont want to pay that down

Im just torn with this question :)
 
coolaboola12 said:
Would you recommend maxing out my pension contributions for the next 20 years to build up the pension pot or should i continue saving cash....
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If it's a question of those two options and you have no immediate/imminent need for the cash, no debts that need repayment etc. then the pension is a no brainer. Saving for retirement via cash deposits (which seems to be what you're doing in parallel to making modest pension contributions) makes absolutely no sense.
 
ClubMan said:
If it's a question of those two options and you have no immediate/imminent need for the cash, no debts that need repayment etc. then the pension is a no brainer. Saving for retirement via cash deposits (which seems to be what you're doing in parallel to making modest pension contributions) makes absolutely no sense.
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ok thanks for the honesty, i suppose its just a pyschological thing that i dont like locking away the money. And no i dont need the cash for a house etc thankfully
 
coolaboola12 said:
Pension might fall as well as rise
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There are ups and downs but history shows that equities outperform all other asset classes over decades. Add into that there is tax relief on the way in and no CGT on growth.

The likelihood of cash subject to DIRT leaving you with more than tax-relieved equities in a pension fund over thirty or forty years is so close to zero as to be indistinguishable.
 
coolaboola12 said:
lol well yeah i do, but growth isnt guaranteed. Pension might fall as well as rise
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Over 20+ years - and probably longer if you roll at least 75% of it into an ARF - it's extremely unlikely that the pension will lose value.
I'm assuming that charges are reasonable and the money is invested in an appropriate equity based fund.
You seem to be trying to convince yourself that your decision to save (in parallel to your pension) for retirement using cash deposits is a correct one so others are probably wasting their time showing you why this is almost certainly flawed thinking.
 
coolaboola12 said:
we have a small mortgage on a very good rate so dont want to pay that down
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Is your mortgage rate less than the interest you are receiving on your cash deposits (less DIRT)?

If not, you should pay down your mortgage.

There is no point having large amounts of cash sitting on deposit earning practically no interest while simultaneously carrying a mortgage.
coolaboola12 said:
in the first few years i would most likely be spending 40 - 50 k per year
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You are going to need some fairly serious retirement savings to sustain anything like that level of expenditure.

At your age, you could get tax relief on pension contributions of up to 25% of your salary (on top of your employer contributions).

As others have said, a pension is by far and away the best way to save for retirement - there's really no debate about it.
 
ClubMan said:
Over 20+ years - and probably longer if you roll at least 75% of it into an ARF - it's extremely unlikely that the pension will lose value.
I'm assuming that charges are reasonable and the money is invested in an appropriate equity based fund.
You seem to be trying to convince yourself that your decision to save (in parallel to your pension) for retirement using cash deposits is a correct one so others are probably wasting their time showing you why this is almost certainly flawed thinking.
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im not trying to convince myself that cash is the right decision, i just want to be sure that im making the correct decision
 
Sarenco said:
Is your mortgage rate less than the interest you are receiving on your cash deposits (less DIRT)?

If not, you should pay down your mortgage.

There is no point having large amounts of cash sitting on deposit earning practically no interest while simultaneously carrying a mortgage.

You are going to need some fairly serious retirement savings to sustain anything like that level of expenditure.

At your age, you could get tax relief on pension contributions of up to 25% of your salary (on top of your employer contributions).

As others have said, a pension is by far and away the best way to save for retirement - there's really no debate about it.
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if i spend 50k per year from 65 - 75 and then 25k from 75 - 85 then the pot would need to be 750k. I doubt very much i will live past 85 and even if i did then i could sell the house and downsize

My plan would be to use all my pension in my retirement, not just the 4% that people talk about
 
If you maximize your pension contributions now you could find yourself in the future being in the great position to retire much earlier. One great advantage of having a large ARF is that you can adjust your drawdowns to exactly match your maximum 20% tax band. You could then use your savings to pay for any extra living expenses.
 
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coolaboola12 said:
if i spend 50k per year from 65 - 75 and then 25k from 75 - 85 then the pot would need to be 750k.
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Ok, but you won’t get to €750k over 20 years with your current level of contributions - you need to significantly increase your AVCs.

With the maximum tax free lump sum of €200k, pensions are particularly tax-efficient up to €800k.
 
Sarenco said:
Ok, but you won’t get to €750k over 20 years with your current level of contributions - you need to significantly increase your AVCs.

With the maximum tax free lump sum of €200k, pensions are particularly tax-efficient up to €800k.
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Yep but im going to increase my contributions now to 25% and put half of my cash into a broad global ETF.

Thanks all
 
coolaboola12 said:
… put half of my cash into a broad global ETF.
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www.irishtimes.com

Don’t invest in an ETF until you understand the tax

Exchange-traded funds may be less attractive than they appear due to onerous tax reporting requirements
www.irishtimes.com www.irishtimes.com
I’m not a big fan of investing after-tax savings in ETFs while carrying mortgage debt.

Increasing your AVCs to 25% of your salary certainly makes a lot of sense.

Maybe your pension pot is the area where you could increase your exposure to equities.
 
At the moment the low rate of tax at 20% goes up to €40,000 income. So you could target that figure (inclusive of your State Contributory Pension) in retirement. Then supplement it from the tax-free lump sum if required. You'd end up paying only 20% Income Tax plus levies on the pension and the first 25% of your fund would be tax-free (the lump sum). So an effective Income Tax rate after retirement of 15% (20% x 75%) plus PRSI and USC for a while. But you're getting 40% tax relief on the contributions now. Strong argument in favour of the pension side.

Tax bands and reliefs may well change over the next 20+ years and if so, you should review your plan accordingly. But at the moment, I think pension wins hands down.
 
LDFerguson said:
At the moment the low rate of tax at 20% goes up to €40,000 income. So you could target that figure (inclusive of your State Contributory Pension) in retirement. Then supplement it from the tax-free lump sum if required. You'd end up paying only 20% Income Tax plus levies on the pension and the first 25% of your fund would be tax-free (the lump sum). So an effective Income Tax rate after retirement of 15% (20% x 75%) plus PRSI and USC for a while. But you're getting 40% tax relief on the contributions now. Strong argument in favour of the pension side.

Tax bands and reliefs may well change over the next 20+ years and if so, you should review your plan accordingly. But at the moment, I think pension wins hands down.
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thanks, this makes sense to me
 
9 minutes ago
Two contributions from me.

This came up previously here. The poster is a few years ahead of you but it’s relevant.

Can You Have Too Much Pension?​

I know I contributed to the discussion but not sure where it ended.

OP is the retirement income figure you are quoting for one or two people i.e will be supporting a wife, husband or partner?

g
 
garbanzo said:
9 minutes ago
Two contributions from me.

This came up previously here. The poster is a few years ahead of you but it’s relevant.

Can You Have Too Much Pension?​

I know I contributed to the discussion but not sure where it ended.

OP is the retirement income figure you are quoting for one or two people i.e will be supporting a wife, husband or partner?

g
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its just for me, my wife will have a full public sector pension
 
That’s a very, very decent income. Are you sure you need that amount between the two of ye?

Asking, as I am struggling to work out a budget I can have confidence in for the same phase of my life.

g
 
garbanzo said:
That’s a very, very decent income. Are you sure you need that amount between the two of ye?

Asking, as I am struggling to work out a budget I can have confidence in for the same phase of my life.

g
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We have seperate money so i cant rely on my wife for a pension and what if we divorced ?

I made a decision to put 10% AVC for now, its a happy medium between pension and cash and while i know other people will disagree, that decision suits me for now
 
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