Pension was Paused during 2008 Crisis - At 53, I feel Like I am Playing Catch-Up!

[Uafásach]

Personal details
Age: 53
Spouse’s/Partner's age: 50

Number and age of children:
Three (14, 16, 18) – There is a local university they hope to attend.

Income and expenditure
Annual gross income from employment or profession: €115,000 + €25,000 (Bonus)
Annual gross income of spouse: Homemaker, but €14,000 (Income from Rental Property)

Monthly take-home pay: €5,400

Type of employment:
Private sector employee

Expenditure pattern:
We are both 'savers'.

Rough estimate of value of home
€390,000
Mortgage on home
€Nil (Cleared this in Jun 2022 by selling stock options)

Other borrowings – car loans/personal loans etc
None

Do you pay off your full credit card balance each month?
Yes

Savings and investments:
€100,000 Cash Savings
€20,000 12mth Term Saving Deposit (2.7% APR in Raisin)
€40,000 invested in individual stocks and EFTs (Stocks selected based on high FCF trends).
€30,000 Employee Stock Purchase (APSS, Maturing on 3yr rolling basis)
€105,000 Stock Options that I can execute right now (Net Figure)
€140,000 Options / RSU to mature in next three years (Net Figure)

Do you have a pension scheme?
Me - €300,000 Employment DC. I pay in €43,500 p.a. (8% + 8% plus Max AVCs to 30% of €115k allowable). I’ll increase to 35% at 55yrs old.
Spouse - €30,000 DC from previous employment. €Nil contributions

Do you own any investment or other property?
My Spouse owns a Rental Property – Est. Value is €195,000, purchased with cash (~2016) for €145k. Initially that was a 6.8% net yield, now a 5.1% net yield.
Rental Income: €14,000 declared as spouse’s income to pay PRSI towards spouse's old age pension.

Life insurance:
Yes, via my employment (x6 Salary)

What specific question do you have or what issues are of concern to you?
1. My DC Pension was paused for several years during 2009 crisis. I feel I am behind the curve and playing catch up. At 60 could I semi-retire and move to a lower paid job or a three day week?

2. A significant portion of my net worth is tied into my employer’s stock (Options, RSUs, APSS). These add to €275,000, of which I can divest €105,000 now to manage risk profile. Would that be the smart move? What would I do with the lump sum?

3. My current Pension Fund is invested as follows, but is this mix sensible? (69% Equities & 31% Bonds) for my age?

a. Diversified Cautious Fund S4 (ES67) – 1.98%
b. Diversified Growth Fund S4 (ES34) – 65.22%
c. Diversified High Growth Fund S4 (ES35) – 5.07%
d. Diversified Moderate Fund S4 (ES33) – 4.99%
e. Indexed Global Equity Fund S4 (ES68) – 8.96%
f. Indexed North American Equity Fund (ES52) – 13.78%

4. If I plan to use an ARF can I roll the pension (as invested) into the ARF or does to mature on a date and then go into the ARF?

5. Currently we plan to keep the investment property as it feeds by spouse's PRSIs (Pension). Is that the smart play for now?

Thanks in advance.

 

[NoRegretsCoyote]

5. Currently we plan to keep the investment property as it feeds by spouse's PRSIs (Pension). Is that the smart play for now?

This makes eminent sense if she doesn't plan to seek paid employment before 66. Rental profits >€5k and no earned income means a year's Class S PRSI contributions for her which is very good value actuarially as it gets her to a full state pension.

3. My current Pension Fund is invested as follows, but is this mix sensible? (69% Equities & 31% Bonds) for my age?

People tend to underestimate how long they might need to draw down for. For people of your age and sex your life expectancy is 29 and your wife's is 34. Over three or four decades I would be much heavier in equties than you currently are as over that kind of horizon they will almost certainly outperform bonds. You could re-assess when you are at or closer to drawdown.

€390k is probably a nice house but with three kids likely in it for the next 5-10 years I would upsize rather than have €100k on deposit.

 

[Uafásach]

This makes eminent sense if she doesn't plan to seek paid employment before 66. Rental profits >€5k and no earned income means a year's Class S PRSI contributions for her which is very good value actuarially as it gets her to a full state pension.


People tend to underestimate how long they might need to draw down for. For people of your age and sex your life expectancy is 29 and your wife's is 34. Over three or four decades I would be much heavier in equties than you currently are as over that kind of horizon they will almost certainly outperform bonds. You could re-assess when you are at or closer to drawdown.

€390k is probably a nice house but with three kids likely in it for the next 5-10 years I would upsize rather than have €100k on deposit.

Thanks - That was by gut feel regarding the investment property and spouse's pension.

I'm probably being conservative on the house value. It is actually a 5-bedroom with loads of room. We don't live in Dublin!

Any thoughts on the sale of exercisable options now for risk management? A good idea in principle but I have very few ideas on what to do with the proceeds.

 

[NoRegretsCoyote]

Any thoughts on the sale of exercisable options now for risk management?

Well outside my comfort zone but I hope others can advise.

 

[peemac]

One element that many forget about in their calculations is any potential inheritance.

If there is, add that to the mix

 

[Uafásach]

One element that many forget about in their calculations is any potential inheritance.

If there is, add that to the mix

Thanks Peemac - I never gave that much thought.

I'm not sure I'd factor it in as it's not certain....especially as we don't know how, for example 'Fair Deal', might affect that figure!

 

[noelÓm]

Hi Uafásach.

You have net wealth of €1.1m+ at age 53. You're not doing too bad, even if some of your money isn't in a pension.

2. A significant portion of my net worth is tied into my employer’s stock (Options, RSUs, APSS). These add to €275,000, of which I can divest €105,000 now to manage risk profile. Would that be the smart move? What would I do with the lump sum?

Yes, I suggest selling the €275k as they vest. I think that asset exposure like this to your own employer is a needless risk. Others may know of a way to put these funds into a pension structure and possibly reduce tax liability on future gains, but you can always invest outside of a pension instead.

3. My current Pension Fund is invested as follows, but is this mix sensible? (69% Equities & 31% Bonds) for my age?

It is really important for you to consider your financial assets as a whole. Your current portfolio is more like €100,000 [13% cash], (20,000+(0.31*300,000))=€113,000 [15% bonds], (40,000+(0.69*300,000)+30,000+30,000)=€307,000 [40% equity], (105,000+140,000)=€245,000 [32% equity options]. You can quibble with some of the decisions in this calculation, but the main messages for me jump out. The equity options need to go as soon as they vest, as you have no business speculating in options contracts. As above, I also think your equity holdings are much too tied up with your own employer. Pick the pension allocation in full knowledge of what all of your financial assets - inside and outside the pension - are invested in.

You could also add the BTL to the above calculations to get an even more complete allocation breakdown.

Do you need so much cash on hand? €100,000 is a lot with inflation at 5-8%.

Do you own any investment or other property?
My Spouse owns a Rental Property – Est. Value is €195,000, purchased with cash (~2016) for €145k. Initially that was a 6.8% net yield, now a 5.1% net yield.
Rental Income: €14,000 declared as spouse’s income to pay PRSI towards spouse's old age pension.

Are you certain you're only losing 29% of the rent on all costs and taxes? There's no other opportunity cost (e.g., your spouse using up your tax credits)? It seems like a decent enough investment at 5.1% all-in. If your spouse can get PRSI contributions on the back of it, then that would push up the yield further. I've seen some lousy BTL investments described on this site, but this one looks alright. You need to consider (1) would further government policy to regulate rents or promote tenure lengths make this BTL a worse investment than something like an equity index fund and (2) do you need the hassle of being a landlord in your old age? I would personally be very concerned about (1), but it's ultimately a judgement call.

Annual gross income from employment or profession: €115,000 + €25,000 (Bonus)
Annual gross income of spouse: Homemaker, but €14,000 (Income from Rental Property)

It's almost always the case in these money makeovers that the primary source of wealth growth is a high earned income. The big risk in your case, as with others, is that you are not able to earn anymore due to illness. How would you cope? Does income protection make sense for you given this possibility? It can be expensive and posters on here differ on whether it's worth it, but you should review what's available in my opinion.

 

[Uafásach]

Hi Uafásach.

You have net wealth of €1.1m+ at age 53. You're not doing too bad, even if some of your money isn't in a pension.


Yes, I suggest selling the €275k as they vest. I think that asset exposure like this to your own employer is a needless risk. Others may know of a way to put these funds into a pension structure and possibly reduce tax liability on future gains, but you can always invest outside of a pension instead.


It is really important for you to consider your financial assets as a whole. Your current portfolio is more like €100,000 [13% cash], (20,000+(0.31*300,000))=€113,000 [15% bonds], (40,000+(0.69*300,000)+30,000+30,000)=€307,000 [40% equity], (105,000+140,000)=€245,000 [32% equity options]. You can quibble with some of the decisions in this calculation, but the main messages for me jump out. The equity options need to go as soon as they vest, as you have no business speculating in options contracts. As above, I also think your equity holdings are much too tied up with your own employer. Pick the pension allocation in full knowledge of what all of your financial assets - inside and outside the pension - are invested in.

You could also add the BTL to the above calculations to get an even more complete allocation breakdown.

Do you need so much cash on hand? €100,000 is a lot with inflation at 5-8%.


Are you certain you're only losing 29% of the rent on all costs and taxes? There's no other opportunity cost (e.g., your spouse using up your tax credits)? It seems like a decent enough investment at 5.1% all-in. If your spouse can get PRSI contributions on the back of it, then that would push up the yield further. I've seen some lousy BTL investments described on this site, but this one looks alright. You need to consider (1) would further government policy to regulate rents or promote tenure lengths make this BTL a worse investment than something like an equity index fund and (2) do you need the hassle of being a landlord in your old age? I would personally be very concerned about (1), but it's ultimately a judgement call.


It's almost always the case in these money makeovers that the primary source of wealth growth is a high earned income. The big risk in your case, as with others, is that you are not able to earn anymore due to illness. How would you cope? Does income protection make sense for you given this possibility? It can be expensive and posters on here differ on whether it's worth it, but you should review what's available in my opinion.

Thanks Noel,

That is very useful. While I was thinking primarily about the pension pot I was less focused on the overall picture.

I'm carrying the cash, not because I want to but rather I'm unsure what to do with it.

I definitely intend to sell the employer options and RSUs as they mature. That makes good sense. I might just bite the bullet and pour more into Raisin, EFTs and Stocks.

I'll keep the BTL as it is doing its job!

Also - I have illness cover (~70% income) via my employers insurance policy.

Thanks for taking the time to reply.

 

[Sarenco]

The fund allocation in your pension looks overly complicated to me, with a lot of overlapping holdings.

If I was in your position, I would transfer the lot to the global equity index fund - you have plenty of “safe” investments ((ie., cash deposits) outside your pension.

If you want more equity exposure, you might think about investing some of the proceeds of the options/RSUs in a UK investment trust (maybe something like FCIT). It would probably be more tax efficient to hold these shares in your spouse’s name (assuming the rental profit is their only taxable income), so that dividends are taxed at the standard rate.

I agree that it makes sense to hang onto the rental property in your specific circumstances and it definitely makes sense for you to continue maximising your tax-relieved pension contributions.

Hope that helps.

 

[Uafásach]

If you want more equity exposure, you might think about investing some of the proceeds of the options/RSUs in a UK investment trust (maybe something like FCIT). It would probably be more tax efficient to hold these shares in your spouse’s name (assuming the rental profit is their only taxable income), so that dividends are taxed at the standard rate.

Thanks Sarenco - The rental is the only taxable income in her case. I take your point about the dividend income being in her name, for that reason. Any particular reason why I'd select a UK trust for this?

She has a Degiro account with very little in it. Would that be just as good?

 

[Sarenco]

Any particular reason why I'd select a UK trust for this?

The generally held view is that UK investment trusts are subject to income tax and CGT, whereas EU-domiciled ETFs/funds are subject to exit tax/deemed disposals.

If you dig around the investments sub-forum you’ll find plenty of threads on the topic.

Alternatively, you could, of course, invest directly in individual stocks but it’s difficult to build an appropriate level of diversification by going down that road.

The main point is to look at all your accounts collectively and not to focus on the asset allocation within your pension in isolation.

 

[ClubMan]

Alternatively, you could, of course, invest directly in individual stocks but it’s difficult to build an appropriate level of diversification by going down that road.

A possible strategy is to invest in an already diversified conglomerate stock like Berkshire Hathaway or similar types of company. These are almost market trackers in their own right.

Disclaimer: I am a Berkshire Hathaway shareholder. And I'm not stock tipping but just pointing out the possibility of certain conglomerate shares as proxy index/market trackers or ETFs.

 

[Dublin85]

A possible strategy is to invest in an already diversified conglomerate stock like Berkshire Hathaway or similar types of company. These are almost market trackers in their own right.

Disclaimer: I am a Berkshire Hathaway shareholder. And I'm not stock tipping but just pointing out the possibility of certain conglomerate shares as proxy index/market trackers or ETFs.

is this simply a matter of buying berkshire on degiro and doing nothing till I sell in 18? it might be a good route to put child benefit into monthly.

 

[NoRegretsCoyote]

Looking a bit more closely at @Uafásach 's situation, he has a lot of wealth but it is likely to attract CGT in it current form.

It would be much more efficient to have it inside a pension wrapper but he is maxing AVCs already. Is there really no better way of moving his wealth into a more tax-efficient structure?

 

[ClubMan]

is this simply a matter of buying berkshire on degiro and doing nothing till I sell in 18? it might be a good route to put child benefit into monthly.

That sort of approach, yes. And not necessarily BH. There are other similar conglomerate stocks but BH is, I think, the biggest and best known. Some of these (BH included) don't pay dividends so you don't get any ongoing income but also don't have to worry about dividend tax issues. I don't have the time, patience, or knowledge to build a balanced/diversified basket of shares so I prefer to take this sort of approach myself. If ETFs ever become subject to CGT taxation then I'd certainly consider them instead.

 

[Uafásach]

Looking a bit more closely at @Uafásach 's situation, he has a lot of wealth but it is likely to attract CGT in it current form.

It would be much more efficient to have it inside a pension wrapper but he is maxing AVCs already. Is there really no better way of moving his wealth into a more tax-efficient structure?

That seems to hit the nail on the head. I have assets but they are not in my pension fund.....and since I am already maxing out my AVCs, there is no tax efficient way to get my funds into the pension pot!

 

[NoRegretsCoyote]

there is no tax efficient way to get my funds into the pension pot!

True, you won't get income tax relief on the way in. But capital gains inside the pension fund will not be taxed. Capital gains on stock you hold in your employer will be taxed.