# Five years to go to retirement



## GingerH (22 May 2022)

*Age:*

57
*Spouse’s/Partner's age:*
54

*Annual gross income from employment or profession:*
€96,000 - public sector
*Annual gross income spouse:*
€100,000 - private sector

*Monthly Take Home pay:*

*C *€7,500 per month.

*Expenditure pattern:*
Until recently we would have 'broke even' - in recent years we have some surplus cash.

Saving available c€1,500


*Rough estimate of value of home*

€350,000
*Mortgage on home*
€130,000
*Mortgage provider:*
AIB
*Type of mortgage: Tracker, interest only, fixed rate*
Tracker
*Interest rate*
1.1%

*Other borrowings – car loans/personal loans etc*
House Repair Loan- €7,500 ´@5.6%; one year remaining - I intend to pay this shortly in full from savings.

Two cars both paid and for now in good condition. When replacement comes around would likely go to one car.

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

Yes

*Savings and investments:*
€23,000 savings on hand (what’s left of college/emergency fund) – currently pay c€350 per month to this fund.

€40,000 which will be available later this year – this will be taken up with home improvement & other identified spending.


*Do you have a pension scheme?*

Yes - pre 95 public pension & c€25,000 AVC.

Spouse - company scheme; contribution 5% matched by company plus voluntary contribution to bring up to max ; current value c€230,000 .

*Do you own any investment or other property?*
No.

*Ages of children:*
1 -22
2 - 20

Both at college and a big draw on funds at the moment - Child 1 away from home, Child 2 at home. Child 1 has one more year and will be off the books then saving approx.. €13,000 PA. Child 2 has two more years and possibly more if decided to progress.

*Life insurance:*
Yes.

*What specific question do you have or what issues are of concern to you?*

I intend to retire in 2027 on full pension, my spouse would like to retire as soon as possible but at the latest 2026. Our mortgage is due to be cleared in 2029. We currently have c €1,500 extra available per month – this is likely to increase


*Questions

Key Question:* How do we maximise the monies available to us for retirement in the relatively short time available.

Supplementary Questions

a) My spouse’s is currently paying the max for pension – is their other options to improve on this; for example through setting up a Directors Pension . Can the company contribution increase or must it stay within the overall max limits?

b) Regardless of increasing contributions my pensions will be relatively much better than my spouses and jointly we will likely be at the higher tax rate – in that context would it make sense to use some other saving/investment mechanism rather than focussing on increasing my spouses pension?

c) I have an AVC of €25,000 built up pre crash on the basis that I would be retiring early and would not have full public service pension. I stopped paying in to this after the crash and now circumstances have changed and I now intend to retire on full pension. What can I do with the money from the AVC in these circumstances?

d) Our mortgage is not due to be cleared until 2029; 2/3 years after we retire. I would like to have this cleared pre-retirement – does it make sense to increase our mortgage payments now given we are on a tracker? I understand the arguments against it but given our age profile I would just like to be rid of it.

e) Any other advice appreciated. Thank you.


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## Brendan Burgess (22 May 2022)

GingerH said:


> House Repair Loan- €7,500 ´@5.6%;





GingerH said:


> €23,000 savings on hand (





GingerH said:


> €40,000 which will be available later this year



You have money on deposit as 0% while borrowing at 5.6%.  How long have you been borrowing money from the bank to put it on deposit.  This is the first thing you should clear.  And do it immediately.

Brendan


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## Brendan Burgess (22 May 2022)

GingerH said:


> Spouse - company scheme; contribution 5% matched by company plus voluntary contribution to bring up to max ; current value c€230,000 .





GingerH said:


> *Annual gross income spouse:*
> €100,000 - private sector



So is your spouse contributing €35k a year? 





GingerH said:


> a) My spouse’s is currently paying the max for pension – is their other options to improve on this; for example through setting up a Directors Pension . Can the company contribution increase or must it stay within the overall max limits?



Is it his own company?  The company could put in the pension contribution and then he would avoid PRSI and USC.  And he could contribute a lot more. 

Brendan


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## Brendan Burgess (22 May 2022)

GingerH said:


> b) Regardless of increasing contributions my pensions will be relatively much better than my spouses and jointly we will likely be at the higher tax rate – in that context would it make sense to use some other saving/investment mechanism rather than focussing on increasing my spouses pension?



No.  With only a few years to go to retirement, pension contributions are clearly the best investment.


You get tax -relief on the contributions - while you pay tax at the top rate on the way out, you will get 25% of it back tax-free. So in effect you are reducing the tax rate from 40% to 30%.
It will grow in the pension fund tax-free 
After they retire, it will continue to grow tax-free in the ARF.


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## Brendan Burgess (22 May 2022)

GingerH said:


> d) Our mortgage is not due to be cleared until 2029; 2/3 years after we retire. I would like to have this cleared pre-retirement



Why? 

You will have a very good income in retirement and will be well able to make the repayments.  

On retirement, you will have a big tax-free lump sum which you could then choose to clear your mortgage with if it is appropriate at that stage.  But don't make a decision until then. 

Your question boils down to 

"Should I borrow at ECB + 1.1% to invest in a pension fund?"

The answer to that is a resounding "yes."

Brendan


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## GingerH (23 May 2022)

Brendan Burgess said:


> You have money on deposit as 0% while borrowing at 5.6%.  How long have you been borrowing money from the bank to put it on deposit.  This is the first thing you should clear.  And do it immediately.
> 
> Brendan


Agreed - the money was required for a roof repair at short notice two years ago - we didn't use the cash on hand as there was another likely demand on that at the time. That has now passed and we will clear it asap.


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## GingerH (23 May 2022)

Brendan Burgess said:


> So is your spouse contributing €35k a year?
> 
> Is it his own company?  The company could put in the pension contribution and then he would avoid PRSI and USC.  And he could contribute a lot more.
> 
> Brendan


Spouse is currently contributing €30,000 - this will jump to €35,000 at  next birthday. Spouse is an employee and Associate Director in a private company.


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## GingerH (23 May 2022)

Brendan Burgess said:


> Why?
> 
> You will have a very good income in retirement and will be well able to make the repayments.
> 
> ...


Agreed - as indicated we have maxed out contributions to current scheme and want to explore ways of improving that to get the best possible from our pension fund - however I suppose my question is having maximised pension fund would it then make sense to pay off mortgage early with any surplus available (or a portion of that surplus).


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## Brendan Burgess (23 May 2022)

Yes, if you have maxed out your contributions, paying off a mortgage, even at a tracker rate, is the right thing to do.

But wanting to pay it off by retirement should not be a consideration.

Brendan


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## GingerH (24 May 2022)

Thank you for the replies Brendan which are very useful. In relation to my spouses pension I would be grateful for any advice from out there:

My spouse is long established in the company (now an associate director) on a company pension plan paying the maximum contribution with employers contribution of 5%. I have some basic questions in relation to the employers contribution; a) does the overall contribution limit include the personal contribution and the employers contribution  or can the employers contribution bring the contribution outside the revenue limits? b) is their an average or normal rate for the employers contribution and if so what is it?

 Finally are their other options to increase the contribution above the age limit. For example I understand that a Directors Pension does allow for additional contributions above revenue limits but I don't understand the mechanics of how this works or if it feasible/worth  pursuing this given the fact that the existing scheme is long established.

Any advice appreciated.


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## Paul O Mahoney (24 May 2022)

GingerH said:


> Thank you for the replies Brendan which are very useful. In relation to my spouses pension I would be grateful for any advice from out there:
> 
> My spouse is long established in the company (now an associate director) on a company pension plan paying the maximum contribution with employers contribution of 5%. I have some basic questions in relation to the employers contribution; a) does the overall contribution limit include the personal contribution and the employers contribution  or can the employers contribution bring the contribution outside the revenue limits? b) is their an average or normal rate for the employers contribution and if so what is it?
> 
> ...


Employers contribution isn't part of what can be maximised in the total allowed per the age restrictions. 

Employers give what they feel is appropriate 5% is on the low side from experience.

Others will be better able to advise but Directors pension is usually for business owners not Directors of say multi nationals,  I've been such but it didn't have any additional pension benefits.


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## GingerH (25 May 2022)

Paul O Mahoney said:


> As the other poster said 25% of gross annual salary including bonuses so, if you're salary was 100k including bonuses you can put in 25k and the employers 10% would mean you're investing 35k pa into your occupational pension....


Thanks for this - just to drill this down further so I can understand it. In my spouses scenario her current limit is 30%, 30k (salary 100k) - so she could pay 30k herself and the employer could add 10% or even 100% if they saw fit? Is the real limitation the tax free element - I am guessing that any contribution above the 30% from employee or employer is subject to tax?


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## Paul O Mahoney (25 May 2022)

GingerH said:


> Thanks for this - just to drill this down further so I can understand it. In my spouses scenario her current limit is 30%, 30k (salary 100k) - so she could pay 30k herself and the employer could add 10% or even 100% if they saw fit? Is the real limitation the tax free element - I am guessing that any contribution above the 30% from employee or employer is subject to tax?


Her total would be 30k so shes already contributing 5% or 5k so, she would be able to add via AVCs 25k, the employers 10% would mean that she would be putting 40% or 40k into her pension,  next year at 55 she will be able to put 35% of her Salary into her pension.

If adds more she'll not get tax relief at 40% , but there is something about being able to use any overpayment in future years if she can't afford to maximize her contributions, but that's complicated and I don't know the full details of that to be honest.

Other considerations are if she gets a bonus or has a car Allowance these would increase her salary for pension purposes.

Example Salary 100k, Bonus 25k Total 125k, her Salary exceeds the 115k limit therefore

Max Pension contributions  115k x 30% = 34.5k

Next year 115k x35% = 40.25k

For every 10k extra she puts into her pension she saves 4k in income tax.

I hope this helps.


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## GingerH (25 May 2022)

Thanks Paul - she is 54 and is currently paying 30% (including additional AVC) and her employer is paying 5%. She will increase contribution to 35% at 55. Her pension is not due until 60 but she is hoping to retire before that.


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## Paul O Mahoney (25 May 2022)

GingerH said:


> Thanks Paul - she is 54 and is currently paying 30% (including additional AVC) and her employer is paying 5%. She will increase contribution to 35% at 55. Her pension is not due until 60 but she is hoping to retire before that.


Employers at 5% is low, but if she has been maximizing her AVCs for a while theres probably no reason why she can't retire at 60,but if I were you I would double check that she can access it in full at that age.

My wife wants out too, shes 58 this year and I too need to fully understand how this can be achieved. 

Hope it all goes to plan,  our experience in life tends to say that something elsewhere will pop up and force us to reschedule.


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## GingerH (25 May 2022)

Thanks, much appreciated.


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## _OkGo_ (25 May 2022)

GingerH said:


> Until recently we would have 'broke even' - in recent years we have some surplus cash.





GingerH said:


> I intend to retire in 2027 on full pension, my spouse would like to retire as soon as possible but at the latest 2026



I would be concerned that you can't afford to retire early as a couple and maintain your standard of living.

For 2 high earners (~€200K), you don't have a lot of wealth accumulated. You only have €220k in your PPR, you have cash of €23k less the €7.5k loan and the other €40k mentioned is already earmarked for spending on home improvements. Their may be lots of valid reasons for this but it suggests that you have always been spenders and have an expensive lifestyle

Your spouse has a very small pension pot relative to their income. Even though they are now maxing contributions, it may only be ~€400k in 4/5 years time when they hope to retire. What is their plan? To take a lump sum of €100k and drawdown €12k a year until they reach retirement age at 66/67?

Your spouses expectations of early retirement need to be discussed in detail between you both. This is where it gets awkward because you are in a position to do it with your PS pension but your spouse will be very reliant on that. How do they even plan to retire before you?

You would both benefit from speaking to a fee based financial planner to help you match your financial goals with your retirement income.


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## Midtown (25 May 2022)

Paul O Mahoney said:


> Her total would be 30k so shes already contributing 5% or 5k so, she would be able to add via AVCs 25k, the employers 10% would mean that she would be putting 40% or 40k into her pension,  next year at 55 she will be able to put 35% of her Salary into her pension.
> 
> If adds more she'll not get tax relief at 40% , but there is something about being able to use any overpayment in future years if she can't afford to maximize her contributions, but that's complicated and I don't know the full details of that to be honest.
> 
> ...


Is the employer contribution % capped based on salary? I mean is the 115k relevant in respect of employer contribution? I thought it was not.


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## Paul O Mahoney (25 May 2022)

Midtown said:


> Is the employer contribution % capped based on salary? I mean is the 115k relevant in respect of employer contribution? I thought it was not.


No the employers contribution isn't counted its 30% of 115k or whatever the persons salary is.


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## GingerH (25 May 2022)

_OkGo_ said:


> I would be concerned that you can't afford to retire early as a couple and maintain your standard of living.
> 
> For 2 high earners (~€200K), you don't have a lot of wealth accumulated. You only have €220k in your PPR, you have cash of €23k less the €7.5k loan and the other €40k mentioned is already earmarked for spending on home improvements. Their may be lots of valid reasons for this but it suggests that you have always been spenders and have an expensive lifestyle
> 
> ...



Thanks OkGo - this is a very valid comment and one that crosses my mind often when I read AAM and particularly the money makeover section where nearly everyone seems to have investment properties/portfolios etc and I wonder where did we go wrong. I don't think we have an overly expensive lifestyles and if we do there is little to show for it. I would think that I may be typical of a type of person that came of age in the early 80's in Ireland, a combination of starting out relatively late on the property ladder/settling down (with zero financial family back up/assets) where I messed about in a variety of low paying jobs/education until my thirties, combined with emigrating/coming back to Ireland and moving about (renting) quite a bit at the early stage of the Celtic Tiger, and then when we did buy and redo our house it was  before the crash where we had to pay significantly over the odds for an upgrade and then other unexpected but expensive issues arose and added to the costs during that period. In addition while my spouses salary is good now this is only a recent phenomenon and prior to this she would have been part time/and on reduced salary and it is only in recent years that we have been able to come up for air  . You are correct in your projection of the figures and plan re spouses retirement i.e. lump sum circa €100k plus pension c€12k per year until addition  of state pension and while our salaries are now not bad we are paying out a lot in mortgage payments, providing for two kids in college and front loading late in life pension contributions. Saying that we now do ok ( I buy expensive craft beer)  and a major asset for the future is my pension which will be significantly more than my spouses. I take your point re needing professional advice however on a back of envelope assessment (including paying off mortgage with either lump sum) I figure our overall net income in retirement will be not be that far off our current net income (minus current mortgage, college and pension contributions) and I guesstimate we can put aside around an additional  €100,000 in the next five years. We are we are as they say - but I take your point and appreciate any advice.


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## Paul O Mahoney (26 May 2022)

GingerH said:


> Thanks OkGo - this is a very valid comment and one that crosses my mind often when I read AAM and particularly the money makeover section where nearly everyone seems to have investment properties/portfolios etc and I wonder where did we go wrong. I don't think we have an overly expensive lifestyles and if we do there is little to show for it. I would think that I may be typical of a type of person that came of age in the early 80's in Ireland, a combination of starting out relatively late on the property ladder/settling down (with zero financial family back up/assets) where I messed about in a variety of low paying jobs/education until my thirties, combined with emigrating/coming back to Ireland and moving about (renting) quite a bit at the early stage of the Celtic Tiger, and then when we did buy and redo our house it was  before the crash where we had to pay significantly over the odds for an upgrade and then other unexpected but expensive issues arose and added to the costs during that period. In addition while my spouses salary is good now this is only a recent phenomenon and prior to this she would have been part time/and on reduced salary and it is only in recent years that we have been able to come up for air  . You are correct in your projection of the figures and plan re spouses retirement i.e. lump sum circa €100k plus pension c€12k per year until addition  of state pension and while our salaries are now not bad we are paying out a lot in mortgage payments, providing for two kids in college and front loading late in life pension contributions. Saying that we now do ok ( I buy expensive craft beer)  and a major asset for the future is my pension which will be significantly more than my spouses. I take your point re needing professional advice however on a back of envelope assessment (including paying off mortgage with either lump sum) I figure our overall net income in retirement will be not be that far off our current net income (minus current mortgage, college and pension contributions) and I guesstimate we can put aside around an additional  €100,000 in the next five years. We are we are as they say - but I take your point and appreciate any advice.


You have done alright and you shouldn't have to explain yourself,  its your life you understand it more than others, you understand what you need in the future. 

You don't have to explain,  very few of us lead lives dictated by certainty or professional advisors.


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## GingerH (26 May 2022)

Thanks Paul - I would be interested in any advice if  you crack the early retirement issue yourself.


Paul O Mahoney said:


> My wife wants out too, shes 58 this year and I too need to fully understand how this can be achieved


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