# €500,000 - Enough to retire on?



## The Pool Boy (13 Jan 2017)

Well obviously that depends on many factors - age, spending, other income, whether that's for a couple or single person, health etc.

I'm at an age now where retirement planning is coming into focus - I'm roughly half way through my working life and I feel the need to make sure I'm covered for the years ahead.

I find all the calculators on the various providers websites all give different results and are very much focused on the tax savings of your inputs as opposed to what output at retirement will be. I've been reading about many different approaches to retirement planning from the mainstream to the extreme (Mr Money Moustache and Early Retirement Extreme.) The one thing that struck me about the more extreme end of the planning range was that they were very focused on the actual amount you had put away and what your spending was, as opposed to tax reliefs (they were important but not the main point.)

By focusing on getting a certain amount saved in retirement, it concentrates the mind to have a target to aim for. With the state pension age likely to be 68 by the time I retire, retiring before then will cause an income shortfall. How can you bridge that unless you have a plan...?

I came across a very simple excel spreadsheet that I feel simplifies the planning process and can give an indication of how long it will be before you hit a target fund that will pay sufficient income on draw down. In my own workings, I kept inflation at 0% and increased contributions at 0% to attempt to keep my calculations in today's money terms.

[broken link removed]

By at least having an end goal, you can adjust your monthly payments to try and achieve that target amount. Regular checking of your fund performance can then be done to amend your starting position to see how much adjustment is needed. By making the target fund as your goal you at least have something to aim for, as opposed to just taking the tax reliefs and hoping that what you are putting in will be sufficient. 

Is €500,000 enough to retire on....? Well if you want an income of c€20,000 pa (or c€15,000 if you take the €125,000 tax free lump sum) it may come close,in addition to the state pension if it still exists then, plus income your partner may have. You may have property or other income producing assets. Will that bridge the gap between retiring at say 62 and waiting until 68 for the state pension. Maybe €250,000 or €750,000 would suit you....but by focusing on the amount, you at least start the journey to achieving it.


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## Sarenco (13 Jan 2017)

Is that €500k in 2016 money?  One problem is that you don't know what that will be worth in 20 years time.

Rather than focusing on the (unknowable) terminal amount, I think it makes more sense to focus on the percentage of gross earnings that you are putting aside each year to fund your retirement.  20% is a good target for most folk.


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## Brendan Burgess (13 Jan 2017)

Hi Pool Boy 

An impossible question to answer and I agree the calculators aren't much use. 

Nor can you use a figure such as 20%. It depends on whether you own your own house. It depends on whether you have anything in your pension fund already. It depends on your salary. 

So you need to think about what income you might need when you retire.  I have no idea how you would figure that out. 

But if you are on €200k a year and you own your home,  you won't need 60% of your salary on retirement.

So what is the answer? 

1) If you have a non-tracker mortgage pay it down to a comfortable level - around twice your salary and 50% LTV. 
2) Live a reasonable lifestyle without going mad in either direction.
3) Put any surplus into your pension fund. 

If you have €1m in your pension fund and you are mortgage free, then you can relax and spend any surplus.

Brendan


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## The Pool Boy (13 Jan 2017)

I suppose I wasn't looking for an answer for myself rather to create a discussion on what's the best way to save for retirement.

By at least having a target figure in mind you can attempt to reach that. Then whether you are 40 or 20 or 10 years from retirement you have a goal to reach for and can adjust accordingly. By and large people are not going to have large sums in their pension, but if they can at least see what's achievable they might be more considerate of how much they put in in the first place. If you can see that a target is attainable you might adjust your spending habits now to get there. 

I suspect a lot of people, if they are lucky enough to be able to have a pension in the first place, just throw a few bob in because it's something they know they should do without looking at what that amount will actually achieve.


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## PMU (14 Jan 2017)

The Pool Boy said:


> I suppose I wasn't looking for an answer for myself rather to create a discussion on what's the best way to save for retirement.
> 
> By at least having a target figure in mind you can attempt to reach that. Then whether you are 40 or 20 or 10 years from retirement you have a goal to reach for and can adjust accordingly. By and large people are not going to have large sums in their pension, but if they can at least see what's achievable they might be more considerate of how much they put in in the first place. If you can see that a target is attainable you might adjust your spending habits now to get there.



Your wealth at retirement (Wr) depends on your current wealth (Wc), the returns on your investment (r) and the number of years (y) to retirement, i.e. Wr=Wc*((1+r)^t). So if you want to have a nest egg of a million, have 25 years to go and are earning a return of 6% pa on  your investments, your current wealth should be 235,000. You can play around with the formula, e.g. for additional investment, different rates of return, etc. to give you some idea of what you need to have now and what you need to add to your investments to have your desired future wealth.

Your state pension should be looked at as an annuity. Drawing a state pension is the same as the taxpayer giving you a tax free lump sum at retirement and you using it to buy an annuity.  So as you already have one annuity your future target wealth at retirement should be calculated on what you need additionally to draw down over your retirement and not on what you need to buy another annuity.

Let's try and calculate a target figure. If you want an income of 20,000 p.a. on top of the state pension, in 25 years time you will need an income of 38,500 pa to maintain the same level of purchasing power, assuming annual inflation of 2% pa. To derive this level of income you will need a lump sum of at least 850,000 in 25 years time. If 38,500 pa (indexed at 2% pa for inflation) represents the withdrawal amount and the portfolio earns 3.9% pa post-retirement (and the marginal rate for taxes, fees etc. is e.g. 21%), you will run out of cash (i.e. your portfolio will be exhausted) after about 25 years post-retirement but you will still have your state pension (hopefully).

And if your current wealth is 125,000, you should have this amount in 25 years time, if your portfolio earns 8% pa. If this rate of return is unlikely, save an extra 5,000 pa and you'll get there if your returns are 6% pa.

Now I know in real life both portfolio returns and inflation are not linear, but in post #4 Pool Boy asked for a target figure you can attempt to reach. You can estimate one, model achieving it, and carry out sensitivity analysis, etc. to quantify its achievement.


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## Dan Murray (14 Jan 2017)

PMU said:


> Your wealth at retirement (Wr) depends on your current wealth (Wc), the returns on your investment (r) and the number of years (y) to retirement, i.e. Wr=Wc*((1+r)^t).



I think you are forgetting about future contributions.

I found the spreadsheet provided by the OP to be really good. I also applaud the OP for the way in which he framed his question - made a lot of sense to me.


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## Gordon Gekko (14 Jan 2017)

Take out a pen and paper and assess your current outgoings. If you're a homeowner, eliminate the mortgage costs. Take away child related stuff. Remove the costs associated with working. And then build in a contingency around medical issues/nursing homes if you don't want to be at the mercy of the State. Include the State Pension at €12k if you know you'll be entitled to it. And then work out what you'll need to exist, to exist comfortably, and to "live the dream". And then fund your plan accordingly and review it periodically.


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## arikv (3 Feb 2017)

I'd like to share with you what I've done.
In my specific case I got to the figure of 650,000 which would allow us to leave off at retirement and support adult kids from 2032 (estimated early retirement age for us).
We're already mortgage free, and will need circa 24000 p/a in today's money + state pension (a bonus) + possible small inheritance . We plan on achieving our goal of having enough for 300 months (25 years), assuming we won't leave over 90 and if one of us does, we will reverse mortgage the house with a financial institution and our 60+ year old kids (if either one of us leaves to 90 they'll be 60+) will have to manage on their own.

We've been using Excel for many years and having this figure in our spreadsheet also helped us focus.
Btw, great find on the excel, according to it, we'll need  784,660 in 2032 estimated money, which we're likely to achieve with even modest growth on investment/savings over 15 years.


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## fistophobia (23 Feb 2017)

Rough guide is 25 times your annual living costs, using 4% safe withdrawal rate. Thats your number.
My philosophy is, maintain a consistently high savings rate. If you are putting away 40 - 50% of your monthly salary, investment or savings return percentages are kind of meaningless. I am at the 100% savings rate since last year. Its possible, once you clear away all debt, and get a passive income stream or two.


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## Merowig (23 Feb 2017)

No -  investment returns are not at all meaningless - compounding is having a huge impact on the final pot! Furthermore it looks like you ignore inflation as well.


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## PGF2016 (23 Feb 2017)

fistophobia said:


> I am at the 100% savings rate since last year. Its possible, once you clear away all debt, and get a passive income stream or two.


 How is a 100% savings rate possible? What are you living on?


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## aristotle (23 Feb 2017)

PGF2016 said:


> How is a 100% savings rate possible? What are you living on?



Presumably by living off whatever those "passive income streams" are and saving all earned income.


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## fistophobia (23 Feb 2017)

Yes, been living off passive income while still working.
Guys, I am not ignoring inflation.
Also, compounding? I dont believe people can live long enough for this to kick in meaningfully.
My point to the original poster being;
there are other ways to provide for a retirement pot. Theres only 2 ways to accumulate wealth, either earn more money, so that you are throwing off a significant surplus each month - or you do what I have done; increase your savings rate.


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## mtk (23 Feb 2017)

aristotle said:


> Presumably by living off whatever those "passive income streams" are and saving all earned income.


Nice !


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## fistophobia (23 Feb 2017)

Without going into too much personal detail;
I only started this lark in 2010. Did some research on asset allocation, fund TER, broker fees etc.
Ishares and Vanguard all the way, mainly the dividend funds, EUR denom, aggregate bond funds, kept costs low, re-invested dividends in 10K blocks. Currently adding new money into bond funds over the next couple of years, for balance. Rem. the golden rule - hold roughly your age % in bonds.


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## Dan Murray (23 Feb 2017)

Hi fistophobia,

Just interested in your investments. How do you access these funds? Are you going through an adviser or some platform? Are these pension or non-pension funds? What are the total management charges?

Thanks!


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## fistophobia (24 Feb 2017)

Going back to the original post;
Is this gross or net money?
Do you want to save in a pension wrap, with tax relief on contributions, and with all the restrictions it carries?
I have some pension savings, but for most part, I saved and invested from after tax earnings. I will not be working after age 50.
I use an online broker - a big one.
Flexibility and access to funds is key for me.
I have regular dividends, so I can ride out any volatility. 
TER is something I focus on - 5 funds, average annual fee is c. 0.30%


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## Merowig (24 Feb 2017)

You will pay a lot CGT when you start selling them - also on dividends - your choice even if it does not make sense not to hold that in a pension wrapper.


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## Laramie (24 Feb 2017)

I am 15 years in to my "retirement" and happily existing on circa €20k per annum. A deferred pension of that amount has just kicked in so going forward that will cover my outgoings. Plus the state pension due next year. I have my savings/investments/cash of €500k in the background to cover me for the necessary big purchases down the road. Even if my outgoings increase to €25k + per annum, the income from the €500k and state pension should cover this.
Having the security of a sellable large home from which I can downsize from gives me the added and I believe necessary emotional security that I need.

However it is always "fingers crossed" and "God willing".


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## Gordon Gekko (24 Feb 2017)

fistophobia said:


> Also, compounding? I dont believe people can live long enough for this to kick in meaningfully



With respect, that's not the case.

In the simplest terms, 7% a year doubles your money after 10 years.

Maxing out one's AVCs for (say) 30 years should create some extraordinary numbers. Compounding is one of the cornerstones of wealth creation.


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## mtk (26 Feb 2017)

Gordon Gekko said:


> With respect, that's not the case.
> 
> In the simplest terms, 7% a year doubles your money after 10 years.
> 
> Maxing out one's AVCs for (say) 30 years should create some extraordinary numbers. Compounding is one of the cornerstones of wealth creation.



yep and for a real example i had 150k in june 2009 in  an old DC scheme I had left....now its at @320k


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## fistophobia (26 Feb 2017)

I accept that compounding and gross roll-up work in a pension wrap.
However, try accessing the money early - you cant.
I watched a parent retire at 65 with great plans for future leisure activities, only to be dead 2 years later.


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## Gordon Gekko (26 Feb 2017)

fistophobia said:


> I accept that compounding and gross roll-up work in a pension wrap.
> However, try accessing the money early - you cant.
> I watched a parent retire at 65 with great plans for future leisure activities, only to be dead 2 years later.



Which was sad, but it's not a reason to ignore pension funding. And with the ARF option, one's spouse "keeps the pension".

There will always be push back when it comes to pensions. But the structure can't do everything; the relative lack of early accessibility is the price to be paid for the extraordinary tax break.


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