# Is this enough to retire on?



## Buddy22 (23 Mar 2019)

Would appreciate some thoughts on my financial situation for a comfortable retirement.

On course for a pension pot of €925k at the age of 65. I am entitled to the state pension but it will not be available to me until I reach 68. My wife is also entitled state pension but is 3 years younger than me and has no other pension provision.

Mortgage will be paid in full by 65 and no dependent children.

My broker has told me to expect an annual income from the pension of €31k pa which seems low?


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## MrEarl (23 Mar 2019)

Hello,

Yields are currently very low, so by extension so are annuity rates, which may explain why your broker is projecting an income of €31k pa.  There should be a choice available to you, so you are not compelled to purchase an annuity with your fund - explore this carefully.

You don't mention what age you are, or if either you or your wife are earning a regular income etc. 

Personally, I would suggest that €925k shared between two people is relatively low, not withstanding the fact that both of you will get the State pension in due course. 

If you are in a position to put more into your pension fund, to provide for both yourself and your wife, then you should definitely do so.  Tax breaks on pension contributions can assist, if there is a regular taxable income coming into your home.


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## Buddy22 (23 Mar 2019)

Thanks for your reply.

I am 42 and my wife is 39. We both work but I am currently contributing the max allowed for my age. That said, my wife could / should start her own pension to beef up the pot?

What would be (in your opinion) a figure to aim for that would be a comfortable level of income?


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## Sarenco (23 Mar 2019)

Retirement savings are basically about pre-funding living expenses.

So, if you're planning on retiring at 65, you should probably be thinking of pre-funding 25 years' worth of living expenses.


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## Cervelo (23 Mar 2019)

When your broker says you'll have an annual income of €31K, is this from an annuity or an ARF and does this include your state pension or is that extra ??
When you say you've "no dependant children" does this mean you have no children or that you hope your children wont be dependant on you in 23 years time ??
How much does your lifestyle cost you now and what kind of lifestyle do you wish for in retirement and have you thought about how much that might cost ??

If I was to hazard a guess that if a couple could live on €35k net now then in 25 years time they would need I reckon about €60k net to live on


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## NoRegretsCoyote (23 Mar 2019)

It is very hard to know what will happen over the next 30 years. Both to your earnings, personal circumstances, inflation and interest rates.

The question is: what should you be doing *now*? Here's where I would start:

Your wife should start her own pension contributions
Are you taking full account of matching employer contributions (if available)? If not you should.
Are you taking advantage of the maximum tax relief available for your age? If not you should try.
Are you overpaying on a tracker mortgage? If so it might make sense not to overpay and instead direct resources toward a pension. This should give a much higher return over the long run.


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## Buddy22 (23 Mar 2019)

The broker says it’s from an ARF and is not including state pension. He believes that there is a good chance that the state pension will be not existent by that time so therefore is an unreliable source of income.

We have no children.

Our lifestyle is not particularly extravagant but we have a large mortgage that will be paid off by the time we retire.

I suppose the real question I’m trying to get to is, if we wanted to live on approx. 4K net per month (for both of us) what sort of a pension pot should we be looking at amassing?


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## NoRegretsCoyote (24 Mar 2019)

Buddy22 said:


> *He believes that there is a good chance that the state pension will be not existent *by that time so therefore is an unreliable source of income.



This is complete nonsense, and self serving at that.

Tax revenues collapsed 30% between 2007 and 2010. There all sorts of cutbacks. Public sector wages were cut and many welfare payments were too. *The state pension was not touched, *even when inflation was negative in 2009.

Eligibility may be tightened and/or the level of payment may fall slightly in real terms, but it will still be there. The Irish population is getting older, and older voters are not going to vote for the abolition of state pension


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## Buddy22 (24 Mar 2019)

That’s a very good point NoRegretsCoyote. It certainly felt like part of a sales patter designed to scare the hell out me. Definitely self serving as you say.

So factoring in the income from 2 state pensions, is there a need to top up the pension pot further?

I know this is all completely relative to each persons outlook/lifestyle etc. but is that enough of a base target to aim for a confortable retirement? 

We can always hopefully save more but welcome thoughts on above figures now including state pensions.


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## Cervelo (24 Mar 2019)

I would agree with NoRegretsCoyote re the state pension, in so far that it is still going to be there but that it will probably become a means tested payment and more then likely they will push the eligibility age out even further, we will know more over the next couple of years when the government do their 2020 pension reform and more than likely there will be another one before you both retire

I would also agree with your wife having her own pension especially if she's on the higher tax rate but not if its going cause problems in maintaining your current lifestyle

Its hard to say how much you'll need to have a comfortable retirement in 23 to 25 years there's too many variable's, how much was somebody similar to you in 1996 been advised as target to reach??
I would think though having a fund of a million and two state pensions should give you a decent retirement


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## Brendan Burgess (24 Mar 2019)

NoRegretsCoyote said:


> This is complete nonsense, and self serving at that.



You absolutely should plan on the basis that the state pension will not be there for you.  It may be still there but there is no way that the country can continue paying it at the current rates to everyone. 

If I were 42, I would not factor in the receipt of a pension in 26 years' time into my financial planning. 

Brendan


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## Lisboa (24 Mar 2019)

Is the Ireland state pension not protected under some sort of European Commission legislation? 

I could certainly see PRSI increases in the future though.


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## MrEarl (24 Mar 2019)

Hello,

For the record, I do not work in the pension industry, so I have no conflict of interest here.  However, I would somewhat agree with the broker on the point about the future of the state pension - why, simply because the State cannot afford to keep paying it (and that's not a secret btw) !.

Getting back to the original poster's questions:

If we say that we want €4k per month income for a 25 year period, then in today's money it's €1.2 Million (i.e. €4k x 12mths per year x 25years).  However, then allow for future inflation and the future purchasing power of money. Those in the industry will have tailored calculators to work this out, assuming various inflation rates etc.  However, if you ask me to shoot from the hip right now, I'd suggest that you want a fund near €2M. on retirement, to give the equivalent of €4k per month for a 25 year period post retirement.

Let us not forget, the original poster and their wife have over 25 years to go until retirement, then a further (say) 25 years expected life span....


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## Gordon Gekko (24 Mar 2019)

I would also agree with the broker.

It is imprudent for someone with a large private pension fund to assume that he or she will receive the State Pension.

The system as it stands in not sustainable as our population mix changes; it doesn’t take a rocket scientist to work out who might be first in the firing line.


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## Buddy22 (24 Mar 2019)

Would it be a fair assumption to make that your living expenses will decrease as you age?

That is to say, the money I may need to fund my lifestyle in my late 60s and 70s will not be the same in my 80s.


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## NoRegretsCoyote (24 Mar 2019)

Brendan Burgess said:


> You absolutely should plan on the basis that the state pension will not be there for you.  .......
> 
> If I were 42, I would not factor in the receipt of a pension in 26 years' time into my financial planning.
> 
> Brendan



Are you arguing that a person with full PRSI contributions will not receive *any* contributory state pension in the 2040s?

It would be useful if you and other contributors could clarify what they mean.


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## MrEarl (24 Mar 2019)

NoRegretsCoyote said:


> Are you arguing that a person with full PRSI contributions will not receive *any* contributory state pension in the 2040s?
> 
> It would be useful if you and other contributors could clarify what they mean.




Nothing is certain, other than for the fact that the Irish State cannot afford to keep paying the state pension to all, under the current arrangements.  The population is living longer, and we are due to have higher numbers drawing from the state pension in years to come.  Add to that, the fact that the State does not have a "pension fund" tucked away to cover it's future obligations, so we've a massive problem.  This problem is made worse every year, by the Government not taking appropriate steps to address the issue.

What are the options:
- push out the age for eligibility (we've seen the age pushed out to 68 in recent years)
- reduce the payment amount
- make the pension means tested, so those with more get less / nothing.
- do nothing, continue to live in a fantasy world and hope that we discover massive amounts of oil in somewhere like Longford (oh, and that oil is still highly desirable when we do find it)


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## Conan (24 Mar 2019)

- The State Pension is not funded. It is paid out of current taxation.
- the population is ageing. The fastest growing population group is the over 65’s
- the ratio of workers to retirees is going from 5:1 to 2:1 by 2050
- retirees are living longer. A retiree at age 65 can now expect an average life expectancy of 20 years.
- Financing such (relatively) generous State Pensions will become much more challenging in the future

So assuming that the current form of State Pension will still be there in 25 years time is probably optimistic. It might, but I would not depend on it. It might be more prudent to work out pension planning numbers on the assumption that the State Pension might not be there, or might be means tested. If it is still in existence, then consider that as a bonus.


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## noproblem (24 Mar 2019)

It might indeed be prudent to work out planning no's on the assumption that the State Pension might not be there, but it's also equally prudent to assume its equivalent will be in place. People shouldn't have to plan on assumptions that are nothing more than mere speculation and keeping a business in place to line the pockets of interested parties, ie, the pension industry. I could just as easily say that regardless of what you've paid in you might  get absolutely nothing back, or far from what is assumed, apart from the tax incentive which can be cut at the drop of a pen by the Govt.   When a worker pays in a huge amount of money from their wages/salaries over many years into an investment/pension there should be controls on the people/industry that manages that money to ensure they get off their butts and are seen to be very active indeed in earning any commissions, etc, and should also have targets to meet for the amount that's entrusted to them. Just my opinion, but people like to know they're going to get at least X amount and that is what's frightening people about putting money into pensions, or at least it's one of the major stumbling blocks on the pension saga road.


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## jpd (24 Mar 2019)

There are a number of misconceptions in this argument in relation to the State Contributory pension



noproblem said:


> It might indeed be prudent to work out planning no's on the assumption that the State Pension might not be there, but it's also equally prudent to assume its equivalent will be in place. People shouldn't have to plan on assumptions that are nothing more than mere speculation and keeping a business in place to line the pockets of interested parties, ie, the pension industry. I could just as easily say that regardless of what you've paid in you might  get absolutely nothing back, or far from what is assumed, apart from the tax incentive which can be cut at the drop of a pen by the Govt.   *When a worker pays in a huge amount of money from their wages/salaries over many years into an investment/pension* there should be controls on the people/industry that manages that money to ensure they get off their butts and are seen to be very active indeed in earning any commissions, etc, and should also have targets to meet for the amount that's entrusted to them. Just my opinion, but people like to know they're going to get at least X amount and that is what's frightening people about putting money into pensions, or at least it's one of the major stumbling blocks on the pension saga road.



The worker does not pay into an investment/pension - he pays the Government who then use this money to pay pensions, civil service wages, etc. There is a big myth believed by many that their PRSI payments are invested in a pension fund - they are not. Some people pay extra into a private pension fund (DB or DC) which is invested, but this is not used to pay the State Pension. The State pension is paid from money collected by the tax collector - so if less is collected than is required to pay pensions then either more is collected or less is paid out


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## noproblem (24 Mar 2019)

Good Lord, I would have thought you understood I was talking about people paying their money into pension funds or whatever you want to call them. I'm extremely aware where the state pension comes from and take exception to your line of thinking that the public don't understand.


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## NoRegretsCoyote (25 Mar 2019)

The latest projections done by the European Commission for Ireland see the total cost of public pensions going from 5% of GDP to 7% of GDP over the next 30 years. This is on the basis of demographics and the assumption of keeping current policy around eligibility in place.

This is a challenge, but not an impossible one.

Some posters here think that the policy response will be to see this number go to 0% of GDP through the abolition of the contributory state pension. This is not going to happen.

So I think it would be foolish to plan on the basis of its abolition, but wise to accept that it may not be as generous, by as much as 20% in real terms.


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## Gordon Gekko (25 Mar 2019)

I don’t remember anyone suggesting that it would be abolished.

However, I don’t think it’s outlandish to suggest that someone with a private pension fund worth circa €1m might be in the firing line when the State Pension system comes under strain.


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## Conan (25 Mar 2019)

But one can expect the SF’s , the PBP’s etc argue that “millionaire pensioners” should not get a State Pension as well.
Worth remembering that not alone is the State Pension not “funded” but neither is the occupational pension paid to Civil Servants. That’s a significant unfunded liability (and growing) which has to be funded first out of current taxation.


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## NoRegretsCoyote (25 Mar 2019)

I strongly suspect that pensions (public and private) will be taxed to a much greater extent.

The contributory state pension *will never be means tested *though, although eligibility (contributions) will inevitably be tightened and the age may be extended further too.


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## Sarenco (25 Mar 2019)

NoRegretsCoyote said:


> The contributory state pension *will never be means tested *though, although eligibility (contributions) will inevitably be tightened and the age may be extended further too.


Strongly agree.

The idea that the State could means-test (what will then be) approximately a third of the population is fanciful.  Even if it was politically acceptable, it would be an administrative nightmare.


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## mtk (25 Mar 2019)

I then to agree with sarenco & co, although the additional dependent part of SP was means tested for new applicants (in late 2000s if I recall correctly )

Means testing is unfair and provides perverse incentives


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## Bronte (25 Mar 2019)

MrEarl said:


> Personally, I would suggest that €925k shared between two people is relatively low, not withstanding the fact that both of you will get the State pension in due course.
> 
> If you are in a position to put more into your pension fund, to provide for both yourself and your wife, then you should definitely do so.  Tax breaks on pension contributions can assist, if there is a regular taxable income coming into your home.



He has nearly a mil in a pension pot and will get a miserly 30K for 20 years if he's lucky.  He should buy a property divided into 3 flats for about 150K/200K getting about 130 per flat gives him an income of 20K, while keeping the asset.  And the income will go entirely to his wife should he die at 66.  Plus the asset too, tax free.

If it were me and I had access to his pot I'd buy 6 properties and have an income of 120K.  (rough figures and not Dublin)


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## moneymakeover (25 Mar 2019)

But properties will be more expensive in 20 years


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## elacsaplau (25 Mar 2019)

Hi Bronte,

Are you saying there be a place where a c. 13% yield is available (120/925)? Would you care to share please?


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