# Opinions on Pension Planning Prior to 30 Years of Age



## ronaldo (2 Apr 2010)

Hi,

I would like if any of you could offer up your thoughts on pension targets/requirements that you'd consider appropriate for someone younger than 30 years old.

I'm living in the Republic of Ireland and working in Northern Ireland but most of the advice offered up here will probably be relevant to all.

In short, the question I have is - What percentage of salary should someone aim to have locked away in their pension fund at 30 if the intention were to reduce the total pension contributions to 10% (Including Employer contributions) at that point?

The reason I ask is that people that start their pension at a young age may be interested in starting off with high contributions whilst they are young so that, when they have other commitments such as children or a mortgage, the contribution level could be reduced.

I'm aware that there are other considerations, such as saving for a housing deposit. However, for the purposes of this thread, let's assume that all other aspects of the persons finances are in order and the sole aim is to procide a reasonable pension by having *X*% of their salary locked away in their pension at age 30 and reducing the total contribution levels to 10% at retirement.


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## ronaldo (2 Apr 2010)

Feel free to post links to calculators or anything when giving your opinion.

One suggestion I've had is that, if you are only starting out, you should divide your age by two and invest that percentage - so if you're starting at 30, you invest 15%.

Therefore, in order to start investing 10% at 30 (using the above rule), your total pension fund at age 30 should be enough so that the returns will make up the 5% shortfall. If we're conservative and assume a 5% return on funds invested, you should have 100% of your salary invested at age 30. A higher return of 9% would mean that you should have 56% of your salary invested at age 30.


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## Anfear (2 Apr 2010)

Three factors should be taken into account:
1. overall affordability
2. the Revenue limit, currently tax relief on maximum of 15% of taxable income for people under 30
3. check what amount of tax you are actually paying (depending on your circumstances), as you can only avail of tax relief to the extent you are actually paying tax. So if you are paying loads of tax, the 15% may make sense if it mops up some or all of the tax you would otherwise be paying; if you are paying little or no tax, then the Revenue limit is a bit academic. Regards


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## ronaldo (3 Apr 2010)

I understand, and totally agree, with what you are saying. But, for the purposes of this thread, let's forget about revenue limits, affordability and current tax rate (as there are already a lot of threads covering the exact details of tax relief, affordability ans revenue limits).

Let's just suggest a percentage of salary that you should have invested at age 30 in order to reduce contributions to 10% and end up with a reasonably good pension.

If, for example, you were to say 105% of salary, this figure is achievable by contributing 15% per year from age 23 (assumming no gains in the underlying investments and no rises in salary levels). However, as there should be gains in the investments, the figure should also be achievable if you started after 23.

For this thread, we don't need to discuss details of how to achieve the target - just what that target should be.

Personally, I think the suggestion above is quite a good one to go by (if the age/2 contribution level is a valid rule of thumb). However, other people's opinions may vary.


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## tenchi-fan (3 Apr 2010)

Depends on what you mean by "reasonably good pension"

People under 30 might have only left college at 23, travelled for a year, may have student debt, then might take a low-paid job at trainee level for 3-4 years.

Knowing their final salary might be €60,000, I estimate they should contribute 60% of their present income in order to achieve a reasonable good pension (ignoring affordability, revenue limits and tax relief)

Other than that, if they can afford to contribute 15% and they pay tax I believe they should aim for 15%.


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## DerKaiser (6 Apr 2010)

Best advice I could give is this:

1) Work out the minimum you would like to survive on e.g. €25k in todays terms
2) Hazard a guess that the old age pension will be a bit less than now e.g. €10k

This means you have to make up €15k p.a. out of your own pocket. You should aim to achieve this by playing it relatively safe with low risk low return investment choice.

If you retire at 65 you will probably live at least 20 years in retirement, so you'd need a fund of at least €300k in today's terms.

So playing it safe you would put away €10k per year from your early 30s. The cost to you will be much lower because of
A) Tax relief
b) Employer contribution if you are lucky

So this will cost you under €5k p.a. at the moment if you are on the higher rate of tax and your employer chips in.

So my advice would be to start putting away €10k per annum into a safe investment option.

If you have more disposable income you could invest that also, but that's a separate decision


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## plendoza (12 Apr 2010)

My advice: invest zero % into the pension. IMO 35 years locking money away is too big an opportunity cost for a 30 year old, stashing 5 and 10k away per annum for the day you are 65 when it will be more or less worthless. You have a life to live before this and you will need that money.

Great if all the assumptions listed above come together, but maybe the figures should be doubled. Most likely 300k will be chicken feed in 35 years time; in the 70's the pension sellers used to talk about about providing for £100 per week, and there we were wondering how we were going to spend all this money every week. Those were the good old days when defined pension schemes were standard.

Sure go for the pension you have not time to look at alternatives, its better than nothing. BES investments while risky are just as good a bet as a pension with the same tax advantages, but you see the money in 5 years not 35.

There is nothing worse than thinking you have everything sorted and then come 65 there is very little in your pension pot. All is not lost however; we have a great motorway network with plenty of bridges - you can always secure a spot under one of these should all else fail.


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## tenchi-fan (12 Apr 2010)

plendoza said:


> My advice: invest zero % into the pension. IMO 35 years locking money away is too big an opportunity cost for a 30 year old, stashing 5 and 10k away per annum for the day you are 65 when it will be more or less worthless. You have a life to live before this and you will need that money.



bad advice. If you're 30 you can save on forty odd percent tax, then tax free growth, if your pension pot is big enough you can retire at age 50. That's a 20 year investment with good tax incentives.
obv nothing is guaranteed, the govt can change the law to tax the **** out of people if they draw at 50 (in the future) but for the moment its a good option.


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## ronaldo (15 Jul 2010)

*Reducing my Pension Contributions from next April*

Next April I'll be 28. Considering my current pension pot and contributions, I will have an amount equivelant to 1-years salary invested at that time.

Therefore, I'm planning to reduce my pension contributions to 6% (personal) and 4% (company) - or a 10% total.

My thinking behind this decision is that, using the old age/2 rule (which I'm not sure is accurate but nothing about retirement planning is), a 28 year old starting out would need to contribute 14%. Assuming a growth rate of 6% on my current pot, the contribution of 10% would be similar to a newly started investor contributing 16%.

The money that I save by reducing my contribution will go towards the mortgage on a house that I intend purchasing early next year.

Do you think the above is a resonable course of action, do you think I should consider keeping my contributions to the max or do you think I should reduce them further shortening my mortgage term? 

The minimum I must contribute to get the 4% employer contribution is 2% and, when I reach 30, this increases to 3% employee and 6% employer.


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## goingforgold (18 Jul 2010)

I would have thought 1 years salary in a pension fund at 28 is very good, especially given how the markets have performed recently. Had you been investing cautiously? I think the whole pension debate is a matter of choice to a large degree. It depends on the standard of living you would like to have from the age of 65 onwards but weighed up against the standard of living you would like to have while you are young. 

Personally I think your plan is good. You have a substantial amount of money in a pension fund and now the focus should be geared more towards a house, while still growing that pension fund at a significant rate.


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