# 42 years old, no pension, what should I do with my savings?



## Pointy (16 Jul 2020)

I'm 42 years old and have no pension. I don't have kids. I'm in a fortunate enough position to own my own house, no mortgage, and have 60k in savings (earning little or no interest). 

I currently earn 34k a year. I live fairly frugally, no car, don't use public transport etc. Estimating fairly conservatively, I save 1k a month/12k a year. I'm about to be made permanent by my employer and will have access to their pension scheme, they will match my contributions but I'm not sure what the maximum I can contribute is. Not sure if this is relevant as I'm actively seeking new employment, this may take a while in the current climate.

In clueless about pensions and other investments. Is a private pension my best bet, or some other kind of investment? Which private pension provider has the lowest fees? What should I do with my 60k savings? 

Any general advice at all would be appreciated!


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## Gordon Gekko (16 Jul 2020)

Hi Pointy,

You can put 25% of your 34k a year into a pension.

You’ll get relief at the 20% rate on the way in, and it’s likely that you’ll pay tax at the 20% rate on the way out (plus USC and PRSI which will reduce and disappear respectively for you over time).

At a minimum, you should contribute what’s required to match the employer contribution. However, I think that you should contribute the maximum as your existing cash savings will give little return.

The fact that you might switch jobs isn’t hugely relevant as these things are portable. A PRSA wouldn’t work as a complete solution because employer contributions count towards the 25% limit with a PRSA but don’t with an employer scheme. Employer schemes tend to be cheaper also.

I would make a 25% contribution to a PRSA for 2019 before 31 October. So you write a cheque for €8,500 to a provider and then get a tax refund of €1,700 (i.e. 20% tax relief).

You should then start contributing the maximum to the employer scheme (i.e. €8,500 per year / €708 per month). There may be a catch-up element to that this year which you’ll need to navigate. You should see a reduction in your monthly after-tax income of around €570 if you do this which is fine because you’re saving €1,000 a month anyway.

You’ll still have around €54k in cash and you’ll still be adding around €430 to that every month.

I would set-aside around €20k of your €54k and keep it in cash somewhere like a Credit Union. That’s your emergency money and, at around a year’s net income less what you’d be saving/investing, it’d be nice and prudent. You should feel quite safe.

Then I’d look to invest the balance (i.e. €34k plus your €430 ongoing monthly surplus. Yes, there might be better options from a tax perspective, but they’d drag you into having to submit a tax return; I’d go for a life company investment bond where they take your €34k and your €430 a month and invest it all in something global and equity based. Yes, any returns will be taxed at 41% and you do still have some 20% rate band, and yes there’s a 1% levy on the way in and yes you will have to keep an eye on the charges, but you‘ll have a simple life and they’ll take care of the tax obligations for you. You have no debt and enough cash, so I’d look at something like Zurich Life’s International Equity fund. Don’t worry about volatility. Time is on your side and you should do very well if you stick to your plan.

I would also allocate your pension to whatever global equity fund is on the employer scheme’s platform. The same advice applies; stick to your plan and don’t worry about short-term volatility. Time is on your side.

If you do all of the above and stick to your plan, you’ll be in rude financial health at retirement.

Separately, I would urge you to perhaps live a little less frugally. Perhaps take some of the money (i.e. the €34k or the €430 a month) and treat yourself? Life is for living. There is no point being the wealthiest person in the cemetery. You might fall off your seat at this suggestion, but maybe after Covid has settled down and we’re all trying to make up for it, take €4k of your €34k and take the holiday that you’ve always wanted too.

Spreadsheets are great, but they’re not much craic.

Best of luck,

Gordon


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## fidelcastro (18 Jul 2020)

Excellent post Gordon.


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## Pointy (18 Jul 2020)

Thanks, Gordan. That's an incredibly detailed and helpful post! 

I am due to be made permanent and gain access to my employers pension scheme, but with the covid situation it's possible they will try to kick that down the road for as long as they can. Possibly months. Should I start monthly contributions to a PRSA myself immediately? If and when I'm made permanent, can I lower the monthly contributions I'm making to my PRSA and divert some to the employees scheme? Also, does anyone know which is the best value provider for someone in my position, in terms of fees and commission etc? 

Thanks again for taking the time, Gordon!


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## Gordon Gekko (19 Jul 2020)

Yes, you could and should do that with a PRSA. Then when the employer scheme kicks in, it’ll probably be cheaper, so I’d divert everything to that and amalgamate the two.

There is a company called “LA Brokers” who do cheap(er) PRSAs on a “no advice” basis; you could try them.

You just want a Zurich Life PRSA invested in Zurich Life’s International Equity Fund (at least in my view). You want at least 100% of your money to be invested each time you make a contribution (i.e. ‘100% Allocation’) and you want your annual fee to be no more than 1%.

Please just do one thing though: No matter how much its value moves up or down and no matter what anyone is saying in the media or online re markets being expensive etc, just keep clipping away and putting your money into that strategy (or an equivalent one when the employer scheme gets going).

You should do very well if you follow that advice.

Congratulations by the way; you’re in great shape financially; an example for us all! Do make sure to enjoy some of it though.


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## Pointy (19 Jul 2020)

Great stuff, Gordan. Thanks again for the great advice, and the encouragement!


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## imalwayshappy (20 Jul 2020)

"Spreadsheets are great, but they’re not much craic."

This is going on my headstone.


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## imalwayshappy (20 Jul 2020)

Gordon Gekko said:


> Spreadsheets are great, but they’re not much craic.




This is going on my headstone.


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## SeaSwimmer (15 Oct 2020)

Gordon Gekko said:


> Yes, you could and should do that with a PRSA. Then when the employer scheme kicks in, it’ll probably be cheaper, so I’d divert everything to that and amalgamate the two.
> 
> There is a company called “LA Brokers” who do cheap(er) PRSAs on a “no advice” basis; you could try them.
> 
> ...


Love this post Gordon! You seem like a really decent person! I'm kind of in the same situation as the OP.  I'm starting a permanent single scheme pension job, 37 now, no real pension, but won't have full state pension due to time overseas. 

I've spent the last week talking to companies that seem a bit Dubious, they tell me different things, try to sell me things with out asking me what I want.. and to be honest, I'm beginning to think I might just execute my own PRSAs, I was thinking Zurich Prisma 5 & now I'm thinking of the Zurich International Equity as well as its being mentioned alot on these forums. Would it be a prudent enough 20 year plan to go 50:50 with AVCs on these and then move % funds across to lower risk products in the 5/10 years before retirement? Thanks a mil.


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## Gordon Gekko (15 Oct 2020)

Hi Seaswimmer,

Thanks!

Can you give more of a sense of your overall circumstances?

Regards,

G


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## Dave K (16 Oct 2020)

Gordon Gekko said:


> Yes, you could and should do that with a PRSA. Then when the employer scheme kicks in, it’ll probably be cheaper, so I’d divert everything to that and amalgamate the two.
> 
> There is a company called “LA Brokers” who do cheap(er) PRSAs on a “no advice” basis; you could try them.
> 
> ...



Very good advice.
And Just to add to the comment and more on the part I underlined. Where people tend to make the mistake is especially when they are contributing regularly, when they hear the markets are dipping they for some reason get the idea that it is not a great time to be putting money into the pension as the values are dropping. The reality is quite the opposite. When the price is lower and you are still investing your regular say 100 euro per month, you are getting more for that 100 so when markets rebound your will benefit a lot more. 

Just to reiterate Gordon Gekkos advice, Begin your contributions as soon as you can and Continue to make them. And definitely be careful on the allocation you get as it is a commission game out there for some so shop around and get clarity on charges.

Best of Luck

David K


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