# 1/3 Life Crisis



## Eireog007 (10 Aug 2018)

Hi guys, as it’s my 32nd birthday today I’m having what I’m hoping adds up to being a 1/3 life crisis here. Looking for some general advice/information really. I apologise for what will probably be a long rambling message

The background on myself is a 32 year old recently married engineer moved back from Australia late last year and in a new job about 4 months now. As all the more pressing details of moving home, finding a job, getting married and finding a place to live and buying a car are finally sorted I’m starting to look into my financial planning. 

Basically I’m a pension novice as when I was in Australia it was mandatory to have a superannuation fund of 9% of your salary which the company provided and I never really paid too much attention to. Those separate funds which I’m working to consolidate are untouchable until I reach retirement age but are around €35,000 area when changed from dollars. As of yet I haven’t set up a pension plan here and the calculators online are throwing up very different numbers to my (probably completely wrong) excel calculations.

 As My wife and I are currently on €90,000 our max tax incentivised yearly input is €18,000 which we can just about swing. When I run the numbers of that until I am say 62 assuming a 4.5% interest I come up with €1,165,500 which if we took €40,000 a year would get me to 92 but when I run said numbers online they feed me back annual pension amounts of below €15,000. All this is with me ignoring the state pension as I have no clue what it will be or if it will still be a thing in 40 years time. 

I guess the whole thing has me completely spun around. Simple questions like is ourprojected annual pension amount a % of our net or gross salary? Same with the % of our salary we are supposed to be contributing. Any help would be greatly appreciated and I’m sure I’ll have more questions when you answer my basic initial ones.


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## T McGibney (10 Aug 2018)

Welcome to AAM. Unfortunately I found your post hard to read. You should get more and better-quality feedback if you rephrase it using shorter and more concise sentences and less jargon.


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## Steven Barrett (10 Aug 2018)

Don't forget that €40,000 in 30 years time will not be worth the same as €40,000 today. With an inflation rate of 2% per annum, €40,000 a year would be the equivalent of €22,000 a year today. 

Not 100% sure where the online calculator amounts come from but you need to read the assumptions to see what percentages are used. They all use assumptions agreed with the Society of Actuaries and you can find the assumed returns are lower than expected or they may deduct higher charges than you will actually pay. 


Steven
www.bluewaterfp.ie


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## Ceist Beag (10 Aug 2018)

Just one point, most people I know who worked in Australia for a period got their superannuation fund returned to them when they came back to Ireland. Have you checked if you are eligible to have this returned rather than being unable to touch it until retirement age? These would have been people on a 1 year visa to Australia so maybe that is why they could get it back but just mentioning it in case it is relevant to you.


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## Eireog007 (10 Aug 2018)

T McGibney said:


> Welcome to AAM. Unfortunately I found your post hard to read. You should get more and better-quality feedback if you rephrase it using shorter and more concise sentences and less jargon.



Hey T McGibney, yeah sorry I hadn’t really planned out the message in my head which is why it probably seems a little garbled. I’ll try boil down to my key points and questions.

Basically my wife and I have recently moved back from Australia and are going to be setting up our pension plans, I’m 32 and she is 30. We already have existing funds in Australia that we are consolidating as they were individual funds from each job we had over our time in Australia and add up to about €35,000 but cannot be removed until we retire.

The questions I had about whether it’s our gross or net income that we need to use for our pension contributions and our projected annual pension amounts are due to the fact the the numbers I calculated in a basic excel sheet are coming out extremely different to any of the online pension calculators, which have us on a very low annual pension. This is despite putting in the max amount each year that qualifies for tax relief.


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## T McGibney (10 Aug 2018)

For tax relief purposes, the age-related eligible contribution limits are based on gross income..

Pay no heed to projected pension calculators. They are merely illustrative and have no predictive value whatsoever.

For what it's worth, if I were at your stage in life, I'd be prioritising housing and prospective family rearing costs over maxing pension contributions but I'm sure you have considered these too.


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## Eireog007 (10 Aug 2018)

SBarrett said:


> Don't forget that €40,000 in 30 years time will not be worth the same as €40,000 today. With an inflation rate of 2% per annum, €40,000 a year would be the equivalent of €22,000 a year today.
> 
> Not 100% sure where the online calculator amounts come from but you need to read the assumptions to see what percentages are used. They all use assumptions agreed with the Society of Actuaries and you can find the assumed returns are lower than expected or they may deduct higher charges than you will actually pay.
> 
> ...



Yes I am assuming there are assumptions being made on all of those figures that just aren’t being made very clear when

I tried to take inflation and fees into account when I used a figure of 4.5% average yearly growth but maybe I’m being overly generous. It’s just the extremely large discrepancy has me puzzled.

Perhaps they factor in a lower interest rate in later years as a fund would naturally become more conservative to guarantee returns closer to retirement age.


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## RedOnion (10 Aug 2018)

Eireog007 said:


> maybe I’m being overly generous


Yes, you probably are.

Here's an example of assumptions made in calculators: https://www.pensionsauthority.ie/en/LifeCycle/Useful-Resources/Pension-Calculator/Assumptions.html


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## Eireog007 (10 Aug 2018)

Hey Ceist, yes you’re only eligible to remove the superannuation funds if you don’t become a permanent resident or citizen which I am.


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## Eireog007 (10 Aug 2018)

RedOnion said:


> Yes, you probably are.
> 
> Here's an example of assumptions made in calculators:



That’s a really helpful link thanks, I’ve put in those assumptions into my own excel calculations and they definitely brought down the projected end amount a good portion.


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## moneymakeover (10 Aug 2018)

Does the calculator factor in that the tax relief percent increases over time

Eg up to a max of 40% from age 60


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## Eireog007 (10 Aug 2018)

T McGibney said:


> For tax relief purposes, the age-related eligible contribution limits are based on gross income..
> 
> Pay no heed to projected pension calculators. They are merely illustrative and have no predictive value whatsoever.
> 
> For what it's worth, if I were at your stage in life, I'd be prioritising housing and prospective family rearing costs over maxing pension contributions but I'm sure you have considered these too.



Yeah that’s what I was hoping to hear, we have our deposit in hand and have another 10 months to build on that so we are pretty settled there for now. Kids will be on the horizon in the next 18 months but the difference in rent to mortgage and no longer saving everything for a deposit will be enough to cover those expenses.


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## Eireog007 (10 Aug 2018)

moneymakeover said:


> Does the calculator factor in that the tax relief percent increases over time
> 
> Eg up to a max of 40% from age 60



I’m not sure about the online calculators but my own excel calculations were pretty conservative in that I assumed 1% increase in salary per year and a corresponding 1% increase in contributions. I didn’t want to make assumptions on future salary or my ability to increase contributions.


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## Homer (15 Aug 2018)

Eireog007 said:


> I’m not sure about the online calculators but my own excel calculations were pretty conservative in that I assumed 1% increase in salary per year and a corresponding 1% increase in contributions. I didn’t want to make assumptions on future salary or my ability to increase contributions.



Assuming a low rate of salary growth is not necessarily conservative.  The key issue (in terms of purchasing power) is the 'gap' between the assumed rate of investment return and the assumed rate of salary increase.  A gap of 3.5% per annum (particularly if this is a net of expenses assumption) is probably somewhat overoptimistic in today's market and this may be at least a partial explanation for the apparent discrepancy between your excel spreadsheet and the kind of figures that are coming up in online projections.


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## Bronte (16 Aug 2018)

Eireog007 said:


> . All this is with me ignoring the state pension as I have no clue what it will be or if it will still be a thing in 40 years time.



You need to see if you can purchase extra to get you the full state pension.


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## Eireog007 (16 Aug 2018)

Bronte said:


> You need to see if you can purchase extra to get you the full state pension.


What do you mean by that Bronte? 

I’m making my calculations on the assumption that the state pension will not exist in the future or will be so reduced/starting age so increased so as to be almost irrelevant.


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## Eireog007 (16 Aug 2018)

Homer said:


> Assuming a low rate of salary growth is not necessarily conservative.  The key issue (in terms of purchasing power) is the 'gap' between the assumed rate of investment return and the assumed rate of salary increase.  A gap of 3.5% per annum (particularly if this is a net of expenses assumption) is probably somewhat overoptimistic in today's market and this may be at least a partial explanation for the apparent discrepancy between your excel spreadsheet and the kind of figures that are coming up in online projections.



I get that a low rate of income growth doesn’t necessarily equate to a conservative calculation but I would strongly believe that income would roughly follow this trend to at least track roughly with inflation. This also ignores any future promotion earnings growth which should be significantly more than calculated but ignored as they are not quantifiable in any meaningful way.

I know a lot of what I’m calculating here is based on some very large assumptions but it has to start somewhere and I believe I’m being realistic.


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## Steven Barrett (16 Aug 2018)

Eireog007 said:


> What do you mean by that Bronte?
> 
> I’m making my calculations on the assumption that the state pension will not exist in the future or will be so reduced/starting age so increased so as to be almost irrelevant.



When the State pension becomes payable is being changed based on life expectancy so the average person gets paid the OAP for the same amount of time. So if our life expectancy increases by 2 years, the OAP will be payable 2 years later. No word on what happens if we all start dying younger, I'd say they disregarded this if it was brought up. 


Steven
www.bluewaterfp.ie


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## Eireog007 (16 Aug 2018)

SBarrett said:


> When the State pension becomes payable is being changed based on life expectancy so the average person gets paid the OAP for the same amount of time. So if our life expectancy increases by 2 years, the OAP will be payable 2 years later. No word on what happens if we all start dying younger, I'd say they disregarded this if it was brought up.
> 
> 
> Steven
> www.bluewaterfp.ie



I’m unsure tbh but I would think the online calculators take into account current state pension rules but when I’m doing my own calculations separately to them I’m setting my yearly requirement from a pension to be derived solely from my private pension earnings and assuming that the state pension will be gone completely.


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