53Yrs want to retire in 2 yrs , should i cash in my investments at one time

Age: 53
Spouse’s/Partner's age: 52

Annual gross income from employment or profession: 75,000
Annual gross income of spouse: 25,000

Monthly take-home pay: 4200

Type of employment: e.g. private sector

In general are you: Saving. saving 1000 to 1400/month

Rough estimate of value of home: 400,000
Amount outstanding on your mortgage: 0
What interest rate are you paying? na

Other borrowings – car loans/personal loans etc: car loan outstanding 7k

Do you pay off your full credit card balance each month?: Yes

Savings and investments: 120K in mostly ETF’s

Do you have a pension scheme?: Yes, 630,000 in my DC scheme ; I pay 15% incl AVC’s and the company pays 8%

Do you own any investment or other property? no

Ages of children: 25 & 20

Life insurance: yes -not sure on detail but I think 3.5 times my salary

I was considering retiring early in 2 years as i have back problems and my work environment is sedentary .i want to get my investments up to 160K and then live off them for @ 27k for 5 years and then start an ARF at 60.

1)in order to live off my investments for 5 years , Would i be better off to cash in the lower yielding investments first and pay the tax per annum year by year or cash it all in one go and pay the CGT ?
2) as it was post tax money i invested ,do i need to pay USC/PRSI on it or only CGT?
3) in 2 yrs i intend to have the pension pot at 750k , when when i draw it down at 60 @4% per annum ,i would like to keep the ARF invested in Global Equities - i understand there would be drawdowns occasionally - is there a self Administered Arf available that has a % Equities mixed with something else to lessen the drawdown ?


appreciate any replies

1. Since you require €27k per year for the next 5 years, you should not be leaving these funds invested at at the mercy of the markets for such a short duration and should move it all to cash/bonds. maybe 1 year in cash and then the rest in various state savings maturing at 2/3/4 years
2. CGT (except any dividends that were paid out, these I believe are treated as income on your tax return)
3. I am not sure about the self administered options - but the drawdown computation is based on an imputed tax calculation of 4% of fund value (5% from 70). However you Don't have to draw this amount down, you only need only pay the tax due. - I'd be interested to know also how income is received and how you go about amending the amount month to month.

Thanks 50andout for the response.
1) good advice on the state savings bonds (had forgotten about that), makes good sense short term
2) yes dividends were declared on tax return so CGT only then
3) there is a lot of great posts and debates here on ARF's and advisors/brokers so ill read on and hopefully learn a bit more

You may also need to consider the potential implications, of not having any insurable Weeks for 5 years.(Between retirement of 55 and aged 60) This “may” impact your State Contributory Pension. You need to verify where you currently stand on this

Another possible strategy, is to transfer the pension fund on retirement, in 2 years time to a Personal Retirement Bond, you can trigger this immediately, take 25 % of the total fund tax free, (up to 200k)and commence “modest” ARF drawdowns, even though you may not actually need the funds. An annual drawdown of €12,500 per annum, from the ARF, will satisfy the PRSI Contributory Pension conditions, and the Life @ Pensions company will deduct PRSI from your ARF drawdowns @ 4%, and you will be credited with class S, which count towards the State Contributory Pension, the PRSI deducted at 4%, so €500 per annum based on €12,500 annually.

This modest 12.5k drawdown is for example, would work out at about 2.60 % of your available ARF, which is arguably, not excessive, assuming the total Pension Pot is say a total say 700k at retirement,(630k now,+2 more years EE& ER contributions +2 years modest growth) less 25% tax free amount of 175k, less AMRF 63.5k, leaving an ARF of approximately 461k.

This modest drawdown, would mean no PAYE, or USC, and in fact, you would have excess Tax Credits of about €800 annually which could be transferred to your spouse if they continue to work.
For a 12.5k annual ARF drawdown, tax credits of €2,500 are used up, but you have an annual total of €3,300, when drawing from an ARF of more than about 9k per annum.

People often forget, that the PAYE tax credit of €1,650 Per annum, is not given to you, if you, are not in the PAYE system for each of those 5 years(55 to 60), but if you are drawing an ARF, this is considered PAYE income, and you get the PAYE credit.

It would also mean, you have extra cashflow to put into something like State Savings, as you have the tax free lump sum, of roughly 175k, annual ARF drawdown of 12.5 k, and some investment income as well.

Once you hit 65, PRSI deductions cease on ARF drawdowns, and you are likely (you need to verify this) to have fulfilled the State Contributory Pension requirements at that point, and you can of course increase the ARF drawdowns at that stage, if required. The ARF would likely still be at 400k + at aged 65, and ARF Drawdowns would need to be increased to at least 4%.


PRSI rates 2020:

State Contributory Pension:

If your insurable weeks average, since you first started working, up to retirement at aged 55, is say 39, you get €1,300 less per annum,(€223, versus €248 per week) than if your average was 48 or more per annum. This is a guaranteed payment, every single year, so it adds up to quite a bit.

Great suggestion Fayf. I will also look to do this when the time comes.

You can request a statement of your PRSI record at any stage, getting that information now, avoids any possible surprises, and helps with planning, and certainly helped me, in choosing the most efficient strategy path, which is likely to be, start drawing down ARF modestly at first, to keep those PRSI contributions going

fayf said:

You can request a statement of your PRSI record at any stage, getting that information now, avoids any possible surprises, and helps with planning, and certainly helped me, in choosing the most efficient strategy path, which is likely to be, start drawing down ARF modestly at first, to keep those PRSI contributions going

Click to expand...

If you have a myGovID you can actually look at this online.

Aha, into the web of government red tape bureaucracy I go....in order to set up a MyGovId account, you need a PPS number, no problem, I have one. In order to verufy your new MyGovId account, you need a PSC (Public Services Card). Go to Gov.ie to see about that. It directs me to MyWelfare.ie, which tells me that PSC appointment services are suspended indefinitely. I'll have to wait to apply for my statement of PRSI so! To be fair, it is good to see the Department of Welfare is taking steps to protect its staff.

You can contact them by phone to request a printed statement of Insurable Weeks by post, have always found them helpful.


Social Welfare Services, Department of Employment Affairs and Social Protection, College Road , Sligo, , F91 T384
Email:
state.con@welfare.ie
Phone number:
(071) 915 7100
1890 500 000

There is a large chunk of males, who do not have a PSC, one of the reasons is that, anyone in receipt of a state payment of any kind including Childrens Allowance, was sent letters to make an appointment to apply for their PSC card, as part of the rollout of the card. I got no letter asking me to apply for a card, but my partner did (they get the children's allowance payment)about 4 years ago, so i just made an apointment myself, and went to a Welfare office, and completed the process.

However it is very handy to have, not only for accessing the PRSI record online, but renewing a driving licence without having to make an appointment and go to the licence office - in person, to renew it, it can all be done online, and there are many other benefits also.