Age 50 - too old to start a pension?

I'm 50, work part-time, 20% tax band. No pension set up because couldn't really afford it at the start with child-care etc and then never got around to it really.

Spouse will have a teacher's pension, maybe 34/80 as he's hoping to stop at 61/62 and missed a few years earlier. We always figured that would be enough, why bother with one for me. To tell the truth it was only relatively recently we realised that if he died that I'd only get half his pension. When he's 61 I'll only be 58 so no way I'll stop work then, I imagine I'm in it for the long haul.

Now I'm thinking should I start a small pension even? We're starting to try to pay down the mortgage, 11 years left, have lots of college years coming up fast so most I could really afford would be 200 or 300 per month for 15 years. Is it worth it? By the time I've paid admin etc on a pension would I get much more than simply the tax benefits? Will it just be a glorified savings account? Maybe I'd be better off putting that money into the mortgage also and just get rid of it quicker. Himself is very keen to pay it off asap whereas I'm thinking of a pension...

(In case it's not already obvious we're both fairly ignorant on these matters!)

Thanks for any input

ETA - to give all the details as per Brendan's post below.

Age: 50
Spouse’s/Partner's age: 53

Annual gross income from employment or profession: 20k
Annual gross income of spouse: 70k

Monthly take-home pay 5.5k

Type of employment: e.g. Civil Servant, self-employed
Me - private sector, Spouse - teacher

In general are you:
(a) spending more than you earn, or
(b) saving? Saving

Rough estimate of value of home 330k
Amount outstanding on your mortgage: 156k
What interest rate are you paying? 3.7, in process of changing to AIB 2.45

Other borrowings – car loans/personal loans etc None

Do you pay off your full credit card balance each month? Yes
If not, what is the balance on your credit card?

Savings and investments:

Do you have a pension scheme? Me no, spouse has public service pension plan

Do you own any investment or other property? No

Ages of children: 3 teens, 6th to 3rd years

Life insurance: Mortgage protection and salary protection for spouse

€300 per month for 15 years would give you a pot of around €70/75K assuming growth. This is not enough of a fund to get a pension from.

However, it is still a nice sum at the end of the day. You could then draw 25% of it tax free and draw the remainder over a few years rather than drawing an annuity.

On balance, if you can afford it, I think you should run with it. You are getting tax relief on the €300 of €60 so each €300 is only costing you €240.

I suppose another alternative, without the tax relief, would be to put the €300 pm into prize bonds, reinvesting any winnings. With that , you will have no growth at the end of the €15 years, but you always have the remote) chance of a big win!

Personally, I'd go for the pension, rather than the prize bond option

IMHO, it's never too late to start a pension, as long as you can get some sort of tax relief on your contributions.

What is the interest rate on the mortgage.

It does not make sense to pay off a low rate mortgage with money you could invest with tax relief.

Will you have enough PRSI “stamps” to qualify for a full State (Contributory) pension in your own right?

If not, I would query whether your husband will really be in a position to retire early.

Bear in mind that your husband will be entitled to a lump sum on retirement and that can be applied against any outstanding mortgage debt.

It’s certainly not a bad idea for you to build a small pension pot if you can afford it but it’s not going to move the dial very radically in terms of your financial position.

This is a very interesting question.

To get an informed answer, you should provide all this information:

Brendan

Yes I will have enough stamps.

I realise it wouldn't make a huge difference to any plans, and also that the mortgage is low interest (in the process of switching) but it's just all something we've been going round and round with - there are some savings building up and we feel the need to do something practical with them. There will probably be 8 college years ahead and we do have some money put away but don't want tying everything up just in case. We just need to do something with some of the surplus before another year slips by and nothing done. At least paying extra off the mortgage is something we can just do ourselves without all the dithering.

So what kind of pension am I looking for if I go looking? Just like a PRSA from Zurich or wherever? I got that Money Doctor book recently so must have a good read of it.

And actually, if he does die before me, I'll still get my contributory pension, right, as well as his half? That sounds like a dodgy question, I'm not planning his demise or anything, I swear

Oops sorry, just saw your message there. Will go back and edit initial post in case it helps any... Thanks

A 50-year-old woman is expected to live to 85. Your investment horizon is the rest of your life, not just between now and retirement age. Over that kind of time frame equities is a good bet even with only 20% relief on the way in. I think something small like €200-€300 a month is wise. It won't make a huge difference to your lifestyle in retirement but it won't harm either.

Otherwise think about the mortgage. Your husband wants to retire in eight years time but the mortgage still runs for another 11.

horseshoe20 said:

And actually, if he does die before me, I'll still get my contributory pension, right, as well as his half?

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Exactly.

That’s really what I was driving at - half a teacher’s pension plus a full State (Contributory) Pension should give you a reasonable income if you own your home mortgage-free and the kids have flown the coop.

It’s certainly not a bad idea for you to fund a small personal pension but, IMO, it’s all very marginal in your particular circumstances.

If I was in your shoes, I would concentrate on getting the kids through college and using any excess (after-tax) savings to clear the mortgage.

I don’t want to start any rows but your husband’s plans to retire early will have a far more significant impact on your household’s finances in retirement.

In that regard, has your husband looked into the possibility of purchasing notional service and/or making AVCs?

Thanks for all the responses, took a break from the internet over the Bank holiday

Yes - from a financial point of view it's not really ideal that he is planning on retiring early but we'll survive! He's starting into the AVCs this month so that is under control.

Re the mortgage - currently 11.5 years left, when we switch we're changing it to 9 or 10 and hope to pay it off in 8.

Pay down your mortgage with it. You need a big pension pot for it to be worth it. Only being able to put a few hundred quid will leave you with a small pension that will not make any significance to your life. Paying down a mortgage early will. Or save the money to pay for education when it comes up. When it's in a pension, you won't be able to access it.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

People really need to work out what they're going to do in retirement and the amount of money they will need/want, etc. A huge emphasis is now being put on pensions and in a lot of cases "extra pension" which in my opinion won't really be needed in a vast majority of cases at all. By all means pensions are important, but the amounts some go on about as being needed is a bit over the top. You might be surprised at how little is needed to just live, not a lot more to have the holidays abroad off season, the day away seeing our countryside, a few nights here and there and just getting to know one another again. The working life can ruin a man/woman, we won't go on forever. For those who say they couldn't just retire and do nothing! Try it, you might be surprised.

I think that's true, noproblem - we don't have an extravagent lifestyle, we did a lot of travelling in our younger days but not so much anymore and I think we will be happy with a simple enough lifestyle. As long as the mortgage is paid off and we have our health then we'll be happy out!

Thanks Steven for the vote for the mortgage - like I say, it was something we were going round and round with so just needed some external minds who know what they're at, to say go for it.

noproblem said:

People really need to work out what they're going to do in retirement and the amount of money they will need/want, etc. A huge emphasis is now being put on pensions and in a lot of cases "extra pension" which in my opinion won't really be needed in a vast majority of cases at all. By all means pensions are important, but the amounts some go on about as being needed is a bit over the top. You might be surprised at how little is needed to just live, not a lot more to have the holidays abroad off season, the day away seeing our countryside, a few nights here and there and just getting to know one another again. The working life can ruin a man/woman, we won't go on forever. For those who say they couldn't just retire and do nothing! Try it, you might be surprised.

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Depends on what you want to do. Travel is a big thing for a lot of my retired clients. Some of them are spending more now than they had previously earned, which kind of makes sense as they aren't limited to 20 days annual leave.

Having a decent pension fund (and this can be savings, a traditional pension, other sources of income) means you have choices. You can sit at home if you want or you can travel around the place. Not saving for retirement restricts what you can do. And if you are reliant on the State to provide you with a pension, it is the State that tells you when you can stop working and how much income you get.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

Steven Barrett said:

Depends on what you want to do. Travel is a big thing for a lot of my retired clients. Some of them are spending more now than they had previously earned, which kind of makes sense as they aren't limited to 20 days annual leave.

Having a decent pension fund (and this can be savings, a traditional pension, other sources of income) means you have choices. You can sit at home if you want or you can travel around the place. Not saving for retirement restricts what you can do. And if you are reliant on the State to provide you with a pension, it is the State that tells you when you can stop working and how much income you get.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

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People should also factor in a few age related issues. You may need a bit more money to travel and dine out when you are in your 60's or early 70's. But face the fact that you will slow down and eventually, your existence will be sitting in a chair for most of the day. Then you will die.
So my advice will be to spend your money when you have an active retirement and don't be worrying about having the same amount of income when you are 80 plus. If you make it that far, it's likely to be a very frugal existence. The state pension is more than enough, especially if you have a family who will take care of you. If you need nursing home care, that is provided by the state, so having large assets at that stage is not particularly useful. Healthcare, likewise, is widely available and free with the generous medical card exemptions for over 70's. Travel is also free within the state, plus TV license, heating allowance and other age related benefits.
If you have a reasonable size pension pot, try and draw it down while you can use it.