Early 50s, what to do next?

Personal details

Your age: 52
Your spouse's age: 50
Partner's age if not married:

Number and age of children: 2, 15 and 18


Income and expenditure
Annual gross income from employment or profession: 90 k + bonus
Annual gross income of spouse/partner: 15 k

Monthly take-home pay: 4900 after pension contributions and health insurance

Type of employment - employee, private sector and self-employed for my spouse

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


Summary of Assets and Liabilities
Family home value: 520 k
Mortgage on family home: no mortgage
Net equity: 520 k

Cash: 170k (currently on fixed term and saving accounts earning about 3%)
Defined Contribution pension fund: about 425 k for me and about 65 k for my wife
Very small defined benefit pension: 2 k per year
Company shares : 36k (previous and current companies)
Buy to Let Property value: 280k
Buy to let Mortgage: no mortgage

Total net assets: 1.496 k


Other borrowings – car loans/personal loans etc
No borrowings
Do you pay off your full credit card balance each month? yes
If not, what is the balance on your credit card?


Buy to let properties
Value: 280K
Rental income per year: 14K
Rough annual expenses other than mortgage interest : 3.5k


Other information which might be relevant

Life insurance: yes (work and personal)


What specific question do you have or what issues are of concern to you?
Financially, our situation changed a bit in the past 4 years. While we at the time were holding some cash with the view of some house improvement and as an emergency fund as I am the main earner, our plans changed, work changed, covid happened and we also inherit some money. So our level of cash increased. I started maximising my pension, paid the remaining of the mortgage...
In terms of expenses and savings, we currently pretty much spend our monthly income and save my yearly bonus (and my pension contributions). We don't have major short-term plans apart from financing our children education (1 in college at the moment).
My long-term plan would be to be able to stop working in 10 years.
We know the rental is currently not the best investment but we are keeping it with the view that our children would probably need it in the next few years as it is in the Dublin region.
We also know we need to invest some of the cash in some way but the question is: where and how do we start? What is the simplest option for a beginner?
What else should we be doing?

What kind of pension - e.g. occupational, PRSA AVC, PRSA etc.?
What percentage of gross are you contributing? You can do 30% and get full tax relief at your age.

There are lots of existing general investment threads that might be worth checking - e.g.:

Occupational pension. I contribute 30%.
Thank you for the links.

I’m of the opinion that it is prudent to enter retirement with 10 years’ of projected expenses in cash.

So, one strategy would be to keep gradually adding to your cash savings, while maintaining a 100% allocation to global equities in your pension fund.

It’s important to look at your overall position and not to look at individual accounts in isolation.

Sarenco said:

I’m of the opinion that it is prudent to enter retirement with 10 years’ of projected expenses in cash.

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Why/on what basis? Seems extreme to me.

ClubMan said:

Why/on what basis? Seems extreme to me.

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I agree.
1 year would seem 'normal'. What's the logic here Sarenco - what possible scenario could arise immediately following retirement to justify having such a large amount in cash (and earning very small investment returns)?

ClubMan said:

Why/on what basis? Seems extreme to me.

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To mitigate the effects of a particularly bad sequence of returns early in retirement.

If you had retired in 2000 and drew down a fixed €40k a year, adjusted for inflation, from a €1m global equity portfolio, you would have gone bust years ago.

Sarenco said:

To mitigate the effects of a particularly bad sequence of returns early in retirement.

If you had retired in 2000 and drew down a fixed €40k a year, adjusted for inflation, from a €1m global equity portfolio, you would have gone bust years ago.

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2000 is a very extreme case, and can be mitigated more effectively by reducing the drawdown e.g. 3.25% has never failed in any retirement cohort that covered a 40-year (edit: should have said 30-year) retirement (admittedly 2000 doesn't meet that criteria yet).

If you drew down 400k cash from your €1m pension pot at the outset, the risk is far greater (i.e. it would have happened to many more historical retirement cohorts) that your 600k that remained invested in equities was insufficient to catch the next bull market and provide sufficient growth to recover from the earlier losses in the sequence.

Also - isn't this one scenario that the tax free lump sum is designed to address?

Sarenco said:

I’m of the opinion that it is prudent to enter retirement with 10 years’ of projected expenses in cash.

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Sarenco said:

To mitigate the effects of a particularly bad sequence of returns early in retirement.

If you had retired in 2000 and drew down a fixed €40k a year, adjusted for inflation, from a €1m global equity portfolio, you would have gone bust years ago.

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ClubMan said:

Also - isn't this one scenario that the tax free limp sum is designed to address?

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I don’t follow, what does the TFLS have to do with sequence of return risk?

Sarenco said:

To mitigate the effects of a particularly bad sequence of returns early in retirement.

If you had retired in 2000 and drew down a fixed €40k a year, adjusted for inflation, from a €1m global equity portfolio, you would have gone bust years ago.

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If you had your year 2000 €1 million in the S&P 500 it would have increased by an annualised rate of over 20% for the previous 5 years (long-term average 8.5%). For the Nasdaq 100 it would have been over 55% (lta 13.5%)

Only a fool would rely on retaining returns which so wildly exceeded the long term averages.

It's similarly foolish to hold large volumes of long term cash. The opportunity cost is equivalent to burning money.

As for taking a ste amount from your pension pot each year regardless of the fund performance.....that isn't very clever either.

Also, hurrah for portfolio diversification andall that, but people should be making investment decisions based only on the numbers in terms of long term annualised fund performance. And the MSCI is pretty dismal in comparison with either the S&P or Nasdaq. Over 4 decades or more of saving for and actually being in retirement, every percentage point either way is very important.

Sarenco said:

I don’t follow, what does the TFLS have to do with sequence of return risk?

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I meant to supplement ones means when retired.

SquirrelChaser said:

As for taking a ste amount from your pension pot each year regardless of the fund performance.....that isn't very clever either.

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After a certain age you effectively have no choice in the matter.

ClubMan said:

I meant to supplement ones means when retired.

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Sorry, I’m still confused.

Are you saying the TFLS should be kept in cash once drawn down?

If so, then you seem to be agreeing with me that it is prudent to start retirement with a material cash reserve. No?

Sarenco said:

Sorry, I’m still confused.

Are you saying the TFLS should be kept in cash once drawn down?

If so, then you seem to be agreeing with me that it is prudent to start retirement with a material cash reserve. No?

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I never said that it should be kept in cash.

ClubMan said:

After a certain age you effectively have no choice in the matter.

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No, you are effectively required to take a fixed percentage, not a fixed euro figure.

If folks are comfortable with a wildly variable income in retirement that’s fine. Personally, I plan to maintain a certain standard of living.

ClubMan said:

I never said that it should be kept in cash.

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So what are you saying?

While I understand the idea of having some cash at retirement, I am not comfortable with holding that amount currently. 10 years is the earliest I would think about retiring. In the meantime, there is a high possibility we would receive further inheritance (nothing guaranteed of course but as some family members are getting very much older, there is a strong probability). So to me, currently it doesn't make sense.

Most people will have some or all of:
1) mortgage free house
2) state pension from 66
3) spouse retiring after them and/or with a DB pension
4) other assets
5) ability to work in retirement

Approximately no one is fully reliant on their ARF for food and shelter and ten years living expenses in cash feels like extreme risk aversion to me.

I agree though wouldn't classify it as risk aversion given the 10 years cash will be eroded away by even moderate inflation. It's highly suspect and not a strategy I would endorse and certainly one I will not be following. I believe sequence of return risks can be adquately hedged against by keeping a modest cash alocation (1 to 2 years expenses in an ARF Cash fund) and an element of bonds (10 to 20%) in an ARF portfolio.