Feasibility/Affordability of Spouse Retiring Early

Hi Everyone

My wife finds her job tough. She cant see herself managing it in her 50's so we are looking at the feasibility of her retiring early. I think it's doable but it does seem to put a fair dent in our finances. She earns €110,000 annually in the public sector and entered the public service before 2004 so she has a good defined benefit pension.

I suppose we're looking at the difference between €110,000 a year and the reduced pension for the years from 50 - 60 and then also the reduced pension for not working for those 10 years.

My question really is how best to conceptualise it. She should get about €15,000 in pension from age 50 based on what I have read and then that should increase to about €28,000 from age 60. So is it fair to say a loss of €950,000 gross in lost earnings for the 10 years? We have a share portfolio which is growing which I think we would move into her name if her earnings fell with the sole aim of trying to use up her lower tax rate allowance.

So let's say we can get her to €33,000 of income which seems to be the magic number. That would necessitate €18,000 of dividends, so we would save 20% on that, so €3,600. So plus €3,600, but minus €95,000 gross income, which is about €45,000 after tax. Would you agree it's around a €40,000 loss per year, so €400,000 over the decade?

And for the pension I'm thinking it's the difference between €55,000 guaranteed and about €28,000, so €27,000, which would cost around €1,000,000 for an annuity.

I guess the number we're hitting in our thought process is about a €1,400,000 loss if she quits at 50.

Does the above add up?

Thank you,

R

AugustaRory said:

I guess the number we're hitting in our thought process is about a €1,400,000 loss if she quits at 50.

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I don't think you should try to put a number on it like that. What difference does it ultimately make if she doesn't want to work in it? Is she really going to continue in a role she doesn't like for 10 years just because that number looks big.

From your other money makeover, you are extremely well paid so I don't think it should impact your overall plans that significantly if you plan to continue working. You might have to slightly adjust some of your spending but you have loads of scope to do that. And it would likely be offset for the improved family life

AugustaRory said:

So let's say we can get her to €33,000 of income which seems to be the magic number. That would necessitate €18,000 of dividends

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Before going down this route to replace the income, what does your wife actually want to do at 50? She may not want to continue working in this job but that doesn't mean she wants to stop working completely.

Maybe after an initial break she might want to return to some kind of work. Depending on her skill set, she could probably pick up €30k in a part time role fairly easily which maximises the 20% tax band and also gives her a lot of freedom and less stress.

I would focus on what she (and you) want to do and forget about putting a big number on it

I presume the idea here is to take cost-neutral early retirement from the PS?

Have a (lengthy!) read of Early Retirement Now’s Safe Withdrawal Series, which comes with a google sheet which, while being US/S&P500/Treasuries-focused, is really helpful in conceptualising an early retirement.

Thank you. I don't know why but we're thinking about retirement and planning for the future quite a lot at the moment. My wife is on €110,000 a year at the moment. Her public sector pension is very much of the 'gold plated' variety so both of us are wary of giving it up. I don't have as much as I would like in pension because I am a PAYE worker and cannot put as much as I want into it. I'm 44 and I have been maximising what I can put in for quite a while but it's very much a slow burn. It's currently worth around €570,000. We are toying with the idea of my wife retiring at 50 but it seems like it will have a catastrophic effect on her retirement income. She also has a small PRSA which we're unsure about contributing more to. The public sector pension world seems to be a minefield.

I think sometimes the public sector pension can be golden handcuffs. The max pension you can get is not a target, it is a max. If she can't continue the pace or stress that is involved in reaching this, then she can't, regardless of how much it is. While we can quantify pension benefits, we can't quantify the value of our health so consider this as well. Which would you prefer as a family, a large pension earned through chronic stress or a manageable stress level with less pension?

What is it about her job that she finds stressful and has she tried to alleviate it in any way (sometimes it is not fixable I know)? At that salary, she must have good experience and skills. Has she explored moving roles or even to the private sector, that while the pension benefits might not be as good, the salary might be higher and she can make AVCs. She might have more choices in the private sector that can dial down the stress level.

AugustaRory said:

My wife finds her job tough. She cant see herself managing it in her 50's so we are looking at the feasibility of her retiring early. I think it's doable but it does seem to put a fair dent in our finances. She earns €110,000 annually in the public sector and entered the public service before 2004 so she has a good defined benefit pension.

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Does it have to be all or nothing? I have a few public servants in my family and they tend to think of retirement as a big event. But most of them have ended up with bits and pieces of paid employment in "retirement" anyway.

Remember lots of ex-public servants in their 50s have marketable skills that can produce an income. If she is on >€100k public sector wages she very likely does herself.

Sensible advice, thank you. Does it make sense for us to put money into a PRSA for her if she's going to retire early? We are worried that although things are going well for me, there's always the chance that changes. We do spend a lot so we are going to need a lot of income in retirement. Thanks.