Is retiring early a pipe dream? Are we too late to compensate for financial stupidity of 20s and 30s?

[Fortune]

I thought that PCP was similar to hire purchase and there may be factors (e.g. fixed term contract and concomitant breakage fees?) that mean that there may not be significant, if any, savings to be made by clearing it early? Or perhaps I am mistaken?

As far as I can tell, it's just a lease but with marketing to imply that it isn't a lease.

 

[40sandClueless]

I think the car debt would be more important to attack now that the mortgage. They're paying more for a car than for funding their child's university

If I have got it right when your husband is 65 you will be 58 and you will have approximately 30 years service. I take it you will have increments and, very possibly, promotions in the meantime but on a salary of 92k the Modeller indicates that with CNER your annual pension at 58 would be about 16k and a tax free lump sum of 90k. You could use your AVC to top the lump sum up to the Revenue limit which, under current rules, would be about 120k (I didn't do the calculation). Anything remaining in the AVC could be transferred to an ARF - or Annuity if you prefer.
From 65 you would be eligible for a Supplementary Pension of about 7.5k (if not getting anything from Social Welfare) and this would be replaced with the State Pension (based on your PRSI record) at 66 - or 67/68 by then?

This is just to give you an indication. Only you know what this might be like for you.

PS. Have you any service prior to joining the HSE in 2011? Or PRSI to count towards a State Pension?



Joined in 2011 so not the Single Scheme but the post 2004 scheme ("New Entrants").

This is extremely helpful. I didn't know there was a Modeller but can look now at different possibilities. I worked approx 4 years full time, outside public service, prior to 2011 so might help with state pension?

Yes, it's the HSE Superannuation Scheme, not the Single Scheme. Seems to be better than the Single Scheme but definitely not as good as the old public service pension. My understanding is the scheme I'm in is based on final salary as opposed to averaged across career.

I thought that PCP was similar to hire purchase and there may be factors (e.g. fixed term contract and concomitant breakage fees?) that mean that there may not be significant, if any, savings to be made by clearing it early? Or perhaps I am mistaken?

Going to ring the garage Monday and find out....my impression is we may not save by paying it off earlier except we can divert the 300e payment elsewhere. And psychologically it would be great to be debt free (bar the mortgage of course).

This is confusing and doesn't seem to add up?
€175K or €250K?

Apologies, a typo on my end - it's approx 250k.

 

[Setforlife]

Apologies it was me who said single scheme, good that yours is final salary but the bad side is no real early options except for cost neutral which is a quite a downside compared to old system. Along with much bigger potential gap from 58-66 when no extra cover from supplementary pension.

However it’s still a great thing to have being index linked and defined, never changing. Based on rough estimates above, leaving aside lump sums, you would have 15k from 58, your partner 17k coap from 66 guaranteed. You are already in reasonable shape with that. With nothing else but your partner maxing AVCs from now until 65, in the right funds, his DC could easily hit 1 million and more. Leaving aside lump sums, that’s 40-50k a year income from an ARF. Then 7 years latter you also get coap equivalent of another 17k a year. If you could also get some AVCs going then extra lump sum at 58, small arf for you also will add to the above

You are in very very good shape for early retirement if you can do that. Better than 90% of population.

 

[Ruffian]

I worked approx 4 years full time, outside public service, prior to 2011 so might help with state pension?

It will help. A full pension requires 40 years of PRSI contributions paid or credited. So, for example, 34 years equals 34/40 of the full rate. If you retire early you may be able to get credited PRSI contributions but it would seem premature to go into that now.

Yes, it's the HSE Superannuation Scheme, not the Single Scheme. Seems to be better than the Single Scheme but definitely not as good as the old public service pension. My understanding is the scheme I'm in is based on final salary as opposed to averaged across career.

The main difference between your scheme and the previous scheme is that "normal retirement age" increased from 60 to 65. Retirement before normal retirement age usually means an actuarial reduction (CNER). For you, retiring at 58 rather than 65 means your pension for 30 years service would be reduced by almost 1/3. You could retire with a deferred pension at 58 etc. and get the full pension amount from 65 but this is probably not a runner as you would have no income of your own in the meantime - unless you were looking at alternative employment. With a deferred pension you could not access your AVCs until 65 also.

And yes, just like in the older schemes, your pension is based on final salary (and any pensionable allowances).

 

[Ruffian]

Then 7 years latter you also get coap equivalent of another 17k a year.

The COAP is currently about €15,100. I doubt that it will increase significantly beyond inflation - it it maintains that. And that is the maximum rate payable of Supplementary Pension also. And that maximum requires full 40 years service.

 

[40sandClueless]

I wouldn't beat yourselves up over this. You seem very normal. You either had a good deposit for that house or bought a long time ago and the value has gone up. You can always downsize in the future if retiring early is more important that the house.

I spoke to a financial advisor a few years ago. Best thing he sent me was a sheet with all the Cost Neutral Early Retirements calculations for me. I would advise talking to someone who understands public service pensions (as someone rightly corrected above, you're 2004 - 2012 scheme, so better than post 2012 at least).

I'm about the same age. Roughly same equity in a house. Haven't started AVCs yet. Started working at same time as you actually as well. I earn less and don't have a partner , so no second salary. And I thought I was doing well, just for having a house!

You are doing well, to have a house with one income is a big achievement and not one I'd have managed! It was hard to get a sense how we've been doing as people don't talk about money - delighted to discover this forum! The lack of knowledge was amplifying my anxiety which isn't helpful.


Lots of food for thought with all the feedback above re pensions and overall I feel a lot more informed. Thank you everyone.

Could I ask one last question - after pausing/reducing education fund, paying off PCP and maxing out AVCs would you recommend trying to reduce term of mortgage by increasing payments by maybe 200 or so? With Haven, my understanding is we would have to change the term rather than simply overpay each month... Or it may be best to focus any extra cash into other investments? We've a few steps to go before at this stage but would love to know if it should be a consideration down the line.

 

[Setforlife]

The COAP is currently about €15,100. I doubt that it will increase significantly beyond inflation - it it maintains that. And that is the maximum rate payable of Supplementary Pension also. And that maximum requires full 40 years service.

That’s what I understood until the various posts in this thread showing it is currently more like 17k

Post in thread 'Pensioners should have 100% equities - side issues'
https://www.askaboutmoney.com/threa...-100-equities-side-issues.238770/post-1914540

 

[Setforlife]

You are doing well, to have a house with one income is a big achievement and not one I'd have managed! It was hard to get a sense how we've been doing as people don't talk about money - delighted to discover this forum! The lack of knowledge was amplifying my anxiety which isn't helpful.


Lots of food for thought with all the feedback above re pensions and overall I feel a lot more informed. Thank you everyone.

Could I ask one last question - after pausing/reducing education fund, paying off PCP and maxing out AVCs would you recommend trying to reduce term of mortgage by increasing payments by maybe 200 or so? With Haven, my understanding is we would have to change the term rather than simply overpay each month... Or it may be best to focus any extra cash into other investments? We've a few steps to go before at this stage but would love to know if it should be a consideration down the line.

Maxing out AVCs gives significant benefit and revenue pays half of it for you, but it is still costly, especially from 50, 55 on as you can put a great deal in. You should really concentrate on that first and see where you are. As you have most likely an uptick in rate coming also it may not be possible to overpay as well.

 

[Ruffian]

That’s what I understood until the various posts in this thread showing it is currently more like 17k

Post in thread 'Pensioners should have 100% equities - side issues'
https://www.askaboutmoney.com/threa...-100-equities-side-issues.238770/post-1914540

If you are referring to a possible Supplementary Pension at 65 then those extras do not count for that. The maximum Supplementary Pension currently is approximately €15,100 and there are no double payments, living alone allowances etc.

If you are referring to the standard COAP/ State Pension payable currently at 66 (which will probably rise to at least 67) the OP will only get the maximum rate if she manages to attain 40 years worth of qualifying contributions (paid and credited).

 

[Setforlife]

Yes and if work until 58, pay AVCs and create a small arf of 5k a year will get s stamps 58-66 to get max.

 

[conor_mc]

You are doing well, to have a house with one income is a big achievement and not one I'd have managed! It was hard to get a sense how we've been doing as people don't talk about money - delighted to discover this forum! The lack of knowledge was amplifying my anxiety which isn't helpful.


Lots of food for thought with all the feedback above re pensions and overall I feel a lot more informed. Thank you everyone.

Could I ask one last question - after pausing/reducing education fund, paying off PCP and maxing out AVCs would you recommend trying to reduce term of mortgage by increasing payments by maybe 200 or so? With Haven, my understanding is we would have to change the term rather than simply overpay each month... Or it may be best to focus any extra cash into other investments? We've a few steps to go before at this stage but would love to know if it should be a consideration down the line.

I’ve always thought it best to maintain as much flexibility as possible in your mortgage, ie do not reduce your term. You may look to remortgage once you roll off your current rate and I don’t think banks like to extend the term of the preceding mortgage. At this point I’d take into account ability to pay off extra. For example, PTSB will allow you to pay extra as a credit even when on a fixed rate. This credit can be used to make repayments if you need to, so it’s a good place to stash a chunk of your rainy day fund. It’s also DIRT-free. With PTSB offering 3% on a green fixed rate for 5 years, they’re pretty competitive if you can get it.

Also, consider installing solar - regardless of green mortgage, it can pay a great return. It should serve you well into retirement. In my case, it’s about one third the price of an inflation-adjusted annuity (which is essentially what it is if you think about it).

 

[Setforlife]

Just a sample simple calculation from calculator.net with quite conservative figures. If max out AVCs on partners pension at current max of 25% plus 5% employer, thats 1850 a month into pension. Starting with 250k over 17 years even without any increase to 30%, 35% etc that a v healthy pension, at at reasonable expected return of 6% on average, which over that length of time is conservative most likely.

 

[jim]

at at reasonable expected return of 6% on average

I dont think thats a reasonable expected avg annual return over the long term. Id say 5% or 4.5% is reasonable and 4% would be reasonably prudent.

 

[Setforlife]

I dont think thats a reasonable expected avg annual return over the long term. Id say 5% or 4.5% is reasonable and 4% would be reasonably prudent.

You can of course pick your own return figures estimates. If 100% equities over last 30 years it’s ~ 8%, taking 2% off that is reasonable to me for guesstimates this far out, especially when already using lower that expected inputs. Of course there is a range of outcomes possible.

 

[40sandClueless]

Maxing out AVCs gives significant benefit and revenue pays half of it for you, but it is still costly, especially from 50, 55 on as you can put a great deal in. You should really concentrate on that first and see where you are. As you have most likely an uptick in rate coming also it may not be possible to overpay as well.

Okay thank you, after doing some sums, yes I can see how maxing AVCs is unlikely to leave much to commit to more mortgage repayments. Waiting to see what our next interest rate is like too...

It will help. A full pension requires 40 years of PRSI contributions paid or credited. So, for example, 34 years equals 34/40 of the full rate. If you retire early you may be able to get credited PRSI contributions but it would seem premature to go into that now.



The main difference between your scheme and the previous scheme is that "normal retirement age" increased from 60 to 65. Retirement before normal retirement age usually means an actuarial reduction (CNER). For you, retiring at 58 rather than 65 means your pension for 30 years service would be reduced by almost 1/3. You could retire with a deferred pension at 58 etc. and get the full pension amount from 65 but this is probably not a runner as you would have no income of your own in the meantime - unless you were looking at alternative employment. With a deferred pension you could not access your AVCs until 65 also.

And yes, just like in the older schemes, your pension is based on final salary (and any pensionable allowances).

The deferred option seems unlikely for me but I'll run some numbers, especially closer to the time and see where we are. At least now I know - focus on AVCs, we won't do anything with the mortgage for now. And will see where we are on in a few years.



This feedback has been incredibly helpful. Thanks again folks