Pension Saving Targets by Age

[Sarenco]

You also need to factor in the sequence of returns - no fund will give you a real (after-inflation) return of 4% each and every year.

If you experience a bad sequence of returns in the early years of drawdown, that will have a significantly greater impact on the sustainability of the portfolio than would be the case if you experience a bad sequence of returns in later years.

 

[Rasputin]

if you had a pension pot of 1m at age 50, retired, and wanted 40k annual income would that be sustainable? i.e would your pot survive until, say 90 yrs old? given assumed growth of 4% per annum.

Am I the only one not particularly worried about running out of pension pot at 90, or 85 for that matter - i'll take a few years of unbuttered scones at the end for making the most of my 60,s and 70's.

 

[cwc456]

Am I the only one not particularly worried about running out of pension pot at 90, or 85 for that matter - i'll take a few years of unbuttered scones at the end for making the most of my 60,s and 70's.

You're not. With average life expectancy around 80, its makes much more sense to me to enjoy your 60s and 70s if you can.

 

[Bluefin]

This is something I also struggle with.. Advice is to have appprox 2M in pension pot at retirement on 65.

I would contend that if you have 10 good years after 65 enjoying life you are doing very well, up to 80 in dream territory. Your discretionary spending should fall dramatically but potentially your health spending will increase substantially but with the likes of the fair deal schemes (I know this is an assumption but we cannot speculate on the future direction of this scheme and state pension and we have to make plans based on current situation) in place you and partner should be able to manage this cost using your home as an asset.
Even spending 20k per annum enjoying oneself should be plenty.. Just a thought

 

[ClubMan]

This is something I also struggle with.. Advice is to have appprox 2M in pension pot at retirement on 65.

Advice from whom?

 

[Sarenco]

Maybe something in this ballpark would constitute reasonable target retirement savings by age:

Age - Target Retirement Savings
By age 30 - 1 x gross salary at 30
By age 40 - 3 x gross salary at 40
By age 50 - 5 x gross salary at 50
By age 60 - 8 x gross salary at 60
By age 66 - 10 x gross salary on retirement

So, somebody that retires on a final salary of 50k would target a final pension pot of 500k.

Does that look reasonable/achievable?

Edit: I’ve reduced the target by age 50 slightly to gross salary x 5.

 

[LDFerguson]

Maybe something in this ballpark would constitute reasonable target retirement savings by age:

Age - Target Retirement Savings
By age 30 - 1 x gross salary at 30
By age 40 - 3 x gross salary at 40
By age 50 - 6 x gross salary at 50
By age 60 - 8 x gross salary at 60
By age 66 - 10 x gross salary on retirement

So, somebody that retires on a final salary of 50k would target a final pension pot of 500k.

Does that look reasonable/achievable?

I love this. I see that the biggest jump is between age 40 and 50. Suggest maybe pushing off the biggest jumps until later in life when compounding and possibly lower child-related expenses might help.

 

[ashambles]

You're not. With average life expectancy around 80, its makes much more sense to me to enjoy your 60s and 70s if you can.

The problem is that knowing your savings will run out at 80 affects your spending earlier. Ideally you need to know you'll have a cushion that will take you past the point where you expect to have enjoyable ways of spending it.

 

[Cloudd]

Assuming the individual has access to the public pension, that could be seen as the 'cushion' from 80 onwards?

 

[Conan]

The problem is that knowing your savings will run out at 80 affects your spending earlier. Ideally you need to know you'll have a cushion that will take you past the point where you expect to have enjoyable ways of spending it.

Current longevity rates for a male retiring at age 65 is c 20 years on average (about 3 years longer for women). If your health is good (+ good genes) then longevity could be longer.

 

[Rasputin]

Your discretionary spending should fall dramatically but potentially your health spending will increase substantially but with the likes of the fair deal schemes (I know this is an assumption but we cannot speculate on the future direction of this scheme and state pension and we have to make plans based on current situation) in place you and partner should be able to manage this cost using your home as an asset.

Fair deal scheme - well if you own your house and have assets over certain thresholds, they will happily take that and use it pay for your care. If you don't own your own house and have little or no assets, you get the same 'fair deal' but the state pays. They might take a portion of your state pension, but you still need to be left with x amount, although you might find it hard to spend it in a care situation.

I don't see the point in having large assets at a very old age - you really should try and enjoy the benefits of them well before that.

 

[ArthurMcB]

Cv

Am I the only one not particularly worried about running out of pension pot at 90, or 85 for that matter - i'll take a few years of unbuttered scones at the end for making the most of my 60,s and 70's.

Great point that i hadnt really thunk of. With that in mind €1m at 50 would set me up nicely to retire with reasonable drawdowns.

Maybe something in this ballpark would constitute reasonable target retirement savings by age:

Age - Target Retirement Savings
By age 30 - 1 x gross salary at 30
By age 40 - 3 x gross salary at 40
By age 50 - 5 x gross salary at 50
By age 60 - 8 x gross salary at 60
By age 66 - 10 x gross salary on retirement

So, somebody that retires on a final salary of 50k would target a final pension pot of 500k.

Does that look reasonable/achievable?

Edit: I’ve reduced the target by age 50 slightly to gross salary x 5.

Im not sure if this would be achievable for the vast majority.

Of course all depends on earnings though. If you are on 100k at 40 and only in last few yrs been ballpark on that figure then you'd stuggle to have a pot of 300k amassed. Maybe if contributing since 20s and being maxing out...

 

[ryaner]

This is something I also struggle with.. Advice is to have appprox 2M in pension pot at retirement on 65.

I would contend that if you have 10 good years after 65 enjoying life you are doing very well, up to 80 in dream territory. Your discretionary spending should fall dramatically but potentially your health spending will increase substantially but with the likes of the fair deal schemes (I know this is an assumption but we cannot speculate on the future direction of this scheme and state pension and we have to make plans based on current situation) in place you and partner should be able to manage this cost using your home as an asset.
Even spending 20k per annum enjoying oneself should be plenty.. Just a thought

2M at 65 is way more than the majority of people would need or even spent. Assuming you live to 95, it'd be 66k a year assuming it was all held in cash. Even if tax was due on it, it'd be 50k a year before the OAP. That is more money than the majority of the population are spending before the retirement period and expenses start dropping off.

 

[Bluefin]

Advice from whom?

Brian Codyre, senior financial planning consultant, Mercer Ireland, explains that they originally fell out of fashion through the combination of life expectancy and interest rates.
“As interest rates have been very low or negative for the last number of years, annuity returns have also been low. For example, an annuity rate for a 60-year-old male on a joint life basis¹ was 2.87 per cent in February 2020. This means a pension valued at €100,000 after any tax-free lump sum is taken would provide a monthly pension of €240 for the rest of the annuitant’s life; when they die, their spouse would receive €120 per month for the rest of their life,” says Codyre.

The recent inflationary environment and rising interest rates have a silver lining for one cohort: individuals who wish to buy an annuity on retirement.


“If a 60-year-old purchased an annuity today on a like-for-like basis, they would receive a rate of 3.99 per cent, generating an income of €332 per month for every €100,000 used to purchase an annuity. While this may still seem low, it represents a 38% increase in the amount available two years ago.

“Most people will retire at 65. The current annuity rate for a 65-year-old, on the above basis, is 4.54 per cent, or €4,540 per annum for every €100,000 used to purchase the annuity,” says Codyre.
(irish times article September 2022)

It appears from this article that the 1M would give you 40k per annum if you retire at 60. Less than 2 years ago, 1M would have only given you 28k at retirement of 65. A private pension of 28k is not excessive by any means.

 

[Gordon Gekko]

I think sometimes people can overestimate their income requirement in retirement. When you take out the big ticket items like mortgage repayment, saving, and retirement provision itself, a €2m fund might be too much for a lot of people. I did an exercise relatively recently and worked-out that €60k a year net of tax in today’s terms would be ‘adequate’ for us. 2 x State Pension is €26k, so around €40k extra a year in today’s terms would do the job.

In today’s terms, €5k a month net landing into your account with no debt and no particular requirement to plan for the future is actually a lot of money.

 

[FintanJ]

Do you think the state pension will be as valuable in 20 years time ? I very much doubt it, they cannot afford to continue paying it. At best , still exists in some form for all but in example , i would not assume it will be worth 26k in today’s money.

 

[azerty]

Do you think the state pension will be as valuable in 20 years time ? I very much doubt it, they cannot afford to continue paying it. At best , still exists in some form for all but in example , i would not assume it will be worth 26k in today’s money.

Fair point. I am always concerned of the fact that at some point government might turn around and say that they would mean test in some way the contributory pension.

 

[cwc456]

Fair point. I am always concerned of the fact that at some point government might turn around and say that they would mean test in some way the contributory pension.

They might well do that, faced with the projected large population increase in the future, and drying up of corporation tax receipts etc. As it is, the contributory pension is not keeping up with inflation at the current rate. Of course, a lot depends on their spending priorities, but if they threaten to means test I will be out on the street protesting - hopefully with many thousand of others.

 

[ArthurMcB]

In today’s terms, €5k a month net landing into your account with no debt and no particular requirement to plan for the future is actually a lot of money.

Would that be net Gordon, would there not be some tax due on that? Maybe iv missed something.

 

[ClubMan]

Brian Codyre, senior financial planning consultant, Mercer Ireland, explains that they originally fell out of fashion through the combination of life expectancy and interest rates.
“As interest rates have been very low or negative for the last number of years, annuity returns have also been low. For example, an annuity rate for a 60-year-old male on a joint life basis¹ was 2.87 per cent in February 2020. This means a pension valued at €100,000 after any tax-free lump sum is taken would provide a monthly pension of €240 for the rest of the annuitant’s life; when they die, their spouse would receive €120 per month for the rest of their life,” says Codyre.

The recent inflationary environment and rising interest rates have a silver lining for one cohort: individuals who wish to buy an annuity on retirement.


“If a 60-year-old purchased an annuity today on a like-for-like basis, they would receive a rate of 3.99 per cent, generating an income of €332 per month for every €100,000 used to purchase an annuity. While this may still seem low, it represents a 38% increase in the amount available two years ago.

“Most people will retire at 65. The current annuity rate for a 65-year-old, on the above basis, is 4.54 per cent, or €4,540 per annum for every €100,000 used to purchase the annuity,” says Codyre.
(irish times article September 2022)

It appears from this article that the 1M would give you 40k per annum if you retire at 60. Less than 2 years ago, 1M would have only given you 28k at retirement of 65. A private pension of 28k is not excessive by any means.

That's all about annuities and doesn't even mention the €2M figure. It doesn't even touch on the more common ARF approach these days.