Retirement scenario planning (10 years out)

[conor_mc]

Thanks, I did note in the prsa scenarios in the original post that later lumps sums would be 20% taxed, and thanks to everyone for the notes on building your own model. I guess that is the best option, my concern is not around the work in that really, it was around what to model and what the best options are.

I.e is there a better approach to the tax and prsa rules that multiple prsas vesting over different periods. This is relatively easy to calculate, but is there a better approach to begin with that isn’t obvious or clear to anyone who doesn’t work in the area of retirement planning?

Strongly suggest taking a look at the tools I liked to above, you’ll either get ideas, useable historic data from it, or most of what you want but you can take a copy and adjust as you see fit.

 

[Dr Strangelove]

this statement could surely be applied to almost all consumption whether that be enjoyment of a new house, new car, new phone, new coat, new hat etc.

Of course but lump sums hit you very rarely in life.

Otherwise for a home renovation you are saving or borrowing which has a cost or opportunity cost.

I’ll have a couple of lump sums in my mid-60s and I’ll either delay or advance big life purchases to coincide.

 

[Setforlife]

Of course but lump sums hit you very rarely in life.

Otherwise for a home renovation you are saving or borrowing which has a cost or opportunity cost.

I’ll have a couple of lump sums in my mid-60s and I’ll either delay at advance big life purchases to coincide.

Check re the lump sums, but hoping to trade off big spends with having the option to retire a year or two sooner. Of course
this is all at least 10 years out and by then will have kids hopefully in college and soon after hopefully looking for homes so may have
need for the lump sums, or who knows parents who need long term care etc . All going well in ~ 10 years we want to plan the best option to retire comfortably, whether you take the option or not is a different thing altogether as who knows what will actually happen between now and then.

We certainly are not planning an apt in Portugal or similar to hoover up 500k straight away. Although something like that could be an option
at 65+ if everything is still relatively rosey in funding etc.

 

[Setforlife]

Some interesting debate in other threads on split of funds etc post retirement to guarantee income as best possible could be factored in here also.

So to adjust based on initial feedback, at 60 with 2 million, create 3 PRSAs.

1)800k sized to take 200k tax free. Invest the 600k vested PRSA in 60/40 bonds/stocks and take a very reliable 6%
36ka year, increasing with inflation but staying under tax thresholds. Along with your 40k a year from lump sum, you
have ~76k a year tax free.

2) you setup 2 600k PRSAs at 60 and left them both in 100% stocks.

3) you can vest the other PRSAs when it suits based on returns in the market and the need for lump sums taxed at 20% or
increase your % drawdown from original vested PRSA depending on market returns. Nominally to get the low taxed lump sums,
you would do this at 65 and 70, when they are worth roughly 800k and 1million each.

I guess eventually you are taking quite highly taxed earnings but you have left more untouched for longer giving you more growth potential with lowest initial tax rates, making retiring early a reduced risk. As per other thread decisions are very personal also, in our personal case we are lucky in the risk analysis in that we will have one DB pension of around 30k a year for life also (without oap) and one full oap also to factor in.

 

[Setforlife]

The taxman will get their share in the end regardless- my understanding is that when you die your remaining pension pot will be subject to the applicable rate of income tax etc. So presumably 40% income tax and 8% USC on most of it. And afterwards comes CAT i believe.

If you take the minimum (or just below the 40% cutoff, whichever is higher) each year the effective tax rate will be lower on your drawdowns. If you then put that in an ETF the gains are currently taxable at 41%, which is obviously significantly less than the tax applicable to your last euro of income.

But really, the best way to minimise your tax liability is to minimise your wealth and income. I don't think this is a great strategy, which is why i don't agree with prioritising tax avoidance- tax efficiency should be a consideration, but not the biggest one.

While it's nice to leave your heirs with a decent pot, i also wouldn't prioritise this unduly- everyone needs to stand on their own feet eventually after all.

And as you get older it'll probably get harder and harder to spend your pension. So there's also a strong argument for blowing a significant chunk in the 10 years or so after you retire. You can't take it with you after all.

Just circling back around to this point on tax, this is not by understanding at all. Both options prsa and arf are not subject to any income or usc taxes if left to estate. Entirely tax free to spouse, cat after inheritance tax limits to children. Is this incorrect?

If the taxman got his share regardless it would be a different approach altogether. The multiple prsa approach is possibly more beneficial here also, as you are leaving more money in unvested prsa which can transfer easily rather than having the large lump sums outside of a pension wrapper.