Retiring early – How did you do it ?

The Pensions authority

Tax
Tax on lump sums at retirement
The first €200,000 of pension lump sums payable is currently (2016) tax free. This is a total lifetime limit even if lump sums are taken at different times and from different pension arrangements. Lump sums between €200,001 and €500,000 are taxed at 20%, with any balance over this amount taxed at your marginal rate and subject to the Universal Social Charge.
The amount of cash you can take out of a pension arrangement is limited, with different rules applying depending on the type of arrangement you have.

For RACs, PRSAs and people transferring to AMRF/ARFs at retirement, the cash limit is 25% of the retirement fund.

The amount of cash you can get from an occupational pension scheme at normal retirement age is broadly 1.5 times your Final Remuneration, if you have completed 20 years’ service and have no benefits from a previous scheme
 
ATC110 said:
I find this enabled helplessness and cosseting of adult children slightly bizarre; let them pay for it themselves with a combination of part-time income and a loan ergo early retirement might be more realisable.
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We have the money, their mother did that but has decided that she didn't want her children to have to ...........
 
Leper said:
Freelance - If ever you and I are in the south of Spain at the same time . . . . you're welcome on our terrace at around 1.15pm any day and I'll supply the wine. I bet the conversation would be entertaining.
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Be carful with invites like that, I’m always looking for new experiences and I’ve accepted far less attractive that that !!

I love the Belfast surgeon’s attitude by the way.
 
A quick word of thanks to everyone for taking the time to both view and contribute to this thread so far.
In particular to Freelance just earlier; that’s a really, really great read with lots of good advice and insights.
Plenty of food for thought from multiple contributors and great to hear the experiences of those that have actually done it.

DT
 
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mtk said:
Congrats @Freelance on your enviable financial position
And well done for planning so well!

1)In relation to the the taking of the drawdown ( from fund growing Gross of tax ) up to 33k wondering what you used to decide better to do this rather than using the cash pile ( growing minus tax)
Asking as will be in similar position on this point
2) re taking the 300k @ 20% was there any (internal ) argument with yourself whether to take or not ( I probably won't be impacted as not much over 800k but here is hoping !)
3) did you disregard state pension or assume you will get full ?
Thanks
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Thanks @mtk. These are good questions and I’ll do my best to answer

When I started the planning process 10 years ago I developed a model (using excel, 1 sheet, 6 columns, 30 rows - but it grew like Topsy over the next 8 years - you‘ll all know how that goes). I worked on this from time to time and then put it away. Every now and the I’d take it out and seek the views of others (informed friends, relations, pensions/financial guys, accountants and solicitors, and a tax guy, as well as others) on aspects of it, and re-model to take account of any sensible feedback. Most of these were informal chats, and there were many conflicting views. But I had the time to digest the lot and distill until I had something that worked for me. One of the most beneficial inputs was the tax guy, and he did some great work (chargable). So as well as planning the asset distribution, the income drawdown model, the cash flow plan, etc we looked at holistic tax model (i.e. it took account of working life income tax, CGT issues (and there were a few of them), lump sum taxes and also the income and other tax issues post retirement. The key tax drivers were to avail of all possible tax free options, and to maximize my use of any 20% opportunities all along the line. In simple terms, a good chunk of that 300k you refer to was pre-retirement income that would have been taxed at 40% (or more) and that I was in a position to do without for a few years. This went into my pension pot gross, was invested, and then came out at 20%. The benefit to me was 60k plus the investment growth. And also having it put away meant that I wasn’t frittering it away on dickens knows what which is what would have happened had it landed in my current account. So it was fundamentally a tax based decision, but it also ticked a number of boxes re cash flow, investment opportunities, and lump sum accumulation. I’ll be very frank here and say that my circumstances were “non-standard”and I had opportunities available to me that others might not have. But there is a general lesson - by working on the model early and having it available to discuss and review with others allowed it to mature and allowed me to challenge myself and revisit various assumptions and get familiar and most importantly comfortable with the outcomes.

So to answer your specific questions against that background:
1 - Tax - I wanted to fully utilize my 20% annual allowance. It’s is likely that any income I don’t take now will be at 40% in the future.
2 - Not really, though one of the pension guys could not get his head around it and kept trying to talk me out of it. In my mind I didn’t ever regard it as a fundamental part of my pension plan. Rather it was a tax efficient savings scheme, and I had an investment opportunity lined up for it the day it landed.
3 - It was factored in from the start and I expect to receive it (in full) when I reach 67. That was another reason for taking the annual 33k now as the state pension is taxable and that plus any pensions I am drawing down will definitely go over the 20% threshold.

I hope that this all makes sense and answers your questions.
 
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Sarenco said:
Taking a lump sum of €500k would suggest that you retired a pension pot of at least €2m. If that's correct, would imputed distributions not effectively force you to draw down more than €33k pa?
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Hi Sarenco. Not sure if I mentioned it previously but I had/have multiple pension arrangements, and some pretty unusual pre retirement circumstances. My pension pot was somewhat less than €2m however as you will probably know there are different ways to calculate pension lump sum/s. I got a lot of advice on this as it got complicated and actually required two Revenue rulings before it was finalised. The imputed distribution issue was flagged but it didn’t actually arise.
 
Thanks for the follow up @Freelance.

That all makes sense, although I’m still puzzled why the imputed distributions haven’t kicked in.
 
Freelance said:
1 - Tax - I wanted to fully utilize my 20% annual allowance. It’s is likely that any income I don’t take now will be at 40% in the future.
2 - Not really, though one of the pension guys could not get his head around it and kept trying to talk me out of it. In my mind I didn’t ever regard it as a fundamental part of my pension plan. Rather it was a tax efficient savings scheme, and I had an investment opportunity lined up for it the day it landed.
3 - It was factored in from the start and I expect to receive it (in full) when I reach 67. That was another reason for taking the annual 33k now as the state pension is taxable and that plus any pensions I am drawing down will definitely go over the 20% threshold.

I hope that this all makes sense and answers your questions.
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thanks @Freelance
All this makes sense to me particularly 1 and 3 where I have thought about it a good bit ….. and point towards a large tax incentive to stop working (earning) before state retirement age if you have resources to do so rather than wait and be hit with higher rate income tax charges on later drawdown ......
 
I retired at 50. I am now 67.

I married early at 23. Owned my first house at 23 with mortgage. Sold that and bought larger house in better location at age 29 with mortgage. I had 3 children by age 30.

Moved house again at age 42. Bought larger detached house with mortgage in sought after area that increased rapidly in value. Teenagers and older at this stage all had own bedrooms.

Over the years I have always cleared my mortgages early by paying in additional funds from salary and bonuses etc. Always shopped around for "deals" in everything I did. Hated paying interest, fees, parking charges, etc

Both myself and my wife live simple enough lives. No big cars, bling, clothes labels, no cigarettes, light drinkers. no golf clubs, expensive hairdressers, nail bars etc. Make do and mend. Look after my own garden, clean my own windows, cars. But still enjoyed ourselves. Children all happy.

Our weakness was travel where we had lots of holidays. All D.I.Y.

We were lucky that there was free education when our children were growing up so University was effectively free with no fees, grants etc. All our children got jobs and were able to look after themselves.

Hated work. Jumped when given the chance on redundancy with deferred pension. My wife continued to work part time. So lots of time together.

Mortgage cleared within 3 years of finally leaving work. House very valuable. Always knew that I could downsize if needed and release large funds.

Inherited funds when parents died over 6 years ago. Still have this money, never really needed it but gives us great sense of security.

Now receiving deferred pension of €20k plus two by State pensions. Total income about €42k, plenty to live on. Plenty.

Looking back, moving house was a good decision. Paying down debt and not wasting money needlessly was a good decision. We were definitely lucky along the way.

Since retiring we have continued in this vain but we have increased the number of holidays, meals out (not fancy).

I suppose we live a simple life and always have done. Grateful for all we have. Some regrets, made lots of mistakes and wrong decisions along the way but recovered well.

Our future is more of the same and being able to help our grown up children financially, when they need it now gives great satisfaction.
 
Odea said:
Hated paying interest, fees, parking charges, etc
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Ditto!

Odea said:
Some regrets, made lots of mistakes and wrong decisions along the way but recovered well.
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May I ask you in relation to any financial mistakes what they might be in order to avoid them
in relation to period 50 to 60 or 65? did you just use savings to support yoursefl?
 
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Odea said:
I retired at 50. I am now 67.

I married early at 23. Owned my first house at 23 with mortgage. Sold that and bought larger house in better location at age 29 with mortgage. I had 3 children by age 30.

Moved house again at age 42. Bought larger detached house with mortgage in sought after area that increased rapidly in value. Teenagers and older at this stage all had own bedrooms.

Over the years I have always cleared my mortgages early by paying in additional funds from salary and bonuses etc. Always shopped around for "deals" in everything I did. Hated paying interest, fees, parking charges, etc

Both myself and my wife live simple enough lives. No big cars, bling, clothes labels, no cigarettes, light drinkers. no golf clubs, expensive hairdressers, nail bars etc. Make do and mend. Look after my own garden, clean my own windows, cars. But still enjoyed ourselves. Children all happy.

Our weakness was travel where we had lots of holidays. All D.I.Y.

We were lucky that there was free education when our children were growing up so University was effectively free with no fees, grants etc. All our children got jobs and were able to look after themselves.

Hated work. Jumped when given the chance on redundancy with deferred pension. My wife continued to work part time. So lots of time together.

Mortgage cleared within 3 years of finally leaving work. House very valuable. Always knew that I could downsize if needed and release large funds.

Inherited funds when parents died over 6 years ago. Still have this money, never really needed it but gives us great sense of security.

Now receiving deferred pension of €20k plus two by State pensions. Total income about €42k, plenty to live on. Plenty.

Looking back, moving house was a good decision. Paying down debt and not wasting money needlessly was a good decision. We were definitely lucky along the way.

Since retiring we have continued in this vain but we have increased the number of holidays, meals out (not fancy).

I suppose we live a simple life and always have done. Grateful for all we have. Some regrets, made lots of mistakes and wrong decisions along the way but recovered well.

Our future is more of the same and being able to help our grown up children financially, when they need it now gives great satisfaction.
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Sounds wonderful and you certainly deserve credit for the financial security you have.

However, there are several pieces of that idyllic jigsaw that are unlikely to be available to many people.

I'll start with my bugbear, inherited funds. Most people don't get anything, or very little. No worries, my parents and my wife's parents gave us plenty, security, stability and the loving memories that we cherish every day. Inherited wealth should be taxed at a much higher level than it is at
the moment. It is a grossly unfair method of sharing resources in the productive economy.
Nobody likes to talk about it, but it determines a huge number of outcomes: from participation in public life, to access to education, to the ability to save or purchase property. I'm not getting at you, personally, but the principle of inherited wealth is hugely destructive to a meritocracy and leads to people becoming even wealthier regardless of how little they work. This, in turn, leads to a rentier class who exploit the productive class through higher rents and charges for basic services. The result of this is clear in the Dublin property market, where productive people now hand over 50% of their wage to unproductive, often absentee, landlords.

Secondly, the property market accumulated a significant amount of capital for you. No doubt your property increased in price over the years due to the development of your little bit of Ireland. All of this was paid for by general taxation. Transport, railways, buses, roads, pavements, street lighting, schools, places of work, universities, health centres, hospitals, all the structures of a modern society. Property should be taxed, much more vigorously. Captial Gains tax should be levied on the prinicipal residence. No-one deserve or earns the increase in their property price, barring the small appreciation from general home improvements. The majority of capital appreciation came because of social development, paid for by general taxation. As such, the beneficiaries should give a bit back.

Pensions, well the kind of secure, earnings related annuity which you seem to have is a thing of the past, even in the pubic sector. Certainly the idea of availing of such a luxury at age 50 is never going to be a realistic option for anyone in the current workforce.

Likewise the college education. You do admit you dodged a bullet there, but, as these pages show, that bullet is hitting todays 50 year olds, straight between the eyes.

I hope you don't mind me venting my spleen a little and I mean no offence of any kind. I'm just pointing our that things have changed, quite dramatically, and not for the better. Whilst previous generations saw their wealth, public services, access to opportunity increasing as they grew older, the generations coming behind seem to be heading in the opposite direction. I think, eventually, your generation is going to have to pay a bit more, to equal things out.
 
Leper said:
odea retired at 50 and 17 years later he is just sharing how he was lucky, made much of his own luck. He and his wife have been thrifty. They did nothing dishonest and fair play succeeded in what they set out to do.
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So give me a plan, for a 20 year old to retire, on a pension equivalent to the average national wage, at 50. Bear in mind that Dublin property prices are, currently, at a ratio of 10 times the average salary, mortgages are now stretching to 40 years, defined pensions are gone, gone, gone, gone and the state pension is not available until age 68, possibly later.
 
Allpartied, Most of us can't think 30 days ahead, never mind 30 years. You're only 20. Enjoy life and don't think about retiring for another 30 years.
 
Average stock market returns is 7%.
Rough sums ..
400 euro per month invested/compounded over 40 years gives you ~ 1 million / 40k per annum.

Start paying into your pension.
People say they can't afford to pay in . The reality is that they can't afford not to pay in.

Old age is coming, it shouldn't be a surprise to anyone.
 
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