Key Post Some wealthy people are worrying unnecessarily about their finances.

AAAContributor said:
My understanding is that the 4% rule is based on a portfolio invested in stocks and bonds.

It was trying to solve for:

- What % of the starting portfolio balance,
- can an investor spend (increasing by inflation),
- for at least 30 years,
- with a very high probability of success (100% I think, or maybe slightly lower),
- from a stock/bond portfolio (I think it was 60/40),
- based on historic US data of returns from stocks and intermediate term bonds,
- given the worst period of returns.

4% was the result.
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Thanks for that explanation - really good to know what question it was answering.

It doesn't seem to me like a good rule of thumb to apply for deciding what you SHOULD do. I would want to adapt it significantly to manage the very high risk that my retirement would be impacted adversely by spending less than I could, or that alternatively I would retire unnecessarily late due to working longer to achieve a pot that I could draw down to my desired income to meet this 4% rule. Risks have to be balanced.
 
time to plan said:
I would want to adapt it significantly to manage the very high risk that my retirement would be impacted adversely by spending less than I could, or that alternatively I would retire unnecessarily late due to working longer to achieve a pot that I could draw down to my desired income to meet this 4% rule. Risks have to be balanced.
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I would agree. It's really just a starting point to provide a frame of reference. There were periods when much higher withdrawal rates succeeded, though forecasting that is impossible.

As for flexibility and dealing with the potential for underspending (and living less large than you could), there are alternatives to the rigid 4% rule like guardrail strategies.

Good article here: https://www.morningstar.com/retirement/best-flexible-strategies-retirement-income
 
Life expectancy for people in the 30-50 range must surely he higher, plus the level of exercise people undertake and better more proactive healthcare.
 
elcato said:
So get rid of the car and health insurance and you have 4k for holidays a year. Also good for your blood pressure to walk rather than drive :)
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Yes there is more than one way to skin a cat ;)
I'm lucky in the fact that if I had to live on just the OAP I could very possibly make it work in one shape or form simply because if that's all there is well that's all there is to work with and some tough decisions would have to be made
I live slap bang in the middle of Blackrock, Stillorgan, Cornelscourt and Dun Laoghaire so getting rid of the car to free up some extra cash wouldn't in my eyes be to big a deal as I'd be entitled to the free travel and have plenty of different bus routes close by
But I'm not so sure at 66 if I'd be inclined to give up the health insurance for obvious reasons

As regards the blood pressure, between 2020 and 2022 my doctor spent the guts of two years tiring to get my blood pressure down to a normal range despite me been the fittest I've ever been and the lightest for a long long time and cycling close to 20,000 KM a year with a resting heart rate of sub 40bpm :D
 
Not having outstanding debt at retirement probably trumps everything else.

Thought definitely I am sure anybody who didn't get to buy a home before they hit 50 will have a lot to worry about but otherwise your point is correct - most pensioners can manage on the default state pension, and a modest pension of 10-12k would be comfortable for most people.

Now do "life cover" because that is tremendously wasteful for older people who no longer have incomes to lose or costs associated with need for childcare if they do pass on.
 
Calico said:
As other have mentioned, I think you will struggle to live a fulfilling life on the state pension (c.€1,200 p/m) even if you own your home.

You will only be able to afford the bare essentials.

You can forget owning a car or taking a holiday abroad.

You will never be able to buy anyone anything.

You will be severely limited in what social activities you can participate in.

Just one unexpected €1,000+ expense and you will be wiped out for a year.

You will be constantly anxious about money and bills.

You will be able to survive, but that's about it.
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Not so sure about that - my parents have an additional pension of about 75 euro a week on top of the state pension but if it were not for my father's accumulated debt of 9l from years of refusing to let a failed business wind up properly they'd live very nicely indeed. In fact my mother manages to save around 2k a year just out of the housekeeping he gives her. It all depends on your lifestyle. Like, using your free travel pass instead of driving in Dublin will save you around 10 euro on every trip.
 
This is an excellent thread and for many, some of the posts (especially Brendan's opening salvo) are worth copying for future use. I can't add much to what has already been written but getting back to a quotation of a former supermarket owner (Not exact quote:- The marketplace is completely different from where the customer is standing, the bank manager sees smiling staff and beautiful surroundings; the customer sees the queue). It's the same with retired people when approaching retirement who see health-club membership, foreign and Irish holidays, more quality family time, more spare time etc. The reality is less income, more family demands (especially from other families), descending life expectancy, notable fitness deficiencies each year, inflation, increasing costs etc. And how many have said "I'm a middle aged man of 65" - or similiar aged people saying "Old Age starts ten years from my next birthday."

The only advice I can offer after you hit 65 debt free is to live within your means. Enjoy life as much as you can because when you reach 70 you won't be as fit as you are now (OK! you walk 6 miles daily; but you're still heading into slower territory). If you can't see this, may God help you. Keep your income tax situation in super-up-to-date and avoid any tax surprise letters from Revenue. You might want to get rid of the 2nd car and wake up to the near fact that your next car might be 2nd or 3rd hand. Also, don't get caught up in Electric cars; they are relatively in their infancy at the moment and their future life is unknown.

If you are looking at applying for an After Life Loan, you could be taking on more worry than you think.

An old work colleague of mine had a saying:- "Get on with the job . . ." It's the same when you retire Get on with your retirement.
 
lff12 said:
Not so sure about that - my parents have an additional pension of about 75 euro a week on top of the state pension but if it were not for my father's accumulated debt of 9l from years of refusing to let a failed business wind up properly they'd live very nicely indeed. In fact my mother manages to save around 2k a year just out of the housekeeping he gives her. It all depends on your lifestyle. Like, using your free travel pass instead of driving in Dublin will save you around 10 euro on every trip.
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Her running away money savings is it? :D

Two people will always live cheaper in one house than two people living in houses on their own so I think a couple have a better chance of managing on a state pension especially if they have two full SP coming in.
 
My aim over the coming years is in the following order
1. Pay down my debt (leaving mortgage aside). Should be done this year.
2. Build up emergency fund
3. Make max AVC contributions and save for a well deserved holiday. Basically funnelling what i had been paying towards loan to this purpose.
4. Start saving to overpay mortgage with aim to bring maturity date in ahead of pension age.

Once im in step 4 i will continue to focus on reducing outgoings. I have to pay off mortgage before retirement or have it very low. I'll try to keep performing home improvements over the years where possible as i definitely wont be doing as much when i retire. Technically i could go on holidays etc or spend more but if i do that now I'll be in major trouble in 10/15 years. I need to live within current means and keep an eye on future means. I have some trauma with having to use every penny of my savings and more during divorce so my view is a bit skewed but no way do i want that extreme financial stress. My pension is not where it should be (approx 100k) but a year from now ill be contributing myself on top of a generous employer contribution.
 
DannyBoyD said:
Bit confused at this; is he paying for his keep or is she an employee?
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Clearly the husband "hands up" a certain amount of money for the wife to run the household. This would hsve been extremely common over the years. Pretty sure my own dad would have done this years back. Then my mum sorted bills, groceries etc..
This can work well if the marriage is a partnership but can lead to financial abuse if it is a negative situation.
 
dubdub123 said:
Clearly the husband "hands up" a certain amount of money for the wife to run the household. This would hsve been extremely common over the years. Pretty sure my own dad would have done this years back. Then my mum sorted bills, groceries etc..
This can work well if the marriage is a partnership but can lead to financial abuse if it is a negative situation.
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Yes, it’s quite old school now but was very common years ago.
 
DannyBoyD said:
Bit confused at this; is he paying for his keep or is she an employee?
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Dad pays the household bills like electricity, oil fills etc, and the mother does the weekly shop - he gives her a fixed amount every week for this which is far more than the actual shop, but she buys birthday/Christmas presents/cards etc which he cannot be bothered doing. My mother gave up work in 1972 so they are kind of old fashioned, yes. Not unusual for that age group - their late next door neighbour used to insist on getting itemised receipts back from his poor wife for everything she spent. A lot of older couples don't have joint accounts or don't trust each other.
 
Gordon Gekko said:
Yes, it’s quite old school now but was very common years ago.
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That's exactly the case - he gives her about half of what he gets from his state and private pension. He pays for the household utilities and repairs, and she covers shopping, presents, most clothes, her own medical bills and cards for people. He used to pay her health insurance but she covers that herself now because he's still steeped in debt and cannot make ends meet out of his half.
 
This is a topic very much on my mind recently and maybe I am worrying more than I should be as well.

Maybe a silly questiin, but is there a guide on how to figure out what your private pension income will be.

For simplicity, say I have a pension value of 100k.
I retire at 60.
I take 25% tax free, leaving 75k in the pot.
How is the annual pension amount thereafter determined?
Nobody knows how long I will live, so how do they decide what the annual amount will be?
Is there a rough guideline that the pension companies use?
 
AndroidMan said:
This is a topic very much on my mind recently and maybe I am worrying more than I should be as well.

Maybe a silly questiin, but is there a guide on how to figure out what your private pension income will be.

For simplicity, say I have a pension value of 100k.
I retire at 60.
I take 25% tax free, leaving 75k in the pot.
How is the annual pension amount thereafter determined?
Nobody knows how long I will live, so how do they decide what the annual amount will be?
Is there a rough guideline that the pension companies use?
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As far as I know, you draw it down as you see fit. You can draw down in lots of any amounts, or fewer large amounts. When it's gone, it's gone.
 
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