Thought Experiment: 55, retired and managing assets.

T

theObserver

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(Not sure if this is the correct forum or if people want to play, but we'll see)

Point of view: It’s June 2024 and you wake up with a sore head from your retirement party. You are 55, single, no kids, no debts, no plans and can reasonably expect to live for another 25-30 years. This is the first day of the rest of your life.

Your assets :-

Cash: 8k in current account
25k in savings account paying 2% interest

Bond: 50k in a national bond maturing in two years in 2026

Pension: 350k in a company occupational pension

Investments: 250k held in global index ETFs in broker apps (Trading212 etc)

Misc: 25k in vested shares from your ex-exployer sitting in a broker account.

Assets: One bed apartment in Dublin suburb worth 250k
Three bed bungalow worth 350k inherited from parents located in a small village.

Assume a target budget of 25k per year and the primarily residence is the bungalow. The pension fund is untouched and not drawn down.

How do you manage your assets?
 
Assets of €1.058M excluding ppr, which would take 42 years to spend at €25K pa, so it does not really matter what he does, he has plenty of assets.

A couple of questions-
Is the projected spend of €25K pa including the state pension?
How much was his lifestyle costing him before retirement?
Why move to the parents old house, he is a lot better off in terms of services in staying in the city.
Did his parents have health issues that he might inherit given they are both dead by the time he is 55?
He is an only child, and is unmarried - does he have a wider selection of friends and family to build connections with. That should be a priority for his health and happiness.

I would recommend he get a part time job, unless he has time consuming habits, (and at €25K pa is probably not going to spend a lot of time travelling).
Focus on his health, nutrition and exercise.
Invest time in friendships and community engagement, to build a network for himself in the absence of family.
 
theObserver said:
You are 55, single, no kids, no debts, no plans and can reasonably expect to live for another 25-30 years. This is the first day of the rest of your life.
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Financially I think you have it fairly well covered if projected yearly spend is €25K
Couple of things,
No mention of the state pension, make sure you make voluntary payments to get the full pension
Start to prepare yourself for the mental change of accumulating wealth to maintaining and decumulation of your wealth

But what I really think you should work on is the "no plans" part, 25 to 30 years is a long time to have no plan, goals or a bucket list to tick off
Life for me would become very boring and stale without these so give it as much thought as you give to managing your assets
 
Will the Dublin apartment be rented out?

Say it generated a net income of €12,500 per annum - that would be sufficient to maintain your PRSI record while remaining below the the income tax/USC threshold.

I would be inclined to spend down your after-tax investments first, leaving your pension alone for as long as possible.

More broadly, I think you probably just about have sufficient assets to confidently maintain a €25k lifestyle for the rest of your life.

Is €25k pa sufficient to live a full life?

It strikes me that it wouldn’t leave much room for life’s luxuries, travel, entertainment, etc.
 
25k a year after tax for someone with no rent/mortgage, debt or dependents is more than enough to live a full life, including travel and some of life's luxuries (in my opinion)
 
In terms of the mechanics of how to manage the assets, I'd be aiming for a 3 bucket strategy to manage risk with an increase in the OP's Cash position but broadly maintaining my other positions in Bonds and Equities (albeit via a global index and not ex-Employers vested shares).

Bucket 1 - Cash or government savings account. Target would be 3 years expenses so €75k.
Existing €8k cash and €25k savings so another €42k needed from other assets.

I'd sell the €250k Dublin apartment if:
a) it wasn't rented out or
b) it wasn't making reliably decent net yield with little hassle.

Sale of Dublin apartment will provide the €42k cash required with the €208k balance going into Buckets 2 & 3 below.

If the apartment yield / hassle did justify retaining it then I'd factor those returns into the Cash bucket. e.g. €12,500 p.a. from above example. I'd then cash in some of the ex-Employers vested shares to make up the cash balance required.

Bucket 2 - 50:50 Equity : Bond portfolio. Target would be 4 years expenses so €100k. (OP already has this)

To fund this I'd use the balance of:
c) the Apartment sale and/or
d) the sale of remaining ex-Employers vested shares (if apartment retained) plus
e) global index ETF's
f) the €50k national bond

Bucket 3 - 100% Equity. €350k pension fund plus balance of assets (OP already has this)

In summary, sell the apartment unless its generating decent returns that couldn't be achieved in a lower risk way. Increase your cash buffer. Also consider Job Seekers Benefit and maintain credits / contributions for Over 65 and Contributory Pension in due course.
 
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Rasputin said:
25k a year after tax for someone with no rent/mortgage, debt or dependents is more than enough to live a full life, including travel and some of life's luxuries (in my opinion)
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Without booze it may be possible but it's still tight on holidays or travel, not to mention the smokes and the burds. Also, he has 2 assets to maintain. Has he allowed for this in the 25k ?
 
Well, that's over 2k a month in disposable income. You could be earning 80k+, paying tax, maxing pension contributions and still only be coming out with not much over 3k a month. Once you pay your mortgage or rent, your well under that 2k, to look after all the childrens expenses as well as your own, and any travel you do is mutliplied by x number of children. I think the OP will be ok.
 
Why 25k? Why not 26.5k or 24.5k?

You should cost out generously the lifestyle you want to live and work back from there rather than leading with a number. When working full time 9-5 M-F generally those are hours you can't spend money. Now in retirement maybe you'll find yourself at the garden centre on a Wednesday morning, grabbing a coffee on Thursday, picking up a hobby.

Either way you seem to be in a good financial position to spend a bit more.
 
Rasputin said:
You could be earning 80k+, paying tax, maxing pension contributions and still only be coming out with not much over 3k a month.
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If the OP was earning €80k pa and contributing €24k of that to his pension, he would be left with a disposable income (after-tax) of nearly €40k.

Big difference between disposable incomes of €25k and €40k.

Sure, it’s completely possible to live on €25k pa - plenty of folks live on less.

Would I choose to do so? Nope, I would keep working and saving.
 
He has no mortgage or rent or dependents, which would bring your 40k well under his 25k.
I'd happily live on a meagre 25k instead of working my socks off and saving for the 'future'
Each to their own.
 
Redzer said:
In terms of the mechanics of how to manage the assets, I'd be aiming for a 3 bucket strategy to manage risk with an increase in the OP's Cash position but broadly maintaining my other positions in Bonds and Equities (albeit via a global index and not ex-Employers vested shares).

Bucket 1 - Cash or government savings account. Target would be 3 years expenses so €75k.
Existing €8k cash and €25k savings so another €42k needed from other assets.

I'd sell the €250k Dublin apartment if:
a) it wasn't rented out or
b) it wasn't making reliably decent net yield with little hassle.

Sale of Dublin apartment will provide the €42k cash required with the €208k balance going into Buckets 2 & 3 below.

If the apartment yield / hassle did justify retaining it then I'd factor those returns into the Cash bucket. e.g. €12,500 p.a. from above example. I'd then cash in some of the ex-Employers vested shares to make up the cash balance required.

Bucket 2 - 50:50 Equity : Bond portfolio. Target would be 4 years expenses so €100k. (OP already has this)

To fund this I'd use the balance of:
c) the Apartment sale and/or
d) the sale of remaining ex-Employers vested shares (if apartment retained) plus
e) global index ETF's
f) the €50k national bond

Bucket 3 - 100% Equity. €350k pension fund plus balance of assets (OP already has this)

In summary, sell the apartment unless its generating decent returns that couldn't be achieved in a lower risk way. Increase your cash buffer. Also consider Job Seekers Benefit and maintain credits / contributions for Over 65 and Contributory Pension in due course.
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Would you really go 100% in equity with a pension fund in that situation with less than 10 years to draw down? Seems a bit too risky.

For Bucket 1 would a money market be suitable for 1 year of expenses? 1 year of expenses in MM, 1 year of expenses in savings account and 1 year to live off. Then sell off bucket 2 to fund bucket 1 each year?
 
Rasputin said:
Well, that's over 2k a month in disposable income. You could be earning 80k+, paying tax, maxing pension contributions and still only be coming out with not much over 3k a month. Once you pay your mortgage or rent, your well under that 2k, to look after all the childrens expenses as well as your own, and any travel you do is mutliplied by x number of children. I think the OP will be ok.
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That’s not what disposable income means though…

I think €25k is light.
 
€25k is doable but tight/light, especially 55/70 when more active, travel etc. I’d suggest €35k/€40k for those years. Which may be feasible if full SPC is available from 66, allowing higher drawdown/expenditure in the early years.
 
theObserver said:
Would you really go 100% in equity with a pension fund in that situation with less than 10 years to draw down? Seems a bit too risky.
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They will be invested post drawdown for up to potentially another 20 years so timeframe is realistically 30 years.

The only reason I can see to move assets into lower risk in the lead to retirement is to protect the 25% tax-free lump sum. Also I appreciate the appetite to risk generally diminishes as you get older.
 
theObserver said:
Would you really go 100% in equity with a pension fund in that situation with less than 10 years to draw down? Seems a bit too risky.

For Bucket 1 would a money market be suitable for 1 year of expenses? 1 year of expenses in MM, 1 year of expenses in savings account and 1 year to live off. Then sell off bucket 2 to fund bucket 1 each year?
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I personally would go 100% in equity for Bucket 3 because its invested for a minimum of several years and possibly 20-30+ years. It would naturally be subject to volatility in that period but would probably still increase in value over the long term. This should hopefully cover the inflation element during that period so that's actually a risk mitigation measure if I ignore the volatility plus generate some real gains to allow increased spending in the future if desired. Its important that I trust the process and view the equity strategy as a long term position rather than getting spooked every time there's a market wobble or even a crash. The whole point of Bucket 3 is that its for a long term that can ride out such events. There's no point calling it a strategy if I'm going to change my position every year. Having it in a global index fund also reduces risk through diversification of equities and markets.

Bucket 1 could be any combination of MM, Savings AC, etc. as long as it was completely accessible and secure/protected.

Rebalancing Buckets is where it gets interesting. I personally would look to review my position every Quarter and decide how to proceed based on my Bucket 3 market performance. If the market had risen from my initial Bucket 3 value or was flat, I would rebalance all buckets (sell off enough of Bucket 2 to refill Bucket 1 to the full 3 year expenses (€75k) and sell off enough of Bucket 3 to refill Bucket 2 to the full 4 year expenses (€100k)). If the market had declined from my initial Bucket 3 value then I would do nothing and let Bucket 1 also decline. I would hold this strategy if the market continued to decline until Bucket 1 was empty and then I would top it up to 1 year's expenses (€25k) from Bucket 2. I would hold this strategy if the market continued to decline until Bucket 2 was empty and then I would top Bucket 1 up to 1 year's expenses (€25k) from Bucket 3. There are versions of this strategy that involve rebalancing the buckets every Quarter / Year irrespective of market performance but I believe the main point of the buckets is to allow for market volatility whilst giving Bucket 3 the best chance to steer through such periods over an extended period. Once that decline had ended I would reset my 3 Buckets.

There is a potential safe harbour of Over 65 and Contributory Pension in due course plus the potential option of a part time job if needed / desired. Worst worst case scenario would involve downsizing the 3 bed home.
 
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