What do people typically do with their 25% DC Tax free amount

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fayf

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I was wondering, what fo people generally do with their, very often substantial tax free amounts when they t/f from DC to an ARF/AMRF.

The obvious are some big ticket items, like house move, home improvements, big holidays, new car, or investment in a hobby or partime business.

But what about investing some of that in something low risk, savings certs have a poor return but certainly better than anything the banks are offering.
 
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There's almost certainly no "one size fits all" answer.
Some will spend it.
Some will save it
Some will invest it - for different timeframes and at different risk/reward profiles.
Some will do a mix of the above.

Are you asking what YOU should do with YOURS?
Is so then you probably need to post more details about your own specific overall personal/financial situation and goals/plans/priorities.
 
I would have thought:
- Clear mortgage / other debts
- Invest
- Help kids
- Do some “nice things”, e.g. trip of a lifetime, change car, renovate house
- Buy a holiday home
 
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time to plan said:
Pay off mortgage?
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The Central Bank in their recent "arrears shortfall" work tended to miss this point a bit.

All public servants get a cash lump sum on retirement. CSO data show that 20% of owner-occupiers have a voluntary pension, with a median value of €55k (usually more by retirement age).

There are many people who will be well able to clear a €50k outstanding mortgage at retirement from either a DB lump sum or tax-free drawdown from a DC scheme.
 
It's a difficult question to answer as different people have such widely different circumstances. But in my experience this is a popular setup -

  • Mortgage has been cleared and kids are self-sufficient by the time the person retires. (There may be a generation coming along for whom this won't be the case, but that's another story.)
  • ARF drawdowns and the State Pension are sufficient to meet the day-to-day living expenses, pay the bills etc.
  • Lump sum is added to savings and kept for exceptional once-off expenses, e.g. changing the car, big holidays, house repairs etc.
  • Same general principles apply to the lump sum as to any other form of savings, pre or post retirement. A certain amount would be kept in low-risk, accessible savings - bank or State Savings. Any excess that will probably not be touched for years can be invested, if the person's risk appetite is up for it. (I find that people's risk profile can get more cautious when there's no more salary coming in.)
 
Ndiddy said:
paying off mortgage at age 50 and then using the rest as living expenses to delay tapping into ARF is my plan.....
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Thats one plan, which i also was thinking about, but issue with the delay strategy, is two fold:

there is up to 18 years, (50 to 68)until, the State Contributory Pension kicks in, and you won’t qualify for the full amount, if you are not paying PRSI for that length of time. You would however, get most of it, it would depending on circumstances, likely put you in the 30-39 yearly average PRSI contributions, so would likely give you 223.20 per week v 248.30 per week.

You are not utilising your annual tax credits, which would allow you to withdraw roughly 16,500 pa, without incurring any PAYE.

Having said all that, the upside is, the ARF will grow significantly as well.
 
You’d probably withdraw €16k from the ARF anyway then.

And maybe look to invest some of the lump sum in joint names or a spouse’s name to optimise the use of their credits and the €2,540 CGT exemption as well.
 
bitethebullet said:
Doesn't the State pension kicks in at 66?
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Its dependant on your current age, those born after 1959, will be 68 under current rules before they are entitled to the contributory state pension, allthough, this plan was paused last year, after it became a big topic in the last general election, its currently pending a review.

“The current qualifying age for all State pensions is 66. An increase to 67 in 2021 and to 68 in 2028 was planned. In Budget 2021, it was announced that the qualifying age for a State pension will continue to be 66. Legislation will be introduced later in 2020 to reverse the increase in pension age to 67 currently included in social welfare legislation.”
 
But the Pensions Commission is due to report shortly (originally July) on the future of the State Pension. This could well recommend the extension of the pension age, as was previously intended. Will the State Pension be means-tested in the future?
With increasing longevity (the over 65 is the fastest growing sector of the population), the State Pension is becoming a very expensive benefit. But obviously it will be a political decision in the end as to what changes are made. If SF have their way, we can expect it to remain at age 65, be increased significantly and not means-tested (based on the SF money tree economic policy).
 
Conan said:
If SF have their way, we can expect it to remain at age 65, be increased significantly and not means-tested (based on the SF money tree economic policy).
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Is this really SF's position? Any link or reference point?
 
Yes, it certainly is their position, plenty of press releases and statements by them confirming this.

“Money Tree”, is an excellent interpretation - Conan !! Like almost everything that SF proposes - almost always, unsustainable economically - but often popular.
 
Conan said:
Will the State Pension be means-tested in the future?
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The non contributory pension is already means tested. Means testing all payments, like they do with other social welfare payments would have some huge unintended consequences, just look at Australia and how lots of people buy houses just before retirement, while also being hugely unfair and likely incentivise more people to stop saving for retirement.
 
ArthurMcB said:
Is this really SF's position? Any link or reference point?
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Here you go! From the horse's mouth, so to speak!


49K views · 2.7K reactions | Hello everyone. Workers must have the right to retire (if they wish) with a pension at the age of 65 yrs . We are bringing a motion on this to the Dail... | By Mary Lou McDonald - Sinn FéinFacebook

Hello everyone. Workers must have the right to retire (if they wish) with a pension at the age of 65 yrs . We are bringing a motion on this to the Dail...
www.facebook.com
 
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