This post is a perfect example of why ordinary people are confused and distrustful (absolutely no inference on you Steven by the way, if I was looking for an advisor your clear posts would be one of the reasons I'd choose you)
When should I think about retirement
- Thread starter Marc
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This post is a perfect example of why ordinary people are confused and distrustful (absolutely no inference on you Steven by the way, if I was looking for an advisor your clear posts would be one of the reasons I'd choose you)
Allpartied
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Really? Are you saying that even though the FTSE 100 has hardly moved in 20 years, my 100k would have grown by nearly 200%.
I'm new to this site, so not disputing people's expertise, but that sounds a bit unlikely.
Steven Barrett
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I agree 100%. I got a 1st class honours in my Grad Dip in Financial Planning and spent over €6,000 in getting the qualification that leads to become a Certified Financial Planner. This actual qualification means nothing to those who don't work in the industry. So someone with the absolute basic qualification can go around calling themselves a Financial Planner and Joe Soap wouldn't know the difference.
And thanks
Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
I used the FTSE all share index, as I have total returns going back to the 80's.
By comparison, if you invested 100k in a deposit account in 1999 and managed to fix for 12 months at the Euribor rate each year, including gross interest income (since we're talking about pension), it'd now be worth 152k.
If you managed to average 4.5%, it'd be worth 241k - the power of compounding!
You're right to be skeptical - I have nothing better to do than make stuff up to post to the internet.
Allpartied
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Using Euribor is disingenuous.
The rate has been close to zero for ages. In 2010, you could buy an Irish National Solidarity bond, govt backed, no fees, with guaranteed return of 4% pa.
The figure quoted by FT for dividend returns in a managed fund, tracking the FTSE 100 is 3% pa.
Ok please stop making references to equity indexes with no dividends reinvested and also selective references to index returns that are poor benchmarks like the FTSE 100 or even the ftse all share.
I’ll happily post the average annual return in Irish pounds/ euro for global equities both developed markets, emerging markets and real estate since the 1980s 1990s 2000s etc.
There is an equity risk premium. It’s not a straight line. You need more than one year of data.
To put that into perspective I need about 60 years of data to show with a high degree of statistical confidence that I expect equities to do better than cash.
I’ll happily post the average annual return in Irish pounds/ euro for global equities both developed markets, emerging markets and real estate since the 1980s 1990s 2000s etc.
There is an equity risk premium. It’s not a straight line. You need more than one year of data.
To put that into perspective I need about 60 years of data to show with a high degree of statistical confidence that I expect equities to do better than cash.
Allpartied
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My point is really that people should have a choice. At the moment, if you want to invest in a pension, you have to pay a fund manager to manage your fund, whether it is equity based or not.
A simple pension savings scheme, run by the state, using interest rates which mimic the National Savings Certificates would, in my opinion, be hugely popular. The average citizen builds up a fund, can avail of the attractive tax concessions, and doesn't have to worry about the fluctuations of stock markets, or pay a fee for the pleasure.
If you want to invest in paid managed equity funds, adelante, but some people might choose not to.
Gordon Gekko
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Sounds like a false panacea.
The average citizen in such a scenario would be in the process of being decimated by inflation.
I've never really thought about the total cost of a pension in a long time but when elacsaplau made the comment about the commission he would have to pay in his scenario, it made me think about those charges again
I have a PRSA that I started in 2004 the charges were and still are 5% charge on contributions and a 1% AUM charge, so off I popped to the Pensions authority calculator and put in a few details
A 33 year old person earning €50k and hoping to retire at 68 on a pension of 32500 (66%) would have to start their pension with a first instalment of €13650 and to me that seems reasonable enough
But when I put the figures using the assumptions the calculator uses in to an Excel financial planner spreadsheet I begin to see this in a different light especial the 1% AUM charge
Total PRSA pension contributions for 35 years €749,770
Pension fund value after 35 years €1,345,885
Contribution charge 5% €37,488
AUM 1% charge for 35 years €258,277
So after 35 years your pension fund will buy you an annuity that will start at €19805 which is added to your state pension of €12695 to give you a pension of €32500
I don't buy the idea that pensions are complicated or that planners/advisors are not trustworthy as the main reasons why people don't start a pension but rather the simple fact that people think they are just too expensive
and when you factor all the other living expenses in our cash strapped life's, people begin to believe they can't afford to start a pension.
I have a PRSA that I started in 2004 the charges were and still are 5% charge on contributions and a 1% AUM charge, so off I popped to the Pensions authority calculator and put in a few details
A 33 year old person earning €50k and hoping to retire at 68 on a pension of 32500 (66%) would have to start their pension with a first instalment of €13650 and to me that seems reasonable enough
But when I put the figures using the assumptions the calculator uses in to an Excel financial planner spreadsheet I begin to see this in a different light especial the 1% AUM charge
Total PRSA pension contributions for 35 years €749,770
Pension fund value after 35 years €1,345,885
Contribution charge 5% €37,488
AUM 1% charge for 35 years €258,277
So after 35 years your pension fund will buy you an annuity that will start at €19805 which is added to your state pension of €12695 to give you a pension of €32500
I don't buy the idea that pensions are complicated or that planners/advisors are not trustworthy as the main reasons why people don't start a pension but rather the simple fact that people think they are just too expensive
and when you factor all the other living expenses in our cash strapped life's, people begin to believe they can't afford to start a pension.
As is blatantly obvious I'm in a poker game of which I am the poorest player and even the worst acting bluffer can screw me without even a drunken thought. If anybody thinks I envy those investing circa €1M for their retirement fund, they're right. However, those gambling with much lesser amounts and paying handsomely for the privilege have my sympathy - "lambs to the slaughter" comes to mind. God help them.
Back to the like Mr and Mrs Tat (for a moment). God knows how much they'll be investing and what financial advice they'll seek. They'll get that free too as the unheralded lepers of Ireland continuously and innocently pay for everything they (the Tats) have and without question. Fortunately, Mary in the post-office down the road doesn't play poker and smiles. She sells tea and sausages too and probably gets paid just above the minimum wage. She gets my few bob. So back to reviewing my health insurance, studying my electricity bill and who to change to, shopping around for car insurance, checking out Aldi/Lidl against Dunnes/SuperValu.
This poker game has got too hot for me. I'll fold.
Back to the like Mr and Mrs Tat (for a moment). God knows how much they'll be investing and what financial advice they'll seek. They'll get that free too as the unheralded lepers of Ireland continuously and innocently pay for everything they (the Tats) have and without question. Fortunately, Mary in the post-office down the road doesn't play poker and smiles. She sells tea and sausages too and probably gets paid just above the minimum wage. She gets my few bob. So back to reviewing my health insurance, studying my electricity bill and who to change to, shopping around for car insurance, checking out Aldi/Lidl against Dunnes/SuperValu.
This poker game has got too hot for me. I'll fold.
Hugely popular? A free Mercedes for all at Christmas would be hugely popular but just as daft as your suggestion.
The highest interest rate I can see here is 1.5% :
https://www.statesavings.ie/our-products
What sort of a retirement would you expect to get from that?
How would an ordinary Joe Soap be able to afford that?
elacsaplau
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I fully echo Bronte's comments. Whilst I am very critical of the charging methodology adopted within the advisory industry, I think it is only fair to recognise the clarity, courtesy and respect invariably demonstrated in Steven's posts
Allpartied
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As I said, it's a choice. What if you are 50 and have no pension. But now you have spare cash . You can place 30% of your wages into a pension, then when you are 55, you can put 35%. So you can open a pension and pay your "financial expert" a tidy sum to manage your fund. He's gonna put it in to safe bonds anyway, with low interest rates. To avail of the tax allowances, you have to pay these charges. It's a scam.
Allpartied
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So, you can guarantee that equities will beat those rates, that's grand. I presume all the "financial advisors" would be happy to take their slice from the growth in equity funds rather than the current practice.
I made a suggestion that a simple, secure, guaranteed return pension bond, would be part of the choices available. It's not " giving everyone a Mercedes". There are, obviously, pros and cons, so let's talk about them.
In my original example of the guy with 100k, in 1998, what would such a product have looked like. Back then 30 year US Treasury Bonds were paying 6.5% pa, maybe a similar bond in Ireland would have paid even more. So do the math, and see how much better off our investor would be now with govt bonds, guaranteed and secure rather than the rollercoaster of equities.
I can't and never said I could.
You specifically mentioned National Savings Certificates.
The Mercedes comment was in response to your proposal being 'popular'. If a scheme is not suitable being popular is irrelevant.
6.5% would be amazing. Of course the National Savings Certificates are offering rates up to 1.5%.
Allpartied
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Why would such a scheme be unsuitable? Leaving aside the fact that it is surely up to individuals to make a choice of their own risk level, there are several instances where a safe, pension bond, with a low, but guaranteed, interest rate would be preferable to a complex managed fund.
The most obvious one is the late arriver. 55 year old, no pension. He has 10 years to maximise his fund and can afford 16000 a year for 10 years.
If he can access the tax relief, this amount will be boosted to 25k per year. But to access the tax relief he has to go to a managed fund, run by one of the big pension companies. So he has to pay, allocation fee, AUM and the monthly charge. So let's bang them together and, be generous, say he is going to fork out 1% of his fund every year. That will cost him 13750 Euros over the 10 years, if there is zero growth. Of course, there will be some growth, if they choose the govt bond rate, so his charge will be higher. I estimate about 17200 Euros with a 1.5% per annum growth figure. There might be exit charges too, but we'll leave them be.
Presumably the fund will be an ultra secure, risk free vehicle So why can't he just pick that himself, with a savings bond, giving 1.5% pa return.
If he gets that rate, his investment will be worth a few hundred short of 300k when he retires in 10 years time. No risk, no effort, no charge.
Can the financial advisors please tell me what this man is getting for his 17200 Euros.
That's a valid scenario for your proposal.
For the majority of people investing for retirement for 40+ years (start at ~30, finish at ~70 years old) I maintain that the return is too low even taking into account the lack of risk etc.