Pension Opinion

Truth2016

Hi,
I would like people's opinion. I am self employed and looking to start a pension.
I would hope my other half will be with me when I retire.

So this is how I see it, at the moment the state pension is about 230. I have about 30 years before retiring, by that time, I imagine the state pension will be closer to 300 per week, but being conservative and the huge increase in pensioners , I'll say hypothetically it only rises to 250 per week.

If we both are alive that provides a household income of 500 per week. By then our mortgage will be paid too.

How much realistically does one or a couple need for a comfortable standard of living ? I would imagine that if my private pension paid an addition 100-150 per week to me and/or my partner, that would bring our combined weekly income to 700 euro minimum.

Yet every time I use the online pension calculators it seems to want huge investments of money on a monthly basis, with one recommending close to 350 per month, that seems like a lot,

Also if I am paying in say 200 euro per month, surely the final sum over the 30 years would rise as that money is invested etc, it isn't like it sits in a bank account (of course I know the value of the fund could rise and fall). The pension fund calculators are really confusing and don't take in any projected increase in the state pension or the fund growing in value.

What are people's opinions ? How best do I work out how much to invest into the fund on a monthly basis ? Would appreciate feedback/advice ?

iainBB

Mind the gap and other calculators do say you need to put a lot a way for a very long time. Do get the magic 60% income on retirement.

It all depends on life style l expense at retirement. It tough trying to plan for it.

Merowig

The calculator of the pensions authority takes fund increases into consideration.
And you should receive twice a year as well a projection from your private pension funds....

BazzaDP

Truth2016 wrote: »

Hi,
So this is how I see it, at the moment the state pension is about 230. I have about 30 years before retiring, by that time, I imagine the state pension will be closer to 300 per week, but being conservative and the huge increase in pensioners , I'll say hypothetically it only rises to 250 per week.

Do remember that that increase is usually to offset the cost of things getting more expensive due to inflation. So that €300 will actually feel like €230 in today's money. In the same way that €230 now will buy you an awful lot less now than it would have 30 years ago today! So for that reason best to ignore any increase. A lot of pension calculators/pension statements will allow you to see funds in terms of "today's money" or "future money" (where you'll have no idea what that's really "worth").

The bigger risk is a decrease in state pension due to the fact people are living longer and so the state will not be able to fund the same pension for more people, from the same tax base. This means either taxing the rest of the population more, or paying out less to each person in a pension. Realistically the second option is the only viable one as there's a limit to how much you can raise by raising taxes.

Honestly I would plan for having no state pension at all if you can - just in case - and then plan what you need to save to achieve that. It's the extreme case and hopefully won't come to pass but there's an old saying: Hope for the best but prepare for the worst.

And most people decide on their salary based on current income. Presuming that you can survive comfortably on that (which is a presumption as many people can't!), then consider how much you'd need based on that to maintain lifestyle, given that some costs (mortgage, children's education... etc) hopefully will all be paid off. 50%? More? Less?

Also how you achieve that in a pension depends on a number of factors including: 1) when you start putting into your pension (earlier the better and never too early to start), 2) when you plan to retire (67? 60? Earlier?), 3) how you invest you pension fund (hint: you should invest in stock market funds and not stick to cash - at least until you approached retirement), 4) how you'd salary grows between now and retirement (massive increase near end will likely have little impact on pension).

newacc2015

Generally Americans say you should put 15% of your wage into a pension the day you start working. Due to the compounding nature of investing, putting in €100 pw in your pension is significantly better at 22 versus 32.

Depending on your age, you need to put in roughly 15% of your income into a pension. If you are older you need to put more money in it. What age are you currently? Are you a high tax rate earner?

Another important factor is what your pension invests in. If you are younger, it make far more sense for your pension to be almost completely stocks (90% stocks and 10% short term bonds which have low interest rate risk versus long term bonds). Pension companies tend to be more 'safe' in Ireland and invest more in bonds than they probably should. Bonds are safe, but so is a highly diversified portfolio of stocks. The extra risk of investing in the S&P 500 is far better than having a pension heavily invested in bonds. Pensions with a huge amount of bonds are going to perform very poorly when interest rates start increasing in a few years

Warren Buffet believes an American pension should be 90% S&P 500 ETFs and 10% short term Bonds. It will be different for Ireland, due to the currency risk. I personally would be looking for a pension that has is heavily geared towards cash as stocks will have to go down within the next few years. Statically the US should be heading for a recession pretty soon

Atlantic Dawn

I wouldn't make any assumptions on what state pension will be available when you retire, the pension age has shifted and the current system is unsustainable given the population is living longer and with the current housing problem there will be not enough kids produced to sustain the older population.

The main benefit of a pension is the tax relief on your contributions, it's based on your age...

Age Amount which qualifies for tax relief
Under 30 years 15% of net relevant earnings
30 to 39 years 20%
40 to 49 years 25%
50 to 54 years: 30%
55 to 59 years 35%
60 and over 40%