Pension: Value per week @ retirement

Squall Leonhart

I currently pay into a PRSA.

The 'projected values' feature of web portal for my pension shows that if I continue to pay the 400 euro a month that I currently pay, by the time I am 60 years old I will have paid in €149,200, which by then will have a projected worth of €248,357 (It uses a rate of 4.78%).


Now I know these are only educated guesswork type calculators, but lets assume it's correct.

I am 60 years old, I have a pension fund of 248K.

How is this paid out?? Is it part lump sum and then weekly payments (if so, how do they determine if I've 500 weeks to live or 1000 weeks?)?

I'm just a bit confused about the whole thing.

It's not for another 30 years yet, but I'd still like an idea

The J Stands for Jay

Squall Leonhart wrote: »

I currently pay into a PRSA.

The 'projected values' feature of web portal for my pension shows that if I continue to pay the 400 euro a month that I currently pay, by the time I am 60 years old I will have paid in €149,200, which by then will have a projected worth of €248,357 (It uses a rate of 4.78%).


Now I know these are only educated guesswork type calculators, but lets assume it's correct.

I am 60 years old, I have a pension fund of 248K.

How is this paid out?? Is it part lump sum and then weekly payments (if so, how do they determine if I've 500 weeks to live or 1000 weeks?)?

I'm just a bit confused about the whole thing.

It's not for another 30 years yet, but I'd still like an idea

You have the option of a lump sun then either investing in a fund you can take withdrawals from or an annuity which pays you an income (usually monthly).

You seem to be thinking of an annuity. As to how long they think you live, they don't divide your fund by the number of months they think you'll live, they look at mortality rates and interest rates. In short they hope you die the next day so they get to keep the rest.

Squall Leonhart

Thanks McGaggs.

When you say they look at mortality rates and interest rates...

Average life expectancy in Ireland as of 2012 was 80.9yrs.

If I retire at 65 (lets say average lifespan is the same) with a fund of 248K, do they say, this man has an expectancy of 16 more years, so..

248/16 = 15500 a year, a payment of 1290 a month

And if I live 19 yrs, my tough luck, they keep the last 6 yrs, 90K of my money, but equally if I live 20yrs, I get 4yrs on them?

(Factor in some rate of interest stuff!)

lcwill

You should have a search for "ft annuity table".

It will bring up the financial times comparison table of annuity rates telling you how much you get in income per 100,000 of pension value.

For someone retiring at 65 you will get from 3000-5000 per year per 100,000 depending on whether you want it to rise with inflation and if you want them to continue paying your spouse after you die.

So, at current annuity rates your pot of around 250k would buy you an income of 7500-12,500 per year, more if you draw the pension later and less if you draw it earlier.

Squall Leonhart

lcwill wrote: »

You should have a search for "ft annuity table".

It will bring up the financial times comparison table of annuity rates telling you how much you get in income per 100,000 of pension value.

For someone retiring at 65 you will get from 3000-5000 per year per 100,000 depending on whether you want it to rise with inflation and if you want them to continue paying your spouse after you die.

So, at current annuity rates your pot of around 250k would buy you an income of 7500-12,500 per year, more if you draw the pension later and less if you draw it earlier.

On top of the state pension of 12K, which may or may not have disappeared or lessened by then.

So by today's terms 19500K - 24500K.

Hmm. Maybe I need to start upping my pension payments...

daheff

But the other thing to factor in is that inflation will (in normal course of events) add to the cost of living.

On the otherside, you (should you own property) will have paid this off and will live rent/mortgage free so require less income.

ted1

McGaggs wrote: »

You have the option of a lump sun then either investing in a fund you can take withdrawals from or an annuity which pays you an income (usually monthly).

You seem to be thinking of an annuity. As to how long they think you live, they don't divide your fund by the number of months they think you'll live, they look at mortality rates and interest rates. In short they hope you die the next day so they get to keep the rest.

I may be wrong , so correct me if I am. If you die the annuity is non transferable so your estate look the value that you would have had , had you kept it

ted1

Squall Leonhart wrote: »

On top of the state pension of 12K, which may or may not have disappeared or lessened by then.

So by today's terms 19500K - 24500K.

Hmm. Maybe I need to start upping my pension payments...

Your mortgage will be paid off, say for example you are paying 1.5k a month, that's 18,000
Add the that to your 22k above is 40k, which is the equivalent cash as having a 65k salary

coylemj

ted1 wrote: »

I may be wrong , so correct me if I am. If you die the annuity is non transferable so your estate look the value that you would have had , had you kept it

I think you meant to type 'your estate loses the value...' which is correct in general terms. The insurance company makes a calculation based on actuarial tables so they have a rough idea how long you're expected to live. The equation is the reverse of that which applies to most forms of life assurance - in the case of annuities it's the people who die early who subsidise the people who live longer so it's possible to die only a few years after you start the annuity and in hindsight, it will have been a bad deal but you have to die before anyone can make that judgement!

Some annuities guarantee payment for a certain period (i.e. even if you die) and there's also the option of having a spousal annuity whereby your widow/er gets 50% or some other % of the original payment stream.

As with buying a car or planning a wedding, the more boxes you tick, the greater the cost and in the case of annuities, the less you start off with. So for example if you ask for a payment rising with inflation with a guaranteed minimum payment period of 5 years and a spousal pension of 50%, your annuity will start off with a much lower monthly payment.

homer911

Most people today invest their pension in an ARF when they retire - its much more effective than an annuity, allows you to draw as much or as little as you want each year, subject to a minimum of 5% and can be passed on to your relatives when you die

tomfoolery60

homer911 wrote: »

Most people today invest their pension in an ARF when they retire - its much more effective than an annuity, allows you to draw as much or as little as you want each year, subject to a minimum of 5% and can be passed on to your relatives when you die

Unless you run out of cash when you are 90 and fit as a fiddle !

coylemj

homer911 wrote: »

Most people today invest their pension in an ARF when they retire - its much more effective than an annuity, allows you to draw as much or as little as you want each year, subject to a minimum of 5% and can be passed on to your relatives when you die

The only money you put into an ARF is the money that you cannot access tax-free at the time you retire. When you have used up the full threshold of tax-free lump sums, what is left in your pension fund has to either buy an annuity, go into an ARF or you pay the full rate of tax and take it as cash. Or a combination of all three.

The minimum of 5% withdrawal ('imputed distribution') only applies when you reach 60, if you take early retirement before 60 there is no obligation to make any withdrawals each year. It's 5% p.a. from age 60 and 6% p.a. from age 70.

ANXIOUS

coylemj wrote: »

The only money you put into an ARF is the money that you cannot access tax-free at the time you retire. When you have used up the full threshold of tax-free lump sums, what is left in your pension fund has to either buy an annuity, go into an ARF or you pay the full rate of tax and take it as cash. Or a combination of all three.

The minimum of 5% withdrawal ('imputed distribution') only applies when you reach 60, if you take early retirement before 60 there is no obligation to make any withdrawals each year. It's 5% p.a. from age 60 and 6% p.a. from age 70.

That's not correct, it's 4% from the year you turn 61 till the year you turn 71 for the figures the OP is taking about. Also you would be obliged to put the first €63500 into an AMRF which you aren't obliged to take any income from until you turn 75 then it transfers to an ARF.

coylemj

ANXIOUS wrote: »

That's not correct, it's 4% from the year you turn 61 till the year you turn 71 for the figures the OP is taking about.

My bad, it's now 4% for the first 10 years although there are still plenty of websites that haven't been updated since it was reduced - even the Pensions Authority still says 5% so I was in good company...

Where the ARF owner is 60 years of age or over for the whole of the tax year and where an ARF is set up after 6 April 2000, an imputed distribution is calculated as a percentage (currently 5%) of the market value of assets in the ARF on 31 December each year.

http://www.pensionsauthority.ie/en/LifeCycle/Tax/Tax_on_AMRF_ARFs/

ANXIOUS wrote: »

Also you would be obliged to put the first €63500 into an AMRF which you aren't obliged to take any income from until you turn 75 then it transfers to an ARF.

Applies only if you cannot show that you already have a pension paying at least €12,700 p.a.

cute geoge

Is paying into a pension a bit of a cod?
Would a lad be better off to save what money goes into a pension and after every 5 years accumulated savings invest in property and blue chip shares
At retirement one should receive income from dividends/rent /property sales and if one dies prematurely then estate will benefit not the pension company .A few years ago my accountant suggested i start a pension plan as a good way to reduce income tax ,all i did was ask him did he have a pension plan himself .I will leave ye all now to guess the answer

The J Stands for Jay

cute geoge wrote: »

Is paying into a pension a bit of a cod?
Would a lad be better off to save what money goes into a pension and after every 5 years accumulated savings invest in property and blue chip shares
At retirement one should receive income from dividends/rent /property sales and if one dies prematurely then estate will benefit not the pension company .A few years ago my accountant suggested i start a pension plan as a good way to reduce income tax ,all i did was ask him did he have a pension plan himself .I will leave ye all now to guess the answer

Why wouldn't you use the pension to buy the shares and property (well, not the property because that's a bad idea)? Get the tax relief as well. Retire them into an ARF. It still passes to your estate that way.

Bubbaclaus

cute geoge wrote: »

Is paying into a pension a bit of a cod?
Would a lad be better off to save what money goes into a pension and after every 5 years accumulated savings invest in property and blue chip shares
At retirement one should receive income from dividends/rent /property sales and if one dies prematurely then estate will benefit not the pension company .A few years ago my accountant suggested i start a pension plan as a good way to reduce income tax ,all i did was ask him did he have a pension plan himself .I will leave ye all now to guess the answer

So not only lose the tax relief available when paying in, but also become liable to tax on any gains/dividends?

Terrible idea.

billyhead

Just wondering myself the benefits of a pension. I have been paying into an AVC plan since I was 20 (now 35) of approx €30 a week since then. If say I never got married or had kids where exactly would my remaining pension go as it was said in this thread you can only withdraw a certain amount a week/month when you reach pension age. I presume you get a big a lump sum payment when you turn 65 or 66?

coylemj

billyhead wrote: »

Just wondering myself the benefits of a pension. I have been paying into an AVC plan since I was 20 (now 35) of approx €30 a week since then. If say I never got married or had kids where exactly would my remaining pension go as it was said in this thread you can only withdraw a certain amount a week/month when you reach pension age. I presume you get a big a lump sum payment when you turn 65 or 66?

You're obviously in an occupational pension scheme of some sort if you're paying into an AVC so what will happen when you retire is that you will be allowed to take all or part of the AVC as a tax-free lump sum and the rest you will put into an ARF. If there's still money in the ARF when you die, it will form part of your estate.

You can withdraw money from the ARF but what you take out is subject to PAYE and USC and (up to the age of 66) PRSI at 4%.

There are certain restrictions if your pension is less than €12,700 p.a. in which case you have to put money into an AMRF but if you have a pension of at least that amount, you can withdraw money from the ARF as fast as you please.

If you are under 75, you cannot transfer to an ARF unless you can demonstrate a guaranteed income of €12,700 per annum, which can include State pensions. If you are unable to meet this minimum, you must either transfer €63,500 to an Approved Minimum Retirement Fund (AMRF), or purchase an annuity which will bring up your level of guaranteed income to the minimum amount.

http://www.pensionsauthority.ie/en/LifeCycle/Benefits_payable_on_retirement/Approved_Minimum_Retirement_Funds/