What is a reasonable pension pot?

TheBully

I started my pension late, not very late but later than I would have liked! For this reason, last year I started doin AVC's.
I'm 34, and I worry about my future. I'm currently putting 6% of my salary into my pot along with an additional 6% in AVC's, my employer puts in an additional 9%.
I currently have €48000 in the pot, with a forecasted 500k at retirement.

I know I will have more than others at retirement but I am pushing myself with the AVCs.
My question is, is this a decent enough pot, is it the average pot?
I'd like to max out my AVC contributions but I'm not financially able at the minute! What kind of pension pot have u guys?

Jim_Hodge

There's a table here

https://www.joslinrhodes.co.uk/retirement-planning/can-i-retire-at-55/

Or here
https://www.unbiased.co.uk/news/financial-adviser/retire-at-55

and others are available.

mloc123

I think a lot depends on what your current salary is, how much you spend each month etc...

You need to look at how much you need to live each month now, and deduct mortgage etc.. assuming it will be cleared before you retire.

General rule of thumb... Pay as much as you can (within the tax free band) each year.

Canyon86

I started later than I would have liked also
I'm 31 and I ve been paying into a prsa since December
Has 3,000 in it so far

I intent to max out my Avcs each year all going well that is, whilst also getting my mortgage and emergency fund increased too,

TheBully

mloc123 wrote: »

I think a lot depends on what your current salary is, how much you spend each month etc...

You need to look at how much you need to live each month now, and deduct mortgage etc.. assuming it will be cleared before you retire.

General rule of thumb... Pay as much as you can (within the tax free band) each year.

Thanks, my salary isn't major, 45k or so, but this will rise up to 50k within the next 5 years.

Can I just ask, the tax free band doesn't include my employers contributions I take it, only my own?

TheBully

Canyon86 wrote: »

I started later than I would have liked also
I'm 31 and I ve been paying into a prsa since December
Has 3,000 in it so far

I intent to max out my Avcs each year all going well that is, whilst also getting my mortgage and emergency fund increased too,

Never too late, good work!
We just had our second baby last week so I'm hoping to put both childrens allowances in on top of the mortgage every month! The emergency fund isn't going great at the moment though, that's the next thing to work on

The Mighty Quinn

TheBully wrote: »

Never too late, good work!
We just had our second baby last week so I'm hoping to put both childrens allowances in on top of the mortgage every month! The emergency fund isn't going great at the moment though, that's the next thing to work on

This sounds like you could be me...
I'm 35, second baby arrived in May. Started pension at 30. Had no employer contributions until I was 33.

I've about 37K in pension, and virtually no emergency fund. Fool move perhaps. My flawed reasoning is a pension can still work for me if I stop or reduce payments in to it. If I can get it up to 50K I'll turn to developing funds elsewhere, at current rate it'll be 14 months or so away. I'll then reduce my % a little and divert money to an emergency fund.

I overpay mortgage by 130 a month, but that's for me to feel good rather than financially prudent.

Every thing I'm reading suggests I'll need a pot of 500K+ which is really difficult to obtain, for me anyway. Never say never, but I highly doubt I'll manage that.

I'd love a thread where people who have actually retired tell us what their pot was on retirement and how they're managing, but nobody is likely to volunteer that information truthfully.

All going well mortgage will be cleared before then, children will be about 30. I'm wondering how much you reallllly need if not living a flash lifestyle, but I suspect even things like health insurance etc will gobble up chunks of it.

TheBully

The Mighty Quinn wrote: »

This sounds like you could be me...
I'm 35, second baby arrived in May. Started pension at 30. Had no employer contributions until I was 33.

I've about 37K in pension, and virtually no emergency fund. Fool move perhaps. My flawed reasoning is a pension can still work for me if I stop or reduce payments in to it. If I can get it up to 50K I'll turn to developing funds elsewhere, at current rate it'll be 14 months or so away. I'll then reduce my % a little and divert money to an emergency fund.

I overpay mortgage by 130 a month, but that's for me to feel good rather than financially prudent.

Every thing I'm reading suggests I'll need a pot of 500K+ which is really difficult to obtain, for me anyway. Never say never, but I highly doubt I'll manage that.

I'd love a thread where people who have actually retired tell us what their pot was on retirement and how they're managing, but nobody is likely to volunteer that information truthfully.

All going well mortgage will be cleared before then, children will be about 30. I'm wondering how much you reallllly need if not living a flash lifestyle, but I suspect even things like health insurance etc will gobble up chunks of it.

Ah to be fair you have a lot going on, if you have a stable job there's no major rush on the emergency fund! It's hard to keep all sides going especially with 2 young kids!
I'd be thinking if you max out your AVCs you could make 500k, your better off lumping into them now to gain some compound interest rather than later in life!

Maybe someone who has retired may jump on this post and fill us in a bit, but unlikely

Jim2007

TheBully wrote: »

Ah to be fair you have a lot going on, if you have a stable job there's no major rush on the emergency fund!

That would be a very big no. People wake to see their stable jobs disappear all the time - companies go bust, divisions close down or moved to other locations, people become incapacitated and so on.

You can never tell when you may need an emergency fund that is why you need to build it up. And it also means that you are no forced to divest yourself of an investment before it has come to maturity when you need funds.

My father in law (RIP) came out of teacher training college here in Switzerland at 25 and then spent 40 years teaching in the same school before he retired. So he was very surprised when his first months pension payment was less than 20% of what he expected! On investigation he discovered that somehow in their digitization and upgrade of their system they had lost 31 years of his contributions. Now not in a million years would someone think of this happening to a government employee especially one that did not even change his employer once in his working life. It took seven months to sort it out, seven months the couple needed to live of their emergency savings.

There is no way you can say with any degree of certainty that you will not need to dip into your emergency funds. It may not even be for yourself, it could be to help a family member, aged parents or some other relatives.

garrettod

Hi,

Retirement Planning is going to be different for everyone, so people shouldn't get too hung up on what someone else has managed to accumulate in their pension fund.

There are a few key things to consider :

Will you own your home when you retire, or will you still have to pay rent?

How will you pay for heath care, maybe a nursing home etc if it's needed, when you retire?

Where will you live, when you retire - will you live in a city, or a more rural part of Ireland, or maybe in another county with cheaper living costs?

Will you have any dependents to look after in retirement (a partner who never worked, perhaps?)?

Will you be eligible for the State pension, when you retire?

Will you have any form of income - such as rent from an investment property, or dividends from a share portfolio etc?

The above questions help people to consider what they might need, in retirement.

Ultimately, the trick is to try and get money into your pension, as soon as you can, because the fund then has longer to grow, before you need to draw on it.

That said, it's never too late to start contributing into a pension, particularly if you can get tax relief on your pension contributions at the higher tax rate.

jimmycrackcorm

The Mighty Quinn wrote:

All going well mortgage will be cleared before then, children will be about 30. I'm wondering how much you reallllly need if not living a flash lifestyle, but I suspect even things like health insurance etc will gobble up chunks of it.

It can all be for no gain if you're marriage breaks up. Apart from your partner gaining half your pension, in the interim, you will have to probably take out a second mortgage.

That's lots of breakups out there.

The Mighty Quinn

jimmycrackcorm wrote: »

It can all be for no gain if you're marriage breaks up. Apart from your partner gaining half your pension, in the interim, you will have to probably take out a second mortgage.

That's lots of breakups out there.

There are. But.. What do you suggest, don't make any attempts to provide for your future in case a jilted ex spouse gets some/half??

Dream123

Correct, your tax free level is based just on your contributions

dubrov

The Mighty Quinn wrote:

There are. But.. What do you suggest, don't make any attempts to provide for your future in case a jilted ex spouse gets some/half??

It's all about priorities. Provide for the present first, then the future

No point in scrimping during your working life only to have plenty of money in retirement that you don't enjoy spending

Jim2007

dubrov wrote: »

No point in scrimping during your working life only to have plenty of money in retirement that you don't enjoy spending

First of all we are talking about having sufficient funds to live comfortably and second people are living longer and in better health so you will almost certainly enjoy spending it.

The only time you have an opportunity to save is while you have an income and failing to do so on the off chance you might not enjoy spending it is foolish.

Jim2007

TheBully wrote: »

Maybe someone who has retired may jump on this post and fill us in a bit, but unlikely

Well I retired at 55.... I’m not going to tell you my pot, but I will say to retire in Western Europe you probably need around a million Euros in total wealth to generate sufficient income to do so.

Although I expected it, for some people it will be a shock, but you won’t be able to cut your spending anything near as much as you expect without it having a very significant impact on your life style. It does not matter if your income was 20k or a 100k, you have gotten used to a certain life style - the foods you buy, the restaurants and pubs you visit and so on. And while you will save on work related expenses it will be replaced by other expenses - hobbies, DIY projects, travel, more time meeting up with friends and so on.

The Mighty Quinn

Jim2007 wrote: »

Although I expected it, for some people it will be a shock, but you won’t be able to cut your spending anything near as much as you expect without it having a very significant impact on your life style. It does not matter if your income was 20k or a 100k, you have gotten used to a certain life style - the foods you buy, the restaurants and pubs you visit and so on. And while you will save on work related expenses it will be replaced by other expenses - hobbies, DIY projects, travel, more time meeting up with friends and so on.

Yeah this is the bit that worries me a bit. My father retired with a DB pension from An Post, he gets about 460 a week of a pension, is in his 60s now. He said that while he has built up a sturdy savings pot (100Kish) over his whole life, it is yet untouched some 3 years into retirement, his pension is pretty much fully spent each week between health insurance, DIY bits, utility bills, occasional travel, family occasions etc.

He said he's not worried he's living as good as he wants to now, safe in the knowledge that his pension pot doesn't run out, there's always 460 more next week.

I think he's right to do this, as he ages, he'll slow. He won't travel or eat out or do so much work about the place on hobbies, so he should enjoy his money when he's fit and able. As he slows, the 460 a week will still come in and likely just build up in the background without him using it. He owns his house, he owns a new luxury car he never could afford to drive when we were young.

Unfortunately, most of the rest of us will be on DC pensions. I suppose there's also the erosion of his DB pension with inflation to consider too.

The J Stands for Jay

jimmycrackcorm wrote: »

It can all be for no gain if you're marriage breaks up. Apart from your partner gaining half your pension, in the interim, you will have to probably take out a second mortgage.

That's lots of breakups out there.

So, you're saying it's prudent to on eat in your relationship?

The J Stands for Jay

Jim_Hodge wrote: »

There's a table here

https://www.joslinrhodes.co.uk/retirement-planning/can-i-retire-at-55/

Or here
https://www.unbiased.co.uk/news/financial-adviser/retire-at-55

and others are available.

Just beware that these are foreign websites referencing foreign tax/pension laws.

The J Stands for Jay

Jim2007 wrote: »

It does not matter if your income was 20k or a 100k, you have gotten used to a certain life style - the foods you buy, the restaurants and pubs you visit and so on. And while you will save on work related expenses it will be replaced by other expenses - hobbies, DIY projects, travel, more time meeting up with friends and so on.

It's best not to get into the habit of lifestyle inflation; save that for when you're retired.

Phoebas

A general rule of thumb is that your pension pot will generate an income of about 4%, so if you want a retirement income of 40k you need a pot of 1m.
That's if you invest in an Approved Retirement Fund (ARF), which carries risk. If you want a guaranteed income, you can purchase an annuity, buy you'll get a much reduced income.

garbanzo

Phoebas wrote: »

A general rule of thumb is that your pension pot will generate an income of about 4%, so if you want a retirement income of 40k you need a pot of 1m.
That's if you invest in an Approved Retirement Fund (ARF), which carries risk. If you want a guaranteed income, you can purchase an annuity, buy you'll get a much reduced income.

Is it not more realistic that after you take your €200,000 tax free lump sum you will be left with €800,000 upon which to base your drawdown.

So €200k in the bank and €32,000pa based on the 4% drawdown?

Jim2007

garbanzo wrote: »

Is it not more realistic that after you take your €200,000 tax free lump sum you will be left with €800,000 upon which to base your drawdown.

So €200k in the bank and €32,000pa based on the 4% drawdown?

We're taking about a rate of return not a drawdown. Drawdowns assume a replenishment rate and that has not lived up to expectations.

garbanzo

Can you elaborate on that Jim2007 ?

The J Stands for Jay

Jim2007 wrote: »

We're taking about a rate of return not a drawdown. Drawdowns assume a replenishment rate and that has not lived up to expectations.

We are talking about a drawdown, because the ARF rules require a drawdown.

Jim2007

garbanzo wrote: »

Can you elaborate on that Jim2007 ?

If you go back to some of the original documents on the topic, the 4% idea came with the assumption that you’d be able to replenish part of the capital sum via interest etc... and would be able to leave something to the relatives on death, as opposed to the typical private pension.

As with many things in finance there has been an over simplification, people are drawing down 4% and even a bit more to cover unexpected expenses while at the same time ignoring the fact that the return rate is practically zero. Which means they will burn through the cash much sooner than expected.

We celebrated my mother in laws 94th birthday today, if it was not for modern medicine she’d probably have died say 15 years ago. She has been retired for 34 years, probably longer than some of the readers have been a live! If she had gone down the drawdown road she would probably have been destitute for the past 10 or 12 years at least.

The point is that circumstances change and you need to regularly revisit your retirement plans and make whatever changes are necessary to ensure you have a comfortable retirement.

catrionanic

As a woman, these conversations freak me out. I'm currently on mat leave and work part-time because we have soon-to-be three small kids. My husband works full-time. I earn a lot less than my husband due to my reduced hours and missed career opportunities due to growing our family. My employer doesn't contribute to my pension whereas his does. I have my own PRSA and put in as much as I can but it will never be enough given my part-time hours and no employer contributions.

This gives me no option but to depend on my husband's pension in retirement. We've had a lot of marriage difficulties the last few years so that might not even be an option.

Sorry if this is somewhat of a thread hijack. Im not looking for advice. Just stating how un-level the pensions playing field is for women vs men.

Bass Reeves

I think over the next 20+ years the style of retirement will change. It will not be a sudden stop when you stop working completely and the are dependent on pension and savings. More and more now you see people looking at option such as working part time or working for part of the year.
WFH will facilitate this more and more. It may allow people to work 2-3 days a week and downscale you work activities while having more time off. This will suit many people allowing more time off without seriously drawing down pension funds.

I am semi- retired since I was 57. I took a redundancy package that give me over two years pay. I worked for six months the first year after retiring. I bought a farm and that was paid off by retirement. I did up am old farmhouse on it and that is rented, as well on 2016 I bought a cheap investment property.
Rental income is slightly over 15k ( I have costs out of it ), farming income is 20-25k. I will probably start drawing my pension in my 60's. My pension pot is over 50k. My better half intends to retire in the next 2-3 years. It is possible for here to consider working 2 days a week after she retired. She has a pot of about 4-500k

The Mighty Quinn

catrionanic wrote: »

This gives me no option but to depend on my husband's pension in retirement. We've had a lot of marriage difficulties the last few years so that might not even be an option.

This is a conversation I've had with my wife. We have two children, she's currently on mat leave, no employer top up, no employer pension contributions etc... Its a topic I'm acutely aware of.

Even though I live my my financial life on the "what's mine is ours" model in our marriage, I know my wife is uncomfortable with the "what if we split , and I've nothing", and I can't say I blame her, it leaves her vulnerable and in a way gives me a power I don't want.

The J Stands for Jay

The Mighty Quinn wrote: »

This is a conversation I've had with my wife. We have two children, she's currently on mat leave, no employer top up, no employer pension contributions etc... Its a topic I'm acutely aware of.

Even though I live my my financial life on the "what's mine is ours" model in our marriage, I know my wife is uncomfortable with the "what if we split , and I've nothing", and I can't say I blame her, it leaves her vulnerable and in a way gives me a power I don't want.

Don't worry, the law recognises this, and she can get her hands on your pension in a divorce though a pension adjustment order.

Jim2007

McGaggs wrote: »

Don't worry, the law recognises this, and she can get her hands on your pension in a divorce though a pension adjustment order.

Yes, but the reality is that whether you are male or female a pension pot split two ways is not going to be enough to run two traditional Irish households....

Oh the other hand if you are only using the kitchen and one bedroom 90% of the time do you really need a three bedroom house or do you really need the burden of having to care for such a property as you grow older? And you don’t have to live in a particular location.

You will have to make different choices if you do end up divorced, no doubt about it. I know one couple who split their house into two flats, neither are terribly happy about it. It is more a case of it being the least worse option than anything else.