Funds accross investments required to retire

handlemaster

What is the current asset / investment amount needed in order to retire with pension / income of e.g. 30k , 45, 100k per year. We are all living longer in general the state will not be able to afford decent pensions in the future.. in fact its quiet bad as it is.

Happyhouse22

I have heard 25 times your yearly expenses mentioned.

Henry Ford III

Are you buying an annuity? They are priced individually.

handlemaster

https://www.boards.ie/discussion/comment/119717641#Comment_119717641

Not at all, looking to the future. What should one have when retirement comes.

Jim2007

https://www.boards.ie/discussion/2058266557/funds-accross-investments-required-to-retire

There are many different ways of calculating this, but given that at the point you might run out of cash you will be unable to work, it is best to over estimate rather than under estimate.

I worked in Swiss banking for over 30 years and we use a simple formulae: 60% of the average of your last three salaries divided by 3%. So a pension of 30k less state pension of around 12k, would require assets of at least 600k. The thinking is that you are unlikely to be able to adjust your life style to live below 60% of your current salary and be happy with it. And that while the consensus long term return on equities is 6% it is unlikely to be constant.

I have seen models that propose drawing down part of the capital sum each year on the basis that the replenishment rate will be sufficient to sustain the funds needed in retirement, but the have not worked so well in some cases.

It's also worth keeping in mind that in addition to the cost of living, you may also need extra funds for uninsured medical expenses, home modifications say for a wheelchair, a lift to replace stairs or what ever. Also, people tend to spend more on hobbies, travel etc especially in the early years of retirement.

daheff

I think the 60% of income figure comes from the idea that you will have paid off your mortgage by the time you retire. rough rule of thumb is mortgage costs should be about 1/3rd of income. So assuming you no longer have this requirement for outgoings, then ~60% comes into play.

From what I've read of pensions, if its not an annuity, you need to draw down a minimum of 4% of the pot each year until you hit 70 and then 5% a minimum after that (internet please correct me if I'm wrong here!).

So assuming you want to have an income of 30K per year, you need a pension pot of 750K EUR. If you are lucky enough to qualify for a state pension, then this drops to about 450K (30K-12K state pension/4%). Also don't forget at retirement you can take a certain amount out of your pot tax free. So using that, you may not actually need 30K pa as income. you can use that tax free pot as spending money also.

Jim2007

https://www.boards.ie/discussion/comment/119726497#Comment_119726497

It's just an estimate, it does not take into account all the possible expenses you may encounter that is why you try and pad it as much as you can because it is very unlikely you'll be able to revert the decision and go back to work at a later stage. There is not right or wrong answer, you just have to decide for yourself and hope your assumptions work out.

Concerning mortgages, though your assumption is wrong. Swiss mortgages are not designed to be paid back, people just pay the interest each year, unless for some reason they decide they want to pay back the principle. And the 60% figure takes that into account.

daheff

https://www.boards.ie/discussion/comment/119727307#Comment_119727307

We don't live in Switzerland Jim

"The good news

Before you retire you may be concerned that your retirement income is lower than your final salary. The good news is that you can live on far less. Most retirees can live comfortably on 65% or more below their former income. Working out innovative ways of saving can be fun.

To be able to live on less, it is advisable that:

• Your mortgage is paid off and happily 70% of homeowners near pension age have done this.
• You have got rid of your debts."

From Irishlife website (link below)

https://www.irishlife.ie/blog/making-ends-meet/

Not sure I agree with their point that working out innovative ways of saving can be fun. Stressful for people who need to cut back on spending.

Jim2007

https://www.boards.ie/discussion/comment/119729143#Comment_119729143

I never said you did and I pointed that out from the very start. On the other hand Ireland's GDP per capita ($83k) is dramatically closer to Switzerland ($86k) than say the UK ($42k) and the cost of living is comparable. And it is very unlikely to get cheaper. The only guests I have that don't complain about Swiss prices are the Irish - because the are used to them at home.

I also pointed out that estimates by their nature are going to be wrong and you are better to over estimate than under estimate because this is one financial decision that you are unlikely to be able to reverse it when you are say 75+. When you have six Saturdays and a Sunday, your spending habits will change pretty dramatically unless you are willing to spend your days watching the grass grow in your garden.