Pension if retire early

donkey balls

https://www.boards.ie/discussion/comment/122580630#Comment_122580630

I'm in the same boat have two pensions one with my current employer that I'm fully paid into and maxed out with AVC, And the other one i can draw down 25% as a tax free lump sum, But I haven't drawn down on it as that will affect the current pension which will have the bigger fund to draw down the 25% €200k. Also if i was to take the 25% now the rest of the pension i would need to put in an ARF. And i be taxed to the hilt as im still working fulltime. The two pensions i have are overseen by the same pension provider. I could have the older fund put into the current fund but will keep them separate. Just in case i ever needed to draw down on it sort of rainy day fund.

Dazler97

https://www.boards.ie/discussion/comment/121900120#Comment_121900120

Looks like a wind up

donkey balls

She is 30 and is hoping to have 800k by the time she turns 50, So just say the poster is on a €100k PA and has the AVC maxed out. That would give them a pot of €450k thats not taking in the previous contributions before turning 30 or what the employer adds or how the funds are doing. So technically it could be done.

Viscount Aggro

800k is an average amount to have in a pension pot. With inflation, it's not enough these days.

Bass Reeves

https://www.boards.ie/discussion/comment/122662051#Comment_122662051

Nothing wrong retiring with an 800k pension at present retiring in 30 years time you like a bit more probably 50% higher

You have a 200k lump sum drawdown tax free. 600k@4% drawdown would give you an income of 24k a year. OAP of 14.4k on top of that gives you an income of 38k. Even before 65 it woukd allow you to work parttime and still have a decent lifestyle.

Even if the spouse had only a small pension pot ( it's a mistake many couples make in not boosting the other half's pension as retirement approaches) say 200k with the OAP an income of 55k+ is where you are at.

The biggest challenge is riding the market. I am at risk level 4 ( 50% equities) my pot has risen 7.5% this year along with 3% drawn down so 10% total. However I know that there will be peaks and troughs abd that the fund could drop 20-40% in a recession and I will have to accept 4% drawdown at a lower level for maybe a 2-5 year period.

However that is where having a rainy day fund to carry you through these periods is important. You have to accept that a lot of this RDF cannot be in a long-term investment but in a cash account earning very little interest.

bilbot79

https://www.boards.ie/discussion/comment/122580433#Comment_122580433

Noticed the SFT is increasing to around 3m per the finance bill there. Not that I think I'll be impacted :)

On the above, if I were tax resident in Spain with 50% of pension coming from annuity and the other 50% from ARF, would they be taxed separately and individually i.e. Would the money from the ARF that is taxed in Ireland put you above a threshold in Spain or could you be pulling down 2 lower threshold incomes that can't combine to push you into a higher tax bracket in either place, theoretically?

Peregrinus

In the Irish system your marginal tax rate depends on your aggregate income from all sources. So if you have two jobs, or two pension funds, or whatever, that will be of no help in accessing a lower marginal tax rate than you would get if you got the same amount of income from just one job or just one pension fund.

I've no direct experience of the Spanish system, but it would amaze me if it were any different. There's no good policy reason for giving taxpayers an incentive to splity their income between numerous different sources, so my starting assumption would be that no tax system is likely to do this.

bilbot79

https://www.boards.ie/discussion/comment/122706835#Comment_122706835

Thanks. In Malaga the tax rate jumps from something like 20% to 23% between 50k and 200k which is not what we would consider a 'higher' tax bracket. The question is more about whether, when tax resident in Spain (noting that under terms of DTA, the ARF is taxed at source) would the Spanish income be taken into account, therefore meaning that the ARF could be pushed into the higher tax bracket (Irish 40%) at home. Or would Revenue say that income is already at a higher tax bracket in the country of tax residence?

Bass Reeves

https://www.boards.ie/discussion/comment/122706912#Comment_122706912

You pay the difference between tax rate it imaterial the rates. You should talk to an accountant for definite advice

bilbot79

https://www.boards.ie/discussion/comment/122706926#Comment_122706926

You mean the 17% between the 23% (Malaga) and the 40% (Ireland) would be due on the ARF withdrawals at source? Thanks. I thought this the most likely answer.

I'm a long way from retirement so don't need an accountant yet :) Just researching and trying to understand the mechanics of financial independence.

Peregrinus

https://www.boards.ie/discussion/comment/122706912#Comment_122706912

Ah, OK, got it. If you're not resident or ordinarily resident in Ireland, you're only liable to tax on your Irish-source income. However you only get a full set of credits to offset against your Irish tax liability if 75% of more of your income is sourced in Ireland; otherwise you only get a proportion of your Irish tax credits.

So, your Spanish income isn't taxed in Ireland and won't push you into a higher bracket for the tax rate on your Irish income. But it may result in you getting only partial tax credits in Ireland, so it could mean that you pay more tax on your Irish-source income than an Irish resident would pay on the same income.

Bass Reeves

https://www.boards.ie/discussion/comment/122706977#Comment_122706977

Yes if you are caught for tax in Ireland. TBH it might seem early to talk to an accountant but they will give you the actual correct advice. I am not sure if what I posted applies to pensions. There are people who move to Portagul as it has pension beneficial tax laws.

However you would need substantial pensions payments to have a serious tax issue. With 20k at the marginal ratethe aggregate extra tax is 3400 euro not an insubstantial sum but indicating pensions and investments returning 65k+ before tax. Even at that if a person was married unless there spouse had a pension of over 45k some of pension would be shielded. As well while our marginal rate is high there may be differences in lower rate bands and tax credits

Cushtie

At the risk of hijacking the thread, is there anything to stop someone making additional after tax contributions to pension. If you have maxed out allowable contributions for tax relief and say you had 500 a month you could afford to put away.

Peregrinus

https://www.boards.ie/discussion/comment/122710848#Comment_122710848

You can do that if you want, but it's generally not a good idea — you pay income tax on the money when you earn it; then you put it into a pension fund and pay income tax on it a second time when you take it out of the fund.

If you have surplus income and want to commit some of it to regular saving, there's no law that says you have to save it in a pension fund. You can get non-pension products which work the same way as a pension fund, except (a) there's no tax deduction for contributing to them (but you're not looking for a tax deduction anyway; (b) they don't have the same restrictions on when you can take out the money — you can take it out whenever you like; and (c) no income tax is payable on money you take out of the fund. That would suit your circumstances better than undeducted contributions to a pension fund.

sector_000

I'm coming in late to this interesting thread.

Some folks asked earlier about typical pension returns….. caveat blah blah blah.

My own data set is:

Irish DC pension fund with majority equity focus… 10.8% CAGR since 1-Jan-2012

US 401K type equity focused pension fund….10.7% CAGR since 1995. (16.1% CAGR in most recent 10 yrs)

Sure there have been some turbulent years… and I've occasionally made some lousy fund choices, and then some good ones (in hindsight). But 6~7% CAGR over a long period sounds symptomatic of a way too low-risk approach (unless you're coming right up to retirement - or more like it, you're actually retired and in an ARF). Even then, just remember that when you are retired, you'll still likely have 20 years on investing… so why wouldn't you be shoving most into equities still???

As I said, caveat blah blah blah… each to their own. I'm only sharing my data / opinions in gratitude to those earlier posters who shared theirs.

bilbot79

https://www.boards.ie/discussion/comment/122715433#Comment_122715433

This makes sense to me based on what I see on YouTube podcasts etc. Be careful though, on these threads the approach to growth is how shall I say, ultra-catholic. Anything above 4% is impure, sinful and has no place in an Irish person's pension

Jim_Hodge

https://www.boards.ie/discussion/comment/122716496#Comment_122716496

Firstly, you need to know that 'ultra-catholic', with a lower case c, means very wide ranging and all embracing.

Secondly, most would consider pension fund returns below 4% to be bad performance.