Early Retirement at 57

Bass Reeves

https://www.boards.ie/discussion/comment/122003514#Comment_122003514

Not really, take a couple with a house valued at 500k youngest is 62 they can only get 90k equity release. Interest rate is 6.7%

anewme

https://www.boards.ie/discussion/comment/122003531#Comment_122003531

In my case, no dependants, leaving my niece and nephew a tax bill .

Bass Reeves

https://www.boards.ie/discussion/comment/122003548#Comment_122003548

You be better off selling the 500k property and buying elsewhere maybe in the 'Island Field ''.

The equity released is minimal compared to the value. 500k house will only release 90k only in cash to you.

SeanieRetrofitter

I find the comments from people who are terrified of not working because they'll have nothing to do....strange.

Sure, some people have fantastically rewarding jobs. I get that- I'm not one of them, but i know people who are.

But if- like the vast majority- the purpose of your job is to make someone else richer, and you feel that's a better way to spend your time than making yourself happy, there is frankly something wrong with you and you should probably seek professional help.

Experiences are what make people happy, not possessions, as long as your basic needs are covered. Think about that the next time you're dropping a grand on an iPhone instead of booking a holiday....

yagan

https://www.boards.ie/discussion/comment/122004230#Comment_122004230

I've a sibling who's wedded to work, I can't ever seeing him fully retiring although in our our family financially he's probably the most able to retire tomorrow. He'll slow down at best, but he doesn't know how to do downtime. He's not even a company man, he's jumped jobs a good few times. He's just driven and is never settled.

He may well have a couple of million in assets and cash upon retirement, but he stopped working I can only see him filling his time pouring money into some renovation project that may well bankrupt him.

Raoul Duke III

The one thing I do take from reading this thread (and having been idly thinking about this in my own personal context) is that it's a huge 'thing' - it'll probably be as big in our lives as such fundamentals as education, career, marriage, kids and we need to think and plan for it holistically.

• There's obviously the financial aspect as in 'can I afford to retire?' i.e. how much do I need. This number is going to be very personal and will be based on many lifestyle factors. One person might live very comfortably on a 20k pension, another might need 75k.
• It's also going to be quite rare for this to be a unilateral decision. Most of us have partners - they need to be onboard and aligned with our plan. Lots of us have children (if these are adults, then fine but lots of people contemplating early retirement will have teenagers and college-aged kids).
• There's the 'what will I do in retirement?' aspect i.e. how will we fill our time. As others have mentioned, the prospect of days, weeks, months and years where your calendar is a blank page can be both exhilarating but also very challenging.
• Health is obviously extremely important. This covers mental health too - I have seen people (mainly high achieving men) who literally could not handle the loss of status that went with their old job.
• 'Retirement' also doesn't need to mean an end to work. You could step down from your career but continue to work, maybe part time. It could also mean volunteering which many people find immensely rewarding.

I'm hitting 50 this year, been in a pressurized corporate environment my entire working life. I don't think I could or should retire now - buts it's nice to be able to start thinking about it!

Jim2007

https://www.boards.ie/discussion/comment/122003279#Comment_122003279

You are actually making a good case for why it does make sense for the majority of people! The majority of people don't do well when left to their own devices. They don't perform as well because they start timing the market, chasing trends, listening to the talking heads, don't understand financial risk and on top of that they don't have the data, the skills or the experience to accurately determine their performance.

On top of this the easy access to saving means many will come up with very valid reasons to dip into it with the intention of paying it back later but that very rarely happens.

In my 30+ years experience of pensions and investing in mainland Europe, the less opportunity people have to meddle with their pension savings the more likely they'll end up with a heap of money.

There is a lot more factors in play that simply the tax rules and maths, when it comes to saving for retirement.

SharkMX

If you dont know what you'll do in retirement, think of it as either a job change or even a career change. We've all done that and know that you figure it out as you go along and it turns out its not as hard as you thought it was.

People mentioning kids above have a point. Almost everyone I know who has retired young has had all of their kids grown up and educated by the time their retirement happens. It seems its far harder to retire if you have your youngest later in life. Like if you have a kid at 40 then you will be mid 60s by the time they finish college. And college years are only getting longer and longer these days.

I work with on guy and he is 66 and says he would be retired long ago except his son is doing a masters now. Says for the past decade all of his wages have nearly gone to supporting his kids education. And now hes talking about doing a phd after the masters. He reckons he wont be able to retire until he is 70. He also has 2 daughters, both of whom did masters. The man is a slave.

Oh, and one of his daughters is looking for a deposit plus a lump sum from him which she will pay back, but he doesnt see how she will ever have enough money to pay a mortgage and pay him back in less than 100 years. His wife wants to pay up, but he doesnt - so he will have to pay up.

SeanieRetrofitter

https://www.boards.ie/discussion/comment/122004695#Comment_122004695

My daughter was born when I was 43. I set up a long term investment account- which neither I nor anyone else can touch until she's 18- almost immediately. Minimum investment was 100 euro a month although I put in more.

Part of the benefit of that is my daughter can do a masters PhD etc and put down a deposit on a house without disturbing my retirement plans if my pension fund doesn't take off like I'm hoping.

It's also amore efficient way of transferring wealth as the €3k small gift exemption is annual, whereas CAT exemptions are cumulative.

Retirement planning is a long term thing- I'm choosing to spend €50 a week on my daughter's 3rd level education now when i can afford it so I don't have to spend at least €100 a week (which would barely cover the contribution + bus fare) when she's actually in college and i may not be able to afford it…

Raoul Duke III

https://www.boards.ie/discussion/comment/122004695#Comment_122004695

That guy needs to have a very serious talk with his family. Sounds like they have really inflated expectations, dare I say a sense of entitlement, about what he should be 'providing' for fully-grown adults.

BalboBiggins

https://www.boards.ie/discussion/comment/122005004#Comment_122005004

Thanks for this info. Does it have to be set up in a specific way? I know about the 3k annual gift but didn't realise it could be invested and then given to the recipient tax free after several years.

SharkMX

https://www.boards.ie/discussion/comment/122005122#Comment_122005122

100% agree. But thats kids today for you :)

Hontou

https://www.boards.ie/discussion/comment/122005162#Comment_122005162

I told my kids that I would pay for their education up to a degree (level 8). If they want to do a masters or phd they pay themselves. I have 4 so would never be able to retire if they expected me to pay for masters degrees. (I think students should get work experience between their degrees and masters anyway).

SeanieRetrofitter

https://www.boards.ie/discussion/comment/122005142#Comment_122005142

The gift is tax free, but growth on the investment is obviously taxed @ 41%, with deemed disposal every 8 years. The one I set up is with Zurich, it's called Child's Savings Plus Plan. I'm sure there are others which do much the same job, Zurich is just who I went with.

I chose a mix two funds tracking the Nasdaq 100 & S&P 500. These are locked in for the duration, and I can't change them— but the annualised return before tax is running at about 13% at the moment so I've no regrets on that score. Based on past performance, a long term return net of inflation of over 8% is not an unreasonable expectation (but also not anywhere remotely near guaranteed). After the charge that'd be around 7%, after tax a bit over 4% annualised return. That doesn't sound like much, but if you invest a constant €100 a month for 18 years that'd come to around €37k at today's values. Which should in fairness cover a couple of years of college.

There's compound interest again. I got a warning for questioning the intelligence of a mor… a gobsh…. an idi…. induhvidual who doesn't believe in compound interest!

It's worth noting that although the kid becomes entitled to the fund when they turn 18, there's no rule that they actually be informed that the fund exists. So if you do have the cash to support the kid through whatever number of years & qualifications in college, and you can intercept the post when they send out the statements once or twice a year, you can keep keep the knowledge of the fund as a surprise graduation present. You can keep paying into it as well.

Anyone can pay into the fund, not just a parent, once it's below the €3k annual. So if you have family members who want to and can, they can transfer money in as well.

bilbot79

https://www.boards.ie/discussion/comment/122005004#Comment_122005004

Can you tell us more about such investment accounts? I researched trust funds but they were looking a fee while the taxman would take 42% of capital gains every 8 years.

I was even thinking of just buying gold over time for my daughter. Ireland is so so bad for this stuff.

SeanieRetrofitter

https://www.boards.ie/discussion/comment/122005901#Comment_122005901

Seriously just google it! That's what I did!

Sure they charge a fee and tax is payable as well. But the tax is payable on your GAINS, so your kid's money is still growing while the sprog is doing the same. I personally don't object to paying my taxes. I've gotten enough out of the state in the past that I can't complain about giving it back with a little interest.

That said, deemed disposal is a pain. I reckon After 20 years the pot would be 15 to 20% bigger if they just taxed it at the end instead of doing deemed disposal. BUT the inflation adjusted after tax value of what I put has an excellent chance of doubling or more, so my daughter is still winning.

bilbot79

https://www.boards.ie/discussion/comment/122006013#Comment_122006013

Yes I had googled it and even called Davys but got spooked at fees plus tax. I've no problem with paying tax, I just wasn't to keen on the risk vs return. Might look at it again mind you.

unhappyBB

Early retirement has been a goal of mine for a few years but things got complicated and now I have no idea if I definitely can or I definitely cant 🙆‍♂️. I'm part of my employers DB scheme which appears good on paper with 1.5 years final salary lump sum plus 50% salary annually (minus state pension) but this cant be claimed until normal retirement age (68?) without major reductions. Drawing down at 60 would mean receiving only 64% of the pension 😨.

I talked to the company pension adviser and he said to start AVCs and draw them down at 60 and use that to bridge the gap. A year after singing up he completely backtracked and said that solution was impossible as AVC cant be drawn down separately to the main scheme and he "can't remember" his AVC to pension bond plan for me and that wouldn't be allowed anyway. 🤦‍♂️

Well that's the bad, but the good is after reading this thread and actually doing some sums, I see that I really over estimated how much money I thought I needed in retirement. I looked at my current income/spending and literally most of it goes on expenses that wont really be there post retirement. 28k goes on AVCs/mortgage/loans/savings leaving me with 25k to live on per year, and with that, I think I currently have a perfectly comfortable life. I'm now wondering if paying AVCs are even a good idea for me anymore and maybe I should just be putting that money into savings (shares).

For info, I have changed my AVC scheme to stay in a high-ish risk fund until retirement, no de-risking at all. Historically this fund has averaged 11.5% growth p.a. and even higher in the last 15 years. Seeing as I might have to retire late I see no point in worrying about a downturn at 60 when I can just carry on and wait for the recovery. With my 9k contributions I can (optimistically) see the fund grow to 600k@60 or even upto 1m@68 or 400-700k in todays money depending on which calculators I use.

Sorry for the ramble, even though I've already started preparing, this is the first time I actually thought about what the future will look like and what I want/expect.

GNWoodd

https://www.boards.ie/discussion/comment/122009513#Comment_122009513

I asked this question earlier but didn’t get an answer. You can’t draw from your AVC until you retire from the main scheme . In your case 68 .
Yet the OP can access his /her pension from 57 ?

why would there be such a difference -almost ten years between two people ?

Bass Reeves

https://www.boards.ie/discussion/comment/122009513#Comment_122009513

Is your employer DB scheme state ( as in PS orpublic body semi state etc) or is it a private scheme

unhappyBB

https://www.boards.ie/discussion/comment/122009703#Comment_122009703

Semi-state company.
After 40 years service you get 1.5 times annual salary (or 40/80ths x 3) as a lump sum followed by the state pension, topped up to 40/80ths of the average of your last 3 years salary.
The permanently reduced pension values for drawing down early are 64%@60, 71%@62, 89%@64, 94%@66. Not forgetting to reduce the 40 above by however many years you are then short.
AVCs (DC) can only be drawn down at the same time as the main scheme.

Bass Reeves

https://www.boards.ie/discussion/comment/122009778#Comment_122009778

AFAIK if you leave early tgey have to give you a transfer value. You can transfer this to another pension provider. It would depend on the transfer value and how well funded the scheme is as to whether it makes sense or not.

You can then take 25% as a lump sum and draw the rest down at 4% a year or more per year. If you can do that you can flood you AVC with higher rate tax contributions for a number of years know that you can draw 25% tax free (up to 200k and 20%tax on above that) of what even you contribute .

30% reduction is fairy severe for going 5 years early unless they make up the OAP difference

bilbot79

https://www.boards.ie/discussion/comment/122009778#Comment_122009778

Ieaving at 80k PA you are paying a 15000 penalty per year. 62 - 13k penalty.

But you've also got look at the fact you were being paid pension for an extra 2years and maybe the best 2 years.

I would advise loading up as much as possible on AVCs and retiring at 60

SeanieRetrofitter

https://www.boards.ie/discussion/comment/122009778#Comment_122009778

Those reductions are harsh. But retiring early will always mean having to survive for longer on less.

I'd be far better off financially working full time until 68, like double my gross pension on a bad day better off. But I do not unfortunately love my job so I'd also be emotionally crippled by then and, while 70 can't be considered to really be old these days, I definitely wouldn't be young enough to enjoy my retirement to the full.

So unless things go rather badly wrong I'll drop down to a 4 day week at 50 when my mortgage is cleared and retire at 60 on a much lower, but very sufficient, retirement income. If things do go very badly wrong, I'll quit paying into my AVC and drop down to a 3 day week (or ideally job share) at 60 instead.

Because there's much more to life than money, although I'd obviously like to have loads of that as well, and am therefore hoping things go according to plan!

TheBlock

Two different pension schemes a private DC scheme can be accessed often anytime after 50 provided you have left that employer. You Take your 25% and either buy an annuity or invest in an ARF which you must draw down from in the year you hit 61 at a minimum of 4%.

The second one you are looking at appears to be a DB scheme with a guaranteed final sum payment and guaranteed pension amount.

DB schemes are rare now and mostly state jobs.

Peregrinus

The deductions in a defined benefit scheme for retiring early are for three reasons. First, obviously, fewer contributions have been paid in — if you retire at 60 instead of 65 that's five years' worth of contributions that won't go in. Secondly, the contributions that have been paid have been invested for a shorter period — you're missing out on five years of investment returns. Thirdly, the annual pension pension wil have to be paid for five more years. So you have significantly less money than you had projected would be there at age 65, which has to pay a pension for a signicantly greater number of years than was projected.

So the reductions, generally speaking, aren't penal and they are not intended to discourage early retirement. They are usually set so that, financially, it should make no difference to the fund, the employer or the other contributors whether you retire early or not.

Similar issues arise if you're in a defined contribution arrangement and you retire at 60 instead of 65 - you'll have accummulated less money at 60 than you would have at 65, and you'll have to stretch it out over a longer period. The costs involved may not be as starkly visible because you were never promised a specific amount at 65, but you can ask your financial adviser to model what annual income you can prudently draw if you retire at 60 versus the income that you would be projected to draw if you defer retirement to age 65.

bilbot79

I think anyone looking to retire early needs to earn that right by sacrificing some salary in advance. DC pensioners do this by increasing DC contributions and DB pensioners can either purchase notional years of service or invest into a separate DC scheme. I'm not sure of some of Peregrinus reasoning as the after 40 years of service you cant gain anything extra from the pension (e.g. can't get 45 80ths)

Presumably if you work 40 years and retire at 60 you get less than if you worked the same number of years and retired at 65. That begs the question - can you leave on 40 years but not 'retire' until 65? If that's true you could bridge the 5 year gap with DC contributions which would not be too difficult to do, then retire on full pension.

If you don't make the 40 years then yes the reduction is justified by the lesser years of contributions.

My wife is in a similar scheme and uses the remainder of the 25% tax limit to make AVCs as we have heard, without any specific reasons offered, that purchasing notional years of service is not a better idea than AVCs

AndrewJRenko

https://www.boards.ie/discussion/comment/122019591#Comment_122019591

The notional years purchase was better value about 15-20 years ago. The rates went up during the austerity years, and most advisers advised against them after that.

Peregrinus

https://www.boards.ie/discussion/comment/122019591#Comment_122019591

You can always leave before the standard pension age and not draw your pension until reaching the standard pension age — it's called "resigning" rather than "retiring" but it's the same thing. In that circumstance there will be no reduction to your accrued pension.

The problem, of course, is that you need something to live off in the meantime. Some people's transition-to-retirement plan involves working part-time, or working for a time in a lower-stress (but lower-paid) job; that can work well. Others can live off an indulgent spouse who is still working. Or, of course, there's always the possiblity of saving outside a pension plan to cover the gap between stopping work and starting a pension. Nobody every said that all your retirement savings have to be in a pension plan of some kind; you can just save conventionally. You lose some tax advantages by doing this, but if it's a small component of your overall retirement savings, just to cover a couple of years gap between stopping work and starting the pension, that may be an acceptable price to pay for the flexibility.

Guildenstern

This happened to me and by accident. Once I got to late 50s work started to dry up, it was plain to see ageism really is a thing.

The last 4-5 years was less hours working and reduced income. It was a slow and steady move into retirement so it wasn't too difficult when full retirement actually came.

Now I have enough to be involving myself with every day.