The Irish Times - Article on Lump Sum needed to Retire

spockety

Interesting article here on the kind of pension you need to have amassed by retirement depending on the lifestyle you want. It mentions that the old target of 'half your salary at retirement' is a bit of an outdated way of thinking. I was surprised at how low some of the numbers are.

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Jim2007

It really depends on who you define Modest, Moderate and Comfortable….

I worked most of my time in Swiss private banking and we used a very simple formula for financial health checks:

 (most recent salary * 0.65) / 0.03

So ya, we definitely don't go as low as 50%.

In my experience most people under estimate the amount they will spend, particularly in the earlier years when they are in good health and mobile. And the other thing is that even with good health cover there will be things that are not covered that you'd like to do - extra check ups, equipment, home modifications etc…

daheff

these numbers are very low. Even the comfortable pot of 672K will give you 33,600 (@5% drawdown).

And all that is before inflation. Can you really comfortably live on 2800 a month in retirement? Modest equates to 1600 a month. Thats barely subsistence living.

black & white

https://www.boards.ie/discussion/comment/123322747#Comment_123322747

If you can add the State Pension to that it becomes reasonable though, that plus a couple entitled to a full contributory pension comes to over 5K a month.

daheff

https://www.boards.ie/discussion/comment/123323365#Comment_123323365

but thats not the point. they are saying this is the requirement for a pension pot with no state pension

blackbox

A lot depends on your circumstances. It's very different if you have a mortgage free house compared to if you are renting a property. I presume they are not including your house value in the lump sum.

CuriousCucumber

(most recent salary * 0.65) / 0.03

So someone currently on €80,000 will need a pension pot of €1.7m?

daheff

https://www.boards.ie/discussion/comment/123323518#Comment_123323518

I think thats too high.

with a minimum 4% draw down required, and assumption you don't have mortgage costs then your pot would need to be 1.3m. That would give you a 52,000 drawdown per year.


Drawdown 0.03 should be 0.04,

Jim2007

https://www.boards.ie/discussion/comment/123323518#Comment_123323518

https://www.boards.ie/discussion/comment/123325487#Comment_123325487

These are just rules of thumb to try and ensure that people have sufficient resources in retirement. A draw down of 3% is already on the limit based on actual return statistics…. and probably will go down to say 2.5% in future. The research papers supporting the 4% draw down assumed an average annualised return on equities to be 6% - 8%, which is not being acheived - even by professional managers.

The J Stands for Jay

https://www.boards.ie/discussion/comment/123318855#Comment_123318855

Pre retirement income is irrelevant. Pre retirement expenditure would be more relevant, but expected post retirement expenditure would be the best number to use in estimates

donkey balls

https://www.boards.ie/discussion/comment/123323518#Comment_123323518

Just did the calculations there for myself and if I'm going by that formula above I will be €700k short. I've two pensions at the moment one parked up since 2003 after i left the company. The other i have maxed out with AVC etc (Im playing catch up as i didn't have any sort of pension between 2003 upto 2016) As im still employed i haven't bothered to go near the old pension.

I've 13 years to go have no outstanding loans etc unless i buy a new car, Was talking to a freind of mine and they reckon that the expenses drops off commuting to work etc. So what you need currently to live will change when you retire.

Jim2007

https://www.boards.ie/discussion/comment/123332174#Comment_123332174

So you are going to sit at home and watch the grass grow??? Most people I know don't they travel for several months of the year, their spending on hobbies increases dramatically and the take new hobbies and try new things. And in later life people tend to spend more on medical related stuff beyond what is covered by insurance and state. For example, foot care is covered once every 8 weeks, but many find that too long and will pay privately for additional sessions say 2 to 4 times and so on. You spend will shift and may even grow depending on what your working life looked like. It is better to over estimate the expected spend as you won't be able to go back to work later to make up any short fall.

Jim_Hodge

https://www.boards.ie/discussion/comment/123332174#Comment_123332174

Just from my own experience, and that of my also retired friends, we found that we grossly over estimated what we'd need in retirement. We're all spending much less than we thought we would. Mortgages are cleared of course but, despite a couple of holidays a year, changing to new cars every three years or so, private medical insurance, hobbies, getting houses renovated etc, our disposable incomes still leave a comfortable surplus that allows for savings. In addition, our retirement lump sums (often omitted in assuming available cash when retired) are far from exhausted 10 or 12 years down the road. Financial advisors tend to oversell when it comes to their recommendations regarding required pension pots.

donkey balls

https://www.boards.ie/discussion/comment/123332702#Comment_123332702

Nope not one to sit at home last year while i was out of work with a broken arm, I was going off my head with boredom one thing for sure i will keep active. As I've seen people who retired and just sat at home go downhill fast.

daheff

https://www.boards.ie/discussion/comment/123326112#Comment_123326112

in Ireland, for an ARF you must draw 4% annually up to aged 70. then it increases to 5%

Jim2007

https://www.boards.ie/discussion/comment/123341042#Comment_123341042

That does not mean you have to spend it though….

daheff

https://www.boards.ie/discussion/comment/123341442#Comment_123341442

ah Jim. cmon thats just ridiculous cope. You don't have to spend any of it…..so should we use 0 as a divisor then?

anewme

Interesting discussion as someone who is now looking at figures. . Im also trying to balance putting away for pension vs. enjoying life NOW and possibly retiring early and not waiting until 65. Another poster mentions it, but where is savings/pension lump sum factored in. If you had savings lump sum of say €300-€400K plus an income somewhere in between the moderate / comfortable bracket above, how would you not be very ok?

Plus everyone's circumstances is different, depending on what you want to leave behind.

What is the saying 55-65 - go go, 65-75 - go slow, 75+ no go, just meaning that you will spend less as you get older.

daheff

https://www.boards.ie/discussion/comment/123343448#Comment_123343448

the only issue with that is that as you get older the medical bills ramp up, but the lifestyle slows down.

Jim2007

https://www.boards.ie/discussion/comment/123343448#Comment_123343448

As @daheff said, there is no guarantee you be spending less in your 70s, the spend may just shift, very often to elective medial procedures, elective medical equipment and even house alterations to make it more liveable in later life.

donkey balls

Just had a look at one of the yearly statements from the pension companies both my current one and the other one which is parked. Are handled by the same company. The current one has an SRP of just under €900k i plan on taking the max lump sum out. Also saving around €1800 a month since late last year so providing i don't touch that will have €100k in the bank within five years.

And as you get older you wont be out socialising like you did in your 20s, My plan would be to buy a place in Lanzorote and try and stay there a few months during the winter. The missis currently works from home so will see how both of us are fixed when it comes to the retirement date. The fact she is 12 years younger and will still be working could throw a few spanners into my plans.