How much should I be paying into my Pension

jive · 26-10-2016 12:38AM

daheff wrote: »

Think about kids, wife/husband and rent/mortgage. Unless you are getting a substantial payrise by mid thirties, a lot of your disposable income is taken up by theses things. On the plus side, if you manage to own your own home outright before you retire, then you wont face rental costs in your retirement (when your income drops).

Only real difference for most in their 30s is kids...most under 30s in paying into a pension would already be paying rent, cost of rent is not that much more than the cost of a mortgage these days if they decide to go that route.

Plus you're forgetting all the money saved from having a child cripple your social life!

phantom_lord · 26-10-2016 01:27AM

Yeah 80k would be 1k a month at 15%.

ixus · 26-10-2016 12:57PM

aidanki wrote: »

I got the indo, any chance of a link or of a few photos maybe please

Not much in it that hasn't been discussed here. Warning on managing your own one, Random Walk of just adding monthly, better to pay someone who knows more (but doesn't really) etc etc.

ixus · 26-10-2016 01:22PM

daheff wrote: »

I don't understand peoples preoccupation with wanting to buy property as an investment. Buying a property (unless you have stacks of money) means most people are putting all their eggs into one basket. & Usually a mortgage. While paying off a mortgage early saves interest, does it save more than one would gain from investing (with tax breaks) into a pension fund? I don't think it would, but if anybody has data showing for or against feel free to post it.
.

I have no preoccupation with property. Well, I do, but not the way you might think I have. Spent plenty of time discussing it since 2006 on here, AAM or thepropertypin.

ANYWAY. Ok, I will do a crude bit of math to dispute this pension v paying down mortgage thingy. Lets go back to previous example I spouted:

Do the math. Karl jeacle mortgage calculator.

A 400k house, 80k down, 30yr mortgage at 3.5%. On a principal of 320k, you pay 197k in interest. If you could reduce the term by 5yrs, you would save 37k over lifetime of the mortgage. This is paying 1600 pm v 1440pm approx. People seem to think pensions only go up. Tell that to the people who had them destroyed in 2008.

As above, pay an extra €160pm on principal to reduce term by 5 years and save 37k.

Now, lets put it into a pension and see what tax relief we get:

160pm x 12 months x 25 years = 48,000 @ 40% tax relief if at top rate = 19,200 ( and that if you're at top rate)

160pm x 12 months x 30 years = 57,600 @ 40% tax relief if at top rate = 23,040 ( and that if you're at top rate)

37k - 19k = 18k or almost 50% difference (not accounting for employee contribution 'cos we don't all get that or, any % increase per annum in fund value. Neither did I take fees or govt charges off value.)

phantom_lord · 26-10-2016 02:07PM

No growth over 25/30 years is a big assumption. Long-term results of the S&P are claimed to be 7%, but all you need is more than 1% after fees.

Monthly contribution is 224 which costs 160 after relief

Monthly Payment 224 224 224 224 224 224 224 224 224 224
Growth 1% 1% 2% 2% 3% 3% 4% 4% 5% 5%
Years 25 30 25 30 25 30 25 30 25 30

Total €76,310.10 €93,996.72 €87,095.93 €110,370.49 €99,905.75 €130,533.06 €115,165.02 €155,467.07 €133,394.17 €186,425.93
Net Contributions €48,000.00 €57,600.00 €48,000.00 €57,600.00 €48,000.00 €57,600.00 €48,000.00 €57,600.00 €48,000.00 €57,600.00
Gain €28,310.10 €36,396.72 €39,095.93 €52,770.49 €51,905.75 €72,933.06 €67,165.02 €97,867.07 €85,394.17 €128,825.93

Versus Mortgage -€8,689.90 -€603.28 €2,095.93 €15,770.49 €14,905.75 €35,933.06 €30,165.02 €60,867.07 €48,394.17 €91,825.93

ixus · 26-10-2016 03:25PM

Good cop on the 224 v160. Shouldn't have made that mistake.

I don't think you can look at any growth without taking fees, inflation/deflation, goverment etc into account. As I said it was crude math. Purpose to get people to think of alternatives.

Francie Barrett · 26-10-2016 03:49PM

phantom_lord wrote: »

No growth over 25/30 years is a big assumption. Long-term results of the S&P are claimed to be 7%, but all you need is more than 1% after fees.

Monthly contribution is 224 which costs 160 after relief

But yet people will still say that property is the only way to go!

People talk about a pensions timebomb and maybe for people in my generation (people in their 40's-50's) this is the case. But the reality for anyone under 30 is that if they're smart and follow the guidelines and use low cost indexes and leverage the power of compounding, then they've no excuse to be worried. You can play around with figures on compounding calculator sites, but even someone who contributes €500 a month and has no employer contribution whatsoever can have a very nice sized pot if they start at 25 and contribute until retirement at 65. It's why I have really tried to impress upon my eldest son the importance of getting started.

Soarer · 26-10-2016 03:51PM

Ben and Arthur were friends who grew up together. They both knew that they needed to start thinking about the future. At age 19, Ben decided to invest $2,000 every year for eight years. He picked investment funds that averaged a 12% interest rate. Then, at age 26, Ben stopped putting money into his investments. So he put a total of $16,000 into his investment funds.

Now Arthur didn’t start investing until age 27. Just like Ben, he put $2,000 into his investment funds every year until he turned 65. He got the same 12% interest rate as Ben, but he invested 23 more years than Ben did. So Arthur invested a total of $78,000 over 39 years.

When both Ben and Arthur turned 65, they decided to compare their investment accounts. Who do you think had more? Ben, with his total of $16,000 invested over eight years, or Arthur, who invested $78,000 over 39 years?

Believe it or not, Ben came out ahead … $700,000 ahead! Arthur had a total of $1,532,166, while Ben had a total of $2,288,996. How did he do it? Starting early is the key. He put in less money but started eight years earlier. That’s compound interest for you! It turns $16,000 into almost $2.3 million! Since Ben invested earlier, the interest kicked in sooner.

ixus · 26-10-2016 05:23PM

@Francie - I think the fear with regardsto the Pension Time Bomb, is what the government do to address that in the future. I'm sure Varadkar mooted compulsory pension saving at one stage. However, what I think they will do, down the line, is reclassify the pension relief, confiscate from those who saved well, pool public and private or some nasty method.

It's the governments M.O. Don't believe me? Ask Mr.Donal Tusk, President of theEuropean Council what he did:

Poland reduces public debt through pension funds overhaul

topper_harley2 · 26-10-2016 07:47PM

You can always do both, overpay mortgage and continue to contribute to pension. It's not one or the other. Granted you may have to rob Peter to pay Paul but at least you'll be reducing one and simultaneously growing the other

topper_harley2 · 26-10-2016 07:53PM

ixus wrote: »

It's the governments M.O. Don't believe me? Ask Mr.Donal Tusk, President of theEuropean Council what he did:

Poland reduces public debt through pension funds overhaul

Scary stuff.

ixus · 26-10-2016 08:15PM

Does anyone have much experience with Executive Pension Plans (EPP)? Have read all the material from the various brokers/funds. In terms of tax efficiency, they look very attractive for high earners/Directors of own company.

The J Stands for Jay · 26-10-2016 11:58PM

ixus wrote: »

Does anyone have much experience with Executive Pension Plans (EPP)? Have read all the material from the various brokers/funds. In terms of tax efficiency, they look very attractive for high earners/Directors of own company.

In terms of tax efficiency, they're the same as any other pension.

cooperguy · 26-10-2016 11:59PM

ixus wrote: »

@Francie - I think the fear with regardsto the Pension Time Bomb, is what the government do to address that in the future. I'm sure Varadkar mooted compulsory pension saving at one stage. However, what I think they will do, down the line, is reclassify the pension relief, confiscate from those who saved well, pool public and private or some nasty method.

It's the governments M.O. Don't believe me? Ask Mr.Donal Tusk, President of theEuropean Council what he did:

Poland reduces public debt through pension funds overhaul

That's frightening stuff. Im pretty sure that would be unconstitutional here (but it doesnt mean they wouldnt find a way). The one thing I think thats pretty likely is that anybody with any sort of half decent pension will end up being means tested and get no state pension (despite a lifetime of PRSI contributions). That would be extremely annoying if that was to happen.

daheff · 27-10-2016 10:46PM

jive wrote: »

Only real difference for most in their 30s is kids...most under 30s in paying into a pension would already be paying rent, cost of rent is not that much more than the cost of a mortgage these days if they decide to go that route.

a sizeable amount of people in 30s would not be paying a lot of rent as they are living at home!

ixus wrote: »

I have no preoccupation with property. Well, I do, but not the way you might think I have. Spent plenty of time discussing it since 2006 on here, AAM or thepropertypin.

ANYWAY. Ok, I will do a crude bit of math to dispute this pension v paying down mortgage thingy. Lets go back to previous example I spouted:

As above, pay an extra €160pm on principal to reduce term by 5 years and save 37k.

Now, lets put it into a pension and see what tax relief we get:

160pm x 12 months x 25 years = 48,000 @ 40% tax relief if at top rate = 19,200 ( and that if you're at top rate)

160pm x 12 months x 30 years = 57,600 @ 40% tax relief if at top rate = 23,040 ( and that if you're at top rate)

37k - 19k = 18k or almost 50% difference (not accounting for employee contribution 'cos we don't all get that or, any % increase per annum in fund value. Neither did I take fees or govt charges off value.)

I suppose there are a lot of things to take into consideration here. And I appreciate you mention that its a crude calculation. I'm also guessing that you are talking about a property as a home rather than an investment??

If the property is an investment property then you are also forgetting about net rental income/ property price inflation.
If its a home, then the overpayment (in a variable rate scenario) is a valid point....but it does exclude expected investment gains or losses /access to cash.

However as (to make it easier to compare) there is an assumption that the variable interest rate stays the same (and doesn't fluctuate), then I think its fair to also assume an average long term investment return too, rather than saying investment returns can go up or down.Once you use a positive return >3% on average (per phantom_lord's example) then (to me anyways) its a no brainer to put into your pension than paying off your mortgage earlier.

But thats only looking at it on a money basis. It doesnt take into account if you want to buy a home(not an investment) now with the intention of selling it before the end of the term of the mortgage with a view to buying a bigger/more expensive home. In this case, then absolutely overpaying the mortgage is the more sensible thing to do. It might not generate a better return, but by overpaying, you can access that equity when you sell the property (kinda like saving at the mortgage interest rate).

ebayissues · 06-11-2016 01:00PM

I've found this thread interesting. I'm on 45k P.A. Due to job demands I'll be doing O.T which will bring me up to 52K a year.

I'm 25, living away from home paying €750 in rent which include bills. I have no debts. After paying rent & bills I save 75% of remaining wages.

I had a pension in my old job worth 2k and I'm considering putting a portion of my income into pension fund.

In terms of pension what the likes of Zurich/Irish life investments is attractive to me. E.g global diversified equities funds. Am I able to invest thins rather than pension from my company and stuff avail of any tax benefits ?

I would like to make use of the excess cash in my account rather than it just seat there doing nothing.

Merowig · 06-11-2016 02:55PM

Does your current employer offer an occupational scheme where he tops up / matches your contributions? If so go with that one.
An occupational scheme also often offers different investment options (e.g. international equities)

ebayissues · 06-11-2016 03:44PM

Merowig wrote: »

Does your current employer offer an occupational scheme where he tops up / matches your contributions? If so go with that one.
An occupational scheme also often offers different investment options (e.g. international equities)

My employer offers an occupational scheme. They pay 6% of my income as well. What I life is they dont have many investment options/plans to choose from.

Merowig · 06-11-2016 04:34PM

I would go for now for the occupational scheme - as it is the most cost effective most likely. If you open a low cost PRSA via LA brokers (they have Zurich and Irish Life) you have 1% AMC - if you go via Davy you have 0.75% plus minimum 0.10 buying costs for an UKI traded ETF.) Going for the employer scheme you have most likely the cheapest option - as they often cover administration costs - unless there are contribution charges.

ixus · 06-11-2016 06:59PM

ebayissues wrote: »

I've found this thread interesting. I'm on 45k P.A. Due to job demands I'll be doing O.T which will bring me up to 52K a year.

I'm 25, living away from home paying €750 in rent which include bills. I have no debts. After paying rent & bills I save 75% of remaining wages.

I had a pension in my old job worth 2k and I'm considering putting a portion of my income into pension fund.

In terms of pension what the likes of Zurich/Irish life investments is attractive to me. E.g global diversified equities funds. Am I able to invest thins rather than pension from my company and stuff avail of any tax benefits ?

I would like to make use of the excess cash in my account rather than it just seat there doing nothing.

Save it. You will probably need it for big ticket items such as car,wedding, house in the near future. Instead of small costly loans.

Merowig · 06-11-2016 08:08PM

You are under 30 - save 15% of your earnings into the pension to maximise your tax relief - the rest for something else.
Your future self will thank you for that. The earlier you start the better for you because of compounding!

http://financialmentor.com/retirement-planning/mistakes/18212

(...)
There’s only one guarantee in retirement planning: doing nothing won’t provide financial security.

Many people mistakenly believe they’ll have plenty of time for retirement planning once they buy a home, put children through college, and so on. That’s a mistake because when you’re 20 years old, you think retirement is 40 years off, so you wait until you’re 30.

When you reach 30, you have a mortgage and kids and spend money like crazy, so you wait until 40. When you’re 40, the kids are in college, or your parents need help, so you wait until 50.

Once you reach 50, too much time has been lost and your retirement savings is forever handicapped.

The most valuable asset you have when saving for retirement is time. The more time you have until retirement, the easier the task is to accomplish. The longer you delay getting started, the harder it will be, and the greater the risk to your future lifestyle.

Procrastinating about retirement planning is wealth suicide on the installment plan.

The reality is there will never be a “right” or convenient time to start building toward a secure retirement. It will never be easier than today. It will only get harder because there’s less time.
For example, did you know that every 6 years you wait to get started roughly doubles the required monthly savings necessary to reach the same level of retirement income?

That’s an astonishing statistic! It’s life changing.

Would you rather start saving today at half the rate, or wait a few years so that you have to pay twice as much to produce the same result?

Similarly, did you know you could contribute $2,000 each year for the next nine years, then add nothing more to a retirement account and just let it compound for 41 years, or you could wait those nine years to get started and have to contribute $2,000 for 41 consecutive years to get roughly the same result?
(...)

Thargor · 07-11-2016 05:41PM

Are pensions even compounding much in the last few years? ~4-5% returns are hard to come by these days...

Merowig · 07-11-2016 05:53PM

Thargor wrote: »

Are pensions even compounding much in the last few years? ~4-5% returns are hard to come by these days...

Too general of a question - it depends on the funds which are available to you and you have chosen

See past performance of funds at
http://ratings.moneymate.ie/

And a fund invested in equities still compounds more than what you can on your bank account after dirt

tomwaits48 · 07-11-2016 07:48PM

Francie Barrett wrote: »

Well there's at least one! My son is paying about that between employer contributions and AVC's.

As am I

Francie Barrett · 07-11-2016 10:13PM

Merowig wrote: »

You are under 30 - save 15% of your earnings into the pension to maximise your tax relief - the rest for something else.
Your future self will thank you for that. The earlier you start the better for you because of compounding!

http://financialmentor.com/retirement-planning/mistakes/18212

Don't forget kids, if you're on the higher tax rate, then that 15% will only really cost you 9% of your take home pay.

ixus · 17-11-2016 08:52AM

Pension "time bomb" article.

http://m.independent.ie/business/personal-finance/pensions/muchfeared-pensions-time-bomb-is-now-exploding-for-600000-workers-35222535.html

If i was to have a pension, I would want as much control over it as possible. Leaving someone else run it is asking for trouble.

Pension costs set to increase.

http://m.independent.ie/business/personal-finance/pensions/pension-costs-here-are-set-to-increase-35203739.html

Cute Hoor · 17-11-2016 11:44AM

That pension time bomb is about defined benefit schemes, which have become wholly unsustainable as life expectancy increases. To the best of my knowledge there is no such thing now for anybody joining the companies who offered these or for any worker starting out on a pension route.

titan18 · 17-11-2016 11:05PM

Cute Hoor wrote: »

That pension time bomb is about defined benefit schemes, which have become wholly unsustainable as life expectancy increases. To the best of my knowledge there is no such thing now for anybody joining the companies who offered these or for any worker starting out on a pension route.

Is it worth paying into a pension then? I'm 27 and have been paying 15% of my wages in for almost 2 years now, but is it actually worth it?

Merowig · 17-11-2016 11:29PM

If you pay in a defined contribution scheme which has low fees and is invested in international equities it is worth to continue it!

Unless you want to risk poverty when you are of old age.

Cute Hoor · 18-11-2016 12:59AM

titan18 wrote: »

Is it worth paying into a pension then? I'm 27 and have been paying 15% of my wages in for almost 2 years now, but is it actually worth it?

You probably won't know the definitive answer to that for another 40 years (maybe 50). In my opinion if you are paying tax at the higher rate on that 15% contribution, and you can reasonably afford it, then it is a no-brainer, it is worth it.

Just as an example, if you had invested €100k gross (€55k approx net) in a pension 20 years ago, using the average return in the table on the website below, that €55k would now be worth roughly €410k, an increase of 750% approx. Extrapolate that out for another 20 years (normal lifetime for pension savings) and that €55k will then be worth roughly €1.7m, an increase of 3,000+%. I hope those figures are accurate. That % increase to date was achieved during the worst economic downturn in most people's lifetime, at one stage pension funds had dropped by 35% approx.

Many people will argue that you are wasting your time and money investing in a pension fund, preferring to manage their own investments themselves, be that property, commodities, shares, whatever, but these people are not availing of the very generous tax relief and are assuming that they have a better capability to deliver returns that outdo professional fund managers. Maybe they do, maybe they don't.

Even if at some future date you need to opt out of your pension payments for whatever reason that money you are investing now will have a very significant compounding effect over the next 40/50 years. So no need to be slavish to it. Also try to keep an eye on the funds you have invested in and particularly the fees being charged.

I'm impressed that a 25 year old had the gumption to start investing so much in your pension, you'll hopefully have a comfortable retirement (in 50 years). Good luck with it.

I have no connection whatsoever with the pension industry.

https://ocean.ie/pensions/

How much should I be paying into my Pension

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