Why are people obsessed with getting a pension

garbanzo wrote: »

Hey Jim2007. Interesting post. If possible could you elaborate on how most of your aged 55+ friends have managed to stop working and do other things? How are they maintaining a decent standard of living. Genuine question.

Cheers

g

I would imagine it's because they started good pensions early in life

garbanzo wrote: »

Hey Jim2007. Interesting post. If possible could you elaborate on how most of your aged 55+ friends have managed to stop working and do other things? How are they maintaining a decent standard of living. Genuine question.

Cheers

g

While it may not be possible to fully retire it is possible for many to semi-retire if you are focused. A lot depends on what stage your family are at. 30 years ago most people married and bought there houses in there mid/late 20's. Alot started working at in there late teens unless they went to college. A lot of this generation will have there children through collect by the age of 60.

Everybody gets opportunities in life it the ability to take those opportunities that allows.people to make life changing decisions. It's the ability to understand the value of money and to make it work for you.

A decent standard of living is also relative to what your life expectations are.
Will you require 500.....700......or an income of 1K/ week. When you reach 65 you can draw jobseekers.until.tge OAP kicks in. It also important to remember as you reach further in to your retirement your income to maintain your lifestyle will not be as great.

As well it is important to understand the Irish tax system. You can earn just slightly over 16k without paying any tax. If you semi retire and can earn this in 2-3 days a week(or 20-30 weeks of the year) this can change your retirement calculations. When the OAP kicks in it will offset this tax relief

In any pension you are allowed to draw down 1.5 years average salary( average 3 best of last 10 years) it is important to maximise this. Even for people that have no pensions in there 50's it is possible to hit this target in 5-7 years using the tax system. At 50 you can put 30%, at 55/35%%and at 60/40% of your income onto a pension. While you may not achieve much growth as you near you retirement the taxman will give you 40%of your contributions back if you are on the higher tax rate.

Bass Reeves wrote: »

Everybody gets opportunities in life it the ability to take those opportunities that allows.people to make life changing decisions. It's the ability to understand the value of money and to make it work for you.

How true.
Reminds me of a saving scheme in a former workplace where you could put away up to 10% of fortnightly gross salary and every 6 months buy the company stock at 15% discount to market. You could also sell immediately and lock-in your gain. I lost count of the number of colleagues who said that they couldn't afford to put away 10%. I told them that they couldn't afford not to even if it meant putting it on the credit card. They failed to realise that the annualised percentage rate saving was multiples of the 15%!

AlmightyCushion wrote: »

That's basically free money. You said up to, so even if they couldn't afford 10% just stick in what ever you can.

Right there, that's my point exactly, there's no question of "not affording it". When you work thru the math, the real annual return was north of 50% so even if you have to put it on the credit card at 18% or whatever you're still quids in!

cefh17 wrote: »

How was the return north of 50%?

Think about it. Paid fortnightly. So 13 payments in 6 months. 15% discount on every payment, so while the first payment put away will yield 30%, the last payment is put away for 2 weeks only but still gets the full 15% discount so that's an annualised return of 390% and so forth with the other payments.
If I remember correctly (t'was a while ago ), the "north of 50%" was after tax at higher rate so worst case scenario

Grassey wrote: »

Through mega magic math.

You invest 10% per month, buy at a 15% discount. Sell for market value. Gain 50% of your 10%.

Simples ��

Fail :D

I still have no idea how it works based on any of the explanations above. I'm assuming there was a more thorough explanation for employees.

S.M.B. wrote: »

I still have no idea how it works based on any of the explanations above. I'm assuming there was a more thorough explanation for employees.

Ha, even HR had problems understanding:D:D

Basic JC maths ...:D


Payday 1, week 1 15% put away for 26 weeks = 30% on an annual basis
Payday 2, week 3 15% put away for 24 weeks = 33% on an annual basis
Payday 3, week 5 15% put away for 22 weeks = 35% on an annual basis
Payday 4, week 7 15% put away for 20 weeks = 39% on an annual basis
.
.
.
.
Payday 9, week 17 15% put away for 10 weeks = 78% on an annual basis
.
.
Payday 12, week 23 15% put away for 4 weeks = 195% on an annual basis
Payday 13, week 25 15% put away for 2 weeks = 390% on an annual basis

This gives an overall gross average annualised return of 95% and nett return north of 50% at the time on a so called 15% gross discount:)

MicktheMan wrote: »

Worst case scenario: Your gross average would then be ~74% annualised return. Difference being fortnightly versus monthly payment cycle.

It's bought twice a year, if the share price stays the same as the buy price I get 15% return less taxes. Am I missing something really obvious? I did do the Junior Cert btw

cefh17 wrote: »

It's bought twice a year, if the share price stays the same as the buy price I get 15% return less taxes. Am I missing something really obvious? I did do the Junior Cert btw

Yes, it's all about the amount of time the money is put away for.

Suppose you give me 10 quid today and I give you back 11 tomorrow. You got back what you gave me plus 10%. If you then gave me 10 quid straight away again and the following day I give you back 11 again, that's another 10%. If we were to keep doing this for all 365 days, you would have your initial 10 quid plus another 365. This equates to an annual percentage rate of 3650%, not 10%.

On the other hand if you were to give me 10 quid which I keep for a year and then I gave you back 11, then you got a 10% return because the money was put away for a full year.

Jim2007 wrote: »

The only compounding that is going on here is all in your head. Nobody is paying out the extra 80% you are coming up with.

So, explain this to me then.

Taking the scenario of being paid fortnightly, putting 10% of gross pay into the saving scheme and being able to purchase company stock at a 15% discount. Gross annual salary is 26k so gross fortnightly salary is 1k, so 100 euro being saved into the scheme every 2 weeks.

The last payment into the scheme will be 100 euros. This is in the scheme for only 2 weeks until it is repaid with a 15% premium (you sell straight away) so you get 115 back.

What percentage rate do you need to get from a bank to achieve the same return in 2 weeks?

The calculations is quite simple. The total money is saved for an average of 13 week. The return is 15% if sold at purchase price. So annualised return is 60%. However taking selling costs, buy/sell bid differentials, share account maintenance the return is 52-58%bracket

Jim2007 wrote: »

You cannot use a compounding calculation where the gain is unreasonable. It's one of the basic rules set out by the CFA for calculating performance. The maximum you could have achieved on a 10k salary back in those days of the is 150 pounds, you might be able to make an argument for recycling the 500 pound from the first six months, but that is it.



The bottom line is that if you can't show a bank account with an extra 900+ in it at the end of the year, you can't claim to have achieved it.

Jim2007, I think you might be missing the whole and only point I'm trying to make. That point being that the return from the scheme was overall far superior to the cost of debt (even credit card debt) used to participate in the scheme. End of. I don't believe I have made any claim to any amount being in any bank account at the end of any period.

I'm not a financial analyst btw nor do I work in the industry, so forgive my terminology errors and lack of knowledge on what a CFA is.:)

Suppose you cannot afford to forego any of your salary never mind 10%. So you use your credit card with an interest rate of 20% to finance the full 10%. And for sake of argument 10% represents 100 euro and by way of illustration we'll concentrate on the last fortnightly payday before the close of the 6 months. So on one hand you go into debt on your cc by 100 euro and 100 euro goes into the scheme. 2 weeks later you get 115 euro back from the scheme and you immediately pay down the cc debt plus interest (100+0.72). So profit of 14.28. For clarity I've ignored taxes, transaction costs etc. (Similar calcs can be done for the other paydays in the cycle also with positive results)
This is the only point I'm trying (and failing by the looks of things:o) to make i.e. there is no such thing really of not been able to afford to participate in what is essentially a free money scheme.

8 years of stock market gains now wiped out in a week. Those with pensions have no control over their own money and can only look on and weep. If only they had of put the money into stocks directly instead of a pension they could of sold out weeks ago when it was clear what was going on. Wonder is this the final nail in the coffin for the pension industry?

bilbot79 wrote: »

You do realise pension saving is tax free but regular saving is not?

I always encourage pensions, but pensions are not tax free. Pensions are not taxed as they grow and you have the tax free lump size option but aside from that they are taxed when you use them just like anyother income.