I want an extra €100 on top of my state pension, can anyone explain how?

20-01-2021 03:02AM #1

Hi folks,

Firstly, I'm 32, adult life so far has been a mixture of the dole, working in retail (employee), fitting kitchens (employee) and now a photographer (sole trader). I'm sure I'll be working at something else before too long.

I've never had a pension and never really thought about one, until very recently.

I won't be rich anytime soon, I make about 35k a year.

As far as I am aware (and I'm basing this on nothing but guesswork) I'd be entitled to the state pension. Truth be told, I'd probably live comfortable enough on it, too.

However, I was wondering if anyone could figure out the maths of this situation for me, or indeed, if anyone could explain to me (like I'm a child) what I would have to pay into a pension, to get approximately €100 a week back out of it (so my retirement would be the 250ish state pension + 100 private, giving me about 350 per week to myself)? I reckon I could get by on €350 handy enough, so I'm using this as a starting point to figure out what I'm doing (or if I should bother at all).

I'm reading a lot online of the govt. encouraging private pensions and topping up your payments by 40% (ie; if i throw €600 into my pension, Michael Martin will find €400 down the back of the sofa to throw into my pension, too), but I'm not sure how accurate that is. I don't really believe it to be accurate, but i heard it, so I'm taking it as some kind of quazi fact.

My basic math skills tell me that if I wanted a pension that would give me €100 per week for 10 years, that I'd need to have a pension pot of €52,000. Assuming the 60/40 govt match is true, I'd need to hand over €31,200.

Am I along the right tracks here at all?

Also, I have an accountant.. if I wanted to have an actual discussion about this, and figure out where I stand, or what part of things I'm getting wrong, do I have a chat with my accountant? Or do I speak to my bank, or do I seek out a financial advisor or insurance crowd or..? I've no idea where to start here at all.

Also, last question, my assumptions above are based on wanting a 10 year pension - how long are pensions actually calculated at? How long is it assumed you'll live, and be claiming a pension? (I know it will vary from person to person, but I presume there's a default average)?

Thank you to anyone able to help out at all

20-01-2021 03:37AM

In no particular order and ill be kinda handwaving at some answers:

Financial adviser is a good idea

Pensions tend to be assumed for twenty years as far as ive seen them done, presuming c.65 as retirement age

In order to reap benefits of compound interest and combat inflation, you should start paying in now and bear in mind that 52k will not be worth very much in 30 years, so use it as a "present value" but i think 3% is the figure most calculators assume for inflation each year over time.

Govt allow you to pay into a pension before tax. So, if youre paying any tax at the higher rate, you're getting the equivalent of around 40% of it for free. At 35k youd be getting the lower rate equivalent, not sure whether there are other incentives tbh

ED E · 20-01-2021 04:11AM

Deleted User wrote: »

Firstly, I'm 32

As far as I am aware (and I'm basing this on nothing but guesswork) I'd be entitled to the state pension. Truth be told, I'd probably live comfortable enough on it, too.

Sorry to be that guy but the basis of your planning is likely a little flawed. Let's say retire at 70, it could be later by that time, but lets say 70. You're basing what you could live on in 38yrs time based on today's figures.

Expecting the state pension to keep up with inflation and costs of living isn't wise. You're talking twice as many pensioners (or near to, 65 wont be pensioners then) in 2059 as now. Also your €100 might only be worth €50 in today's money. We dont know what inflation will be like but if you went 38yrs back from today it'd be even less.

But its good you're looking at this now, its fixable at 30. People post similar at 50....

20-01-2021 04:24AM

ED E wrote: »

Sorry to be that guy

Gerouwa here with your negativity. €100 today will be worth €150 in future and that's that!

In all seriousness though, I am aware of the issues you put forward. I suppose my general issue is (other than the basic understanding of it all) how to get started, and if there are any major 'up front' costs that I should know about.

I am forever hearing about 'investing' but it's not something I know a lot about. I appreciate pension money is invested on your behalf to keep the amount relevant to the future (ie; tie it up with inflation) but I'm just not sure I fully grasp how I can figure out the basic maths of it.

20-01-2021 04:25AM

Deleted User wrote: »

Financial adviser is a good idea

Any recommendations? Would it make sense to contact my bank (bank of ireland - who seem to be banging on about pensions, themselves, too).

ED E · 20-01-2021 04:32AM

https://www.pensionsauthority.ie/en/lifecycle/useful-resources/pension-calculator/

Retiring at 70 and aiming to hit 17912pa (slightly less than 100/w top up)

The Age You Start Your
Contributions Age 32
Yearly as % of Salary : 8.4% p.a.
Yearly contributions : €2,940 p.a.
Gross per Month : €245
Less Tax Reliefs (€49)
Net Contributions Per Month : €196

You need to put in 196/mo from now until 70.

Darc19 · 20-01-2021 04:36AM

You're a sole trader. Possibly you will move upwards and create a photography company.

This is where a pension can be lucrative if you have the cash to put in.

You are young, so no rush, but it is good to be planning.

But to make it work well you need to be on the higher tax rate.

20-01-2021 04:41AM

Darc19 wrote: »

You're a sole trader. Possibly you will move upwards and create a photography company.

This is where a pension can be lucrative if you have the cash to put in.

You are young, so no rush, but it is good to be planning.

But to make it work well you need to be on the higher tax rate.

Honestly, I am just trying to avoid a situation where I'm broke completely. I think for "people like me" (used to low incomes) the state pension (in it's current form) is fairly reasonable.

I would hope to have little to no major expenses in retirement, shall I make it that far. That said, if I can top it up a bit, without killing myself, I would consider it. I'm just doing my homework at the moment, to see is it worth my while at all.

EDIT: Also, in relation to photography, I reckon it's ultimately a dying industry - although I hope to be in it, making a fortune, for the next 30-40 years, realistically I reckon I'll be working at something different in ten years.

vurstflavor · 20-01-2021 05:30AM

Some pensions plans charge a lot of fees

Geuze · 20-01-2021 05:13PM

Deleted User wrote: »

I won't be rich anytime soon, I make about 35k a year.

As far as I am aware (and I'm basing this on nothing but guesswork) I'd be entitled to the state pension. Truth be told, I'd probably live comfortable enough on it, too.

First thing to check.

Do you pay PRSI? (I'd say you do)

Check your PRSI record.

https://services.mywelfare.ie/en/topics/statements-and-refunds/contribution-statement/

Paying enough PRSI entitles you to a State Pension, so it's important to know your SI record.

Geuze · 20-01-2021 05:16PM

Deleted User wrote: »

I'm reading a lot online of the govt. encouraging private pensions and topping up your payments by 40% (ie; if i throw €600 into my pension, Michael Martin will find €400 down the back of the sofa to throw into my pension, too), but I'm not sure how accurate that is. I don't really believe it to be accurate, but i heard it, so I'm taking it as some kind of quazi fact.

Next, tax relief is available on pension contributions, yes.

Tax relief is available at your marginal tax rate.

Do you pay tax?

The top 40% tax rate kicks in at 35,300, so if you earn 35k, then you would not get tax relief at 40%.

That makes it less attractive to make pension conts, but still an idea.

Geuze · 20-01-2021 05:18PM

Deleted User wrote: »

I'm reading a lot online of the govt. encouraging private pensions and topping up your payments by 40% (ie; if i throw €600 into my pension, Michael Martin will find €400 down the back of the sofa to throw into my pension, too), but I'm not sure how accurate that is. I don't really believe it to be accurate, but i heard it, so I'm taking it as some kind of quazi fact.

Pension cont = 1,000

That costs 600 to a 40% marginal tax payer.

That costs 800 to a 20% marginal taxpayer.

Geuze · 20-01-2021 05:18PM

Deleted User wrote: »

Any recommendations? Would it make sense to contact my bank (bank of ireland - who seem to be banging on about pensions, themselves, too).

Pension plans sold by banks are often high fees.

Jim2007 · 20-01-2021 06:33PM

Deleted User wrote: »

I'm reading a lot online of the govt. encouraging private pensions and topping up your payments by 40% (ie; if i throw €600 into my pension, Michael Martin will find €400 down the back of the sofa to throw into my pension, too), but I'm not sure how accurate that is. I don't really believe it to be accurate, but i heard it, so I'm taking it as some kind of quazi fact.

The bottom line here is that the current system is unsustainable and it is the same all across Europe. And everyone is having to move to a system where a pension will be a combination of savings plus a state reduced state pensions. And this is not politics, it's just the logical conclusion to the fact that there will not be enough works around to fiance the system as we know it today.

And the other side is that you are likely to be be in better health and more active in retirement that the current or previous generations. And your ability to enjoy that is going to come down to the previous you make for financing your retirement. It's unlikely you'll be happy to sit at home watching the grass grow.

Deleted User wrote: »

My basic math skills tell me that if I wanted a pension that would give me €100 per week for 10 years, that I'd need to have a pension pot of €52,000. Assuming the 60/40 govt match is true, I'd need to hand over €31,200.

Given the time period involved, a simple calculation is as good as a complex one, because in the end it is only just an estimate. Given that your pension requirement is going to be a period closer to say 24 years and the likely return over the coming 30 plus years could be any thing from 1% to 3%, I use a simple model: annual pension required divided by estimated return. So for a 100 euros a week you'd need to have savings at retirement of 5,200 / 2% = 260k. Given the time value of money being ignored, it is probably not a bad estimate.

Deleted User wrote: »

Also, I have an accountant.. if I wanted to have an actual discussion about this, and figure out where I stand, or what part of things I'm getting wrong, do I have a chat with my accountant?

Yes by all means, start with your accountant, they know your business and are in taxes etc., so they should be in a good position to advise you on who best you can organize your affairs to maximize the possibilities.

I want an extra €100 on top of my state pension, can anyone explain how?

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