Case study Have I enough to retire now ?

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marsaday

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Age: 57

Spouse’s/Partner's age: 45

Annual gross income from employment or profession: €40,000

Annual gross income spouse: NIL

Type of employment: Self Employed

Expenditure pattern: Neutral , neither a spender nor a miser to be fair.

Rough estimate of value of home: €350k

Mortgage outstanding on home: €40000

Mortgage provider: Bank of Ireland

Type of mortgage: Fixed

Interest rate: 2.9%

Other borrowings – car loans/personal loans etc.: €22k Cars , 10% interest approx

Do you pay off your full credit card balance each month? Yes

Savings and investments:
€70 k cash savings in low interest accounts.


Do you have a pension scheme?
Yes, I have an ARF. Today worth €1,250,000. I took the tax free amount in 2014 and used it towards the building of my house.


Do you own any investment or other property? No


Ages of children: 22 and 18

Life insurance: Yes. Tied to mortgage.

What specific question do you have or what issues are of concern to you?

Tired of the rat race. Have worked my pants off straight from school until now. The business I am in has just got very difficult and is not nice to be in any more , too old to reinvent myself and maybe its time to slow down and live off my ARF and other bits and pieces. I think I should be fine , I've done up some spreadsheets but just interested in AAM's member's advice on what they would do. I have plenty hobbies so that side of it ( keeping myself busy ) is not an issue. Any opinions would be greatly appreciated. Thanks in advance.
 
You have €70,000 in cash earning you nothing and you have €22,000 of debt costing you 10% a year. That’s absolutely crazy.

Plus you’ve a mortgage of €40,000 that’s costing you 2.9% a year.

You should definitely clear the car loan(s) immediately. And you should clear the mortgage too. That would leave you with €8,000 of savings but would remove a large part of your monthly outgoings.

For the year you turn 61 and subsequent years, you’ll be forced to withdraw 4% of the value of the ARF (increasing to 5% from age 71 or 6% if the ARF grows to €2m or more). But in the interim, you can take as little as you like from the ARF. What’s your income requirement for the year excluding the mortgage and the car finance (‘cause they’d be gone)?
 
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What's the remaining term of the mortgage?

Would your PRSI contributions to date be anywhere near qualifying you for the contributory state pension when the time comes?

State Pension (Contributory)

The State Pension (Contributory), previously called the Old Age (Contributory) Pension, is payable to people aged 66 and over who have worked and paid enough social insurance contributions.
www.citizensinformation.ie www.citizensinformation.ie
I empathise with your situation with regard to work and have come to a similar crux myself...
 
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Gordon Gekko said:
You have €70,000 in cash earning you nothing and you have €22,000 of debt costing you 10% a year. That’s absolutely crazy.

Plus you’ve a mortgage of €40,000 that’s costing you 2.9% a year.

You should definitely clear the car loan(s) immediately. And you should clear the mortgage too. That would leave you with €8,000 of savings but would remove a large part of your monthly outgoings.

For the year you turn 61 and subsequent years, you’ll be forced to withdraw 4% of the value of the ARF (increasing to 5% from age 71 or 6% if the ARF grows to €2m or more). But in the interim, you can take as little as you like from the ARF. What’s your income requirement for the year excluding the mortgage and the car finance (‘cause they’d be gone)?
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Thanks Gordon. You're right of course, I have decided to pay off the €22k car loans leaving me with say 48k savings. I'm very hesitant to pay off the full amount of the mortgage as you never know when I might need a tax free rainy day fund. So say I pay off €20k off the mortgage , leaving €28 k cash outstanding for maybe , a rainy day requirement .My income requirement going forward , would then be say 50K per anum for next five years including my two boys' education and say €38k after that.
 
The real question here is not "do I have enough to retire now" but do we or more precisely does my partner have enough??
Have you taken into account that when you're 80 they will still be a young spritely 68 year old with hopefully many years in front of them
 
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Personally I wouldn’t be relying on the state pension in your planning if I had an ARF with 1.250m …changes are coming and not for the better.
 
I retired early. Aged 52. My mortgage was cleared and I had no other loans. My children were looking after themselves, more or less. My wife continued to work for about 4 years then she also threw the towel in. I was on a deferred defined benefit pension due to kick in aged 65.

It is a great feeling to have no loans outstanding. I had savings of about 300k.

I did the math. I reckoned that we could live on €20k per annum. Our €300k savings would cover this. At 65 my deferred pension plus state pension would kick in.......and they both did, giving us about €40k per annum to live on. Non smokers/light drinkers.

I spent that early retirement period travelling on cheap Ryanair flights several times a year and the remaining time pottering about. Started growing my own vegetables. You have time to shop the various supermarket offers and stock up on the cheap and reduced items. Make sure you have a good freezer, one cooked and frozen Suede/French beans/whatever, will give you vegetables for several days. You also have time to research hotel deals and other offers online. Made use of cheaper prescriptions and duty free items on our travels.

We continue to live on about €20k per annum, leaving is with another €20k to improve/maintain our home, cars, etc.
 
That’s good to know Isle of Man , but I’d be concerned that anyone with 20 years to state pension age needs to think differently as that 12.5k or 25k if a couple is not guaranteed in that timeframe … it makes retirement planning for more strategic than it is for somebody retiring today.
 
1) Pay off all your loans in full.
2) If you need cash, you can draw it down from your ARF, so you do not need an emergency fund.

In very loose terms...
3) Your net income on €40k gross is about €34k a year
4) You have €1.6m of assets.
5) Your net pay is increasing your assets by 2% a year.
6) So if you work for the next 8 years, you will increase your wealth by 16%

So, if you are not enjoying your job, it's not worth it.

Do you have enough to retire on?
If you don't, working for another 8 years isn't going to change it materially.

Do you have enough to retire on?
Yes, you have plenty as you live modestly (apart from borrowing money at high rates to deposit it at zero!)

As things stand, you will get the Contributory Old Age Pension in 10 years which is currently about €25k a year. But there is a real risk that this will be means tested by then.
 
Codogly said:
That’s good to know Isle of Man , but I’d be concerned that anyone with 20 years to state pension age needs to think differently as that 12.5k or 25k if a couple is not guaranteed in that timeframe … it makes retirement planning for more strategic than it is for somebody retiring today.
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I agree. In my case I can downsize my home a couple of times if I need, so I have that buffer. I am also aware that my defined benefit pension may not last the distance.
It also has a lot to do with lifestyle, your health, your future health as you age. It always pays to remain vigilant. The trick is to not be wasteful with money while not being mean at the same time. There is a time to splurge but always making hay as you travel.
 
Brendan Burgess said:
3) Your net income on €40k gross is about €34k a year
4) You have €1.6m of assets.
5) Your net pay is increasing your assets by 2% a year.
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This is the core of the question.

Most people have fairly high salaries in comparison to their total assets, so it pays them to work.
But some people have low salaries compared to their total assets, so working doesn't increase their wealth much.

You fall into the second category.

Brendan
 
If you don't work, you can take out about €25k a year from your ARF tax-free. (€25k @20% = €4,950 , your tax credits)
You will pay 20% tax on the next €20k you take out.

I haven't got this clear in my head yet, but I think I am right in saying, that by working, you will be missing the opportunity to take money out of your ARF tax-free.

Brendan
 
Cervelo said:
The real question here is not "do I have enough to retire now" but do we or more precisely does my partner have enough??
Have you taken into account that when you're 80 they will still be a young spritely 68 year old with hopefully many years in front of them
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It's not clear to what extent you and your spouse will be able to rely on the contributory state pension.

What are your PRSI contribution records like?
 
Brendan Burgess said:
If you don't work, you can take out about €25k a year from your ARF tax-free. (€25k @20% = €4,950 , your tax credits)
You will pay 20% tax on the next €20k you take out.

I haven't got this clear in my head yet, but I think I am right in saying, that by working, you will be missing the opportunity to take money out of your ARF tax-free.

Brendan
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Hi Brendan,

It’s where I was going with my line of questioning.

The whole mortgage should be cleared. There’d still be €8,000 in cash there which could be built up again by the sounds of it. And in emergencies, €65k ish can be take out at a blend of 0% and 20% tax.

The key is the family’s expenditure…just take that from the ARF and more in an emergency.

And maintain PRSI records for the State Pension.
 
Brendan Burgess said:
If you don't work, you can take out about €25k a year from your ARF tax-free. (€25k @20% = €4,950 , your tax credits)
You will pay 20% tax on the next €20k you take out.

I haven't got this clear in my head yet, but I think I am right in saying, that by working, you will be missing the opportunity to take money out of your ARF tax-free.

Brendan
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In case it's relevant PRSI/USC will still be chargeable so the €25K will be income tax free but will be €23K net after those deductions as far as I can see.
 
The joint lifetimes of OP, assuming in normal health for their ages, is about 65 years.
Divide the €1.25m by 65 and your expectation works out at about €20k p.a. each (on the heroic assumption your ARF will be able to match inflation). At these levels the ARF is quite tax efficient so given your stated expenditure requirements you seem adequately catered for.
As a matter of interest €1.25m seems a large ARF to have accumulated out of €40k salary. $20k per annum over 30 years would be doing well to accumulate €1.25m. What is your secret :)
Boss the single non contrib OAP is €12.5k p.a.
 
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It’s not salary, it’s self-employed income, so I’m guessing that the business was more remunerative in the past.
 
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