Hi Pointy,
You can put 25% of your 34k a year into a pension.
You’ll get relief at the 20% rate on the way in, and it’s likely that you’ll pay tax at the 20% rate on the way out (plus USC and PRSI which will reduce and disappear respectively for you over time).
At a minimum, you should contribute what’s required to match the employer contribution. However, I think that you should contribute the maximum as your existing cash savings will give little return.
The fact that you might switch jobs isn’t hugely relevant as these things are portable. A PRSA wouldn’t work as a complete solution because employer contributions count towards the 25% limit with a PRSA but don’t with an employer scheme. Employer schemes tend to be cheaper also.
I would make a 25% contribution to a PRSA for 2019 before 31 October. So you write a cheque for €8,500 to a provider and then get a tax refund of €1,700 (i.e. 20% tax relief).
You should then start contributing the maximum to the employer scheme (i.e. €8,500 per year / €708 per month). There may be a catch-up element to that this year which you’ll need to navigate. You should see a reduction in your monthly after-tax income of around €570 if you do this which is fine because you’re saving €1,000 a month anyway.
You’ll still have around €54k in cash and you’ll still be adding around €430 to that every month.
I would set-aside around €20k of your €54k and keep it in cash somewhere like a Credit Union. That’s your emergency money and, at around a year’s net income less what you’d be saving/investing, it’d be nice and prudent. You should feel quite safe.
Then I’d look to invest the balance (i.e. €34k plus your €430 ongoing monthly surplus. Yes, there might be better options from a tax perspective, but they’d drag you into having to submit a tax return; I’d go for a life company investment bond where they take your €34k and your €430 a month and invest it all in something global and equity based. Yes, any returns will be taxed at 41% and you do still have some 20% rate band, and yes there’s a 1% levy on the way in and yes you will have to keep an eye on the charges, but you‘ll have a simple life and they’ll take care of the tax obligations for you. You have no debt and enough cash, so I’d look at something like Zurich Life’s International Equity fund. Don’t worry about volatility. Time is on your side and you should do very well if you stick to your plan.
I would also allocate your pension to whatever global equity fund is on the employer scheme’s platform. The same advice applies; stick to your plan and don’t worry about short-term volatility. Time is on your side.
If you do all of the above and stick to your plan, you’ll be in rude financial health at retirement.
Separately, I would urge you to perhaps live a little less frugally. Perhaps take some of the money (i.e. the €34k or the €430 a month) and treat yourself? Life is for living. There is no point being the wealthiest person in the cemetery. You might fall off your seat at this suggestion, but maybe after Covid has settled down and we’re all trying to make up for it, take €4k of your €34k and take the holiday that you’ve always wanted too.
Spreadsheets are great, but they’re not much craic.
Best of luck,
Gordon
