50 income poor asset ok. Expenses Looming

[Bronte]

I don't know how to get certainty. I asked a professional pensions advisor and the said they didn't know but would get back to me. 2 days later they produced a printout from Citizens Information. It is hardly conclusive.

Shocking, did you pay that person?

You really must find out if it is correct. How about posting that question on it's own in the social welfare threads, then you will attract someone in that area who may know the answer.

A state contributory pension would be really important. Because it means that you are entitled to that no matter how wealthy you are.

Another option is to send a letter to the Pensions office in Sligo/Donegal, ask them do you have enough contributions, can you buy contributions, etc

 

[Bronte]

Money is money. You get tax relief on it up to a certain percentage of your salary.

You are just moving money from a Deposit Account into a pension fund and getting tax relief on the way in. It seems clear to me.

Creemegg we are all agreed I think that the money on deposit is wasted. Just sitting there making zero and losing due to inflations. So you've 3 options so far:

1. Put it into your pension
2. Pay off some of your mortgages
3. Buy 5 blue chip shares

For the pension option, which I wouldn't understand, one would need to have calculations to see how it works before making a decision. But I do agree totally that a pension is a really good idea.

For the mortgages, Burgess and others think this is not a good idea as the money is so cheap, you'll have equity in one property and eventually in 3 properties, seems logical enough

In relation to the shares, I note that Michael Smurfit lost out all his pension on these.

You have to spend some cash now on:

1. Car loan
2. New car (from other thread)

You have to keep some for:
1. Emergency fund
2. Low amount in a good savings product
3. Enough for year 1, or year 1 to 3 of college expenses

Might be an idea to do a table for the college expenses so that you know per year how much you will need.

Your single biggest expenditure will be the college fees, but it's not a worry because

a) you have it in cash
b) you have it in one house which is fully owned

Your most important other money problem is how to fund retirement

a) state pension X 2
b) private pension
c) rental income
d) shares

 

[mandelbrot]

Shocking, did you pay that person?

You really must find out if it is correct. How about posting that question on it's own in the social welfare threads, then you will attract someone in that area who may know the answer.

A state contributory pension would be really important. Because it means that you are entitled to that no matter how wealthy you are.

Another option is to send a letter to the Pensions office in Sligo/Donegal, ask them do you have enough contributions, can you buy contributions, etc

What's the question?

If a person is self employed and pays an S-class contribution of at least the minimum amount (used to be €253 but I think it has increased to c.€500) then they have 52 reckonable contributions for that year for pension calculation purposes.

I've just recently requested my Dad's contribution record so as to see what his entitlement will be, he's been a proprietary director since the late 80's, paying class S, and has his 52 contributions for each year.

 

[T McGibney]

Shocking, did you pay that person?

Why is it shocking? There's nothing wrong with a professional admitting they don't know an answer to a particular query. Problems arise when professionals pretend they know, but actually don't. Nor is there is anything wrong with a professional referencing an open source like Citizens Information to resolve a query. I, in common with every other accountant in Ireland, access revenue.ie on an almost hourly basis.

 

[Brendan Burgess]

Problems arise when professionals pretend they know, but actually don't. .

Agree fully. I don't know if accountants are the best to advise on pension entitlements.

 

[Jim2007]

Creemegg we are all agreed I think that the money on deposit is wasted.

Certainly not! Without these savings the OP would appear to have no 'rainy day fund'. The amount represents about six months income for the OP and as a self-employed person with a family to support, it would be very fool hearty to lock that up in anything other than perhaps some time deposits or similar products.

 

[Brendan Burgess]

Hi Jim

I presume you are referring to the €20,000 and not the €190,000.

Savings and investments:
Deposit ac €190,000
Short term deposit €20,000

I think it's risky and wasteful to have the €190,000 on deposit.

It's a matter of taste how much one should have as a rainy day fund.

 

[Bronte]

Why is it shocking? There's nothing wrong with a professional admitting they don't know an answer to a particular query. Problems arise when professionals pretend they know, but actually don't. Nor is there is anything wrong with a professional referencing an open source like Citizens Information to resolve a query. I, in common with every other accountant in Ireland, access revenue.ie on an almost hourly basis.

Don't you think a person who purports to be an expert on pensions would know practially everything there is to know about state pensions? It isn't a complex person. If you have a person come to you to be assessed in relation to their pension needs the first thing they need to consider is your entitlement to a state pension.

Accessing the revenue website is a whole different matter to citizens advice bureau. Revenue even has a dedicated section and briefings for professionals such as accountants.

A pension expert should be able to know Creemaag's situation easily. In any case it appears citizens advice website was inconclusive, ie neither Creemagaag nor the pension expert were any the wiser after reading it.

On the other hand if it were a very complicated, little used, or unknown query I wouldn't expect the professional to know the answer off hand, but I would certainly hope they would know where to get the right answer from.

 

[Bronte]

Certainly not! Without these savings the OP would appear to have no 'rainy day fund'. The amount represents about six months income for the OP and as a self-employed person with a family to support, it would be very fool hearty to lock that up in anything other than perhaps some time deposits or similar products.

I understand Jim that you are somewhat knowledgeable on shares etc. Do you think that Creemaag should keep his money on deposit or should he invest in 5 blue chip shares. Is it a good idea or not? And if you keep your money that way it is basically just as easily accessible as if it were on deposit.

 

[Bronte]

Agree fully. I don't know if accountants are the best to advise on pension entitlements.

He never said accountant, he said pensions advisor, is that not something totally different?

 

[Bronte]

What's the question?

If a person is self employed and pays an S-class contribution of at least the minimum amount then they have 52 reckonable contributions for that year for pension calculation purposes.

.

Do landlords pay class S contribution? Are they considered self employed. It's clear that Creemaag is self employed, and that he is also a landlord. On rental income there is some class of PRSI, does that give one any entitlements?

 

[Brendan Burgess]

He never said accountant, he said pensions advisor, is that not something totally different?

Sorrry, I had missed that. For some reason I had thought he had gone to an accountant.

You are right. A pensions advisor should know the qualifying conditions for a state pension.

 

[mandelbrot]

Do landlords pay class S contribution? Are they considered self employed. It's clear that Creemaag is self employed, and that he is also a landlord. On rental income there is some class of PRSI, does that give one any entitlements?

Yes it's all class S - the source of the income is irrelevant, social welfare have no means to even know in respect of what type of income a particular PRSI contribution was collected, all they know is that Revenue tell them Joe Bloggs has paid X amount of PRSI at class S.

 

[WindUp]

Sorrry, I had missed that. For some reason I had thought he had gone to an accountant.

You are right. A pensions advisor should know the qualifying conditions for a state pension.

He might know them now - but he cannot predict what the pensionable age will be in 10 years or what other changes might be made .

 

[cremeegg]

Thanks again for all the suggestions.

I am advised to sell BLT 1 and in principle I accept this advise. However first I need to find a better use for the €190,000 on deposit.

Brendan suggests that I buy 5 blue chip shares.

How would I choose what 5.

What type of decision process is needed to choose 5.

Or I suppose in principle if markets are efficient it should not matter what 5, and there is no choosing involved.

I do have some other points I would like to probe on this but no time for now.

 

[Brendan Burgess]

It would probably be better to start a new thread on this in the Investments Forum, if it's not covered by a Key Post.

 

[cremeegg]

Just to address that issue of the financial advisor who did not know if I was entitled to a contributory state pension.

For most self employed people the state pension will be either the largest, or a large, part of their retirement income. For a couple the state pension is at the level of an annuity that would cost over €800,000.

Certainly the advisor did act responsibly in doing some research when they didn't know the answer, however I can't help feeling that the reason they didn't know in the first place is that there is no money in being an expert on the state pension.

Financial advisors are like shopkeepers, they have a stock of products they are trying to sell. There is nothing wrong with that but the term financial advisor is misleading

 

[goingforgold]

. For a couple the state pension is at the level of an annuity that would cost over €800,000.

Not an expert but the above seems somewhat excessive. If you take current annuity rates then a €150k pension lump sum should give you an annual pension of c. €7.5k per annum. The state pension is €12k per annum so c.€240k pension lump sum should buy you the equivalent amount per annum.

So a couple would be c.€480k...am i missing something? My figures are based on a level payment pension, with minimum guarantee period which is equivalent to state pension terms.

 

[Laramie]

Do you actually need to do anything at all....for the moment. You seem like an active person who has to occupy himself doing something "financial". Are you getting a little bored at the moment and need to be doing something else financial. At one stage everyone thought that bank shares were blue chip shares and look at them now, so thread carefully here. Maybe have the annual holiday with the children while they are still with you. Mine have gone and are all doing well for themselves but you can look back on the holiday.

 

[Bronte]

Not an expert but the above seems somewhat excessive. If you take current annuity rates then a €150k pension lump sum should give you an annual pension of c. €7.5k per annum. The state pension is €12k per annum so c.€240k pension lump sum should buy you the equivalent amount per annum.

.

So an annuity is returning 5%. But you risk losing the capital. To get around 12K per annum you'd need to put in capital of nearly 250K. By two people that's 500K, giving one 25K return.