Moneymakeover 53 needing pension and medium term investment advice

Age:

53, no dependents


Annual gross income from employment or profession:

75k

Monthly take-home pay:

3900

Type of employment:

Public sector

In general are you:
(a) spending more than you earn, or
(b) saving?

Saving €750 per month

Rough estimate of value of home:

450k

Amount outstanding on your mortgage:

140k and mortgage runs until age 68

What interest rate are you paying?

3.95% fixed until Oct 2027

Other borrowings – car loans/personal loans etc:

None.

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

Always

Savings and investments:

€42,500 between Bunq and Credit Union

Do you have a pension scheme?

Public Service post 2004 (not the Single Public Pension Scheme).

Late entrant, so will not have full pension.

If I work until age 66, this will give lump sum of €75k and annual pension of €30k

(Annual pension figure includes the social welfare contributory pension )

Do you own any investment or other property?

No.

Life insurance:

Income protection only.

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

I would be a cautious person when it comes to financial risk, but realise this can minimise my ability to get decent returns, so would greatly appreciate any advice on what level of risk is sensible at my stage in life,

I would love to be able to retire early, but at this stage think this would be a pipe dream as I would be losing years of service and impacting the public service pension.


I’m hoping for advice in two areas please.

• Pension – long term investment
• Savings – medium term investment

First – Pension

If I work to age 66 I will have 27.5 years service.

The cost of buying service seems prohibitive and thus I think I need to go the AVC route.

Given my age, it looks like it makes more sense to push money into AVCs, rather than paying off mortgage early, due to the tax reliefs on contributions – would this be correct?

I know Cornmarket run an AVC scheme for the public service and I did speak to them several years ago. However, my recent research (mainly on this forum) was not very positive both in term of fund performance and fees.

I am hoping the good folks here might be able to advise me of alternatives.

Second – Medium term investment

I’m losing money keeping savings in traditional banks and so would like recommendations for this also.




Thanks a million.

gkan1972 said:

If I work until age 66, this will give lump sum of €75k and annual pension of €30k

Click to expand...

You won't be in bad shape if you end up with that pension but you have time to build up an additional fund with AVCs to give more retirement income or perhaps retire earlier.

Pension:
If you are not having difficulty managing your mortgage repayments then maxing out your tax relief from AVCs would be a good strategy. Although it won't be cheap and if you want to also save for medium term then you will need to decide how much to put toward each. Suggest having a read through this excellent AAM thread on pension investments which mentions good value pension products and brokers.

This thread is about the Single Pension Scheme but this post in that thread contains a lot of information about how AVCs work so would still apply in your case.

There is an Excel AVC calculator by @gort_gráinneog in this thread. It is designed to work for people on the Single Pension Scheme so it would not be completely accurate in your Post 2004 pension scheme but it would give a ballpark figure of how much it will cost to "max out your tax relief" by making AVCs. Explanations on how to use it are here.

You could plug in your anticipated AVCs into this Excel calculator by @AJAM to give some idea about what your fund could grow to until you retire but that estimate would not be accurate given the unpredictability of the future!

gkan1972 said:

Amount outstanding on your mortgage:

140k and mortgage runs until age 68

Click to expand...

gkan1972 said:

Savings and investments:

€42,500 between Bunq and Credit Union

Click to expand...

gkan1972 said:

I would be a cautious person when it comes to financial risk

Click to expand...

gkan1972 said:

I would love to be able to retire early

Click to expand...

In that case using some, most or all of your savings to reduce your mortgage might dovetail well with tentative plans to retire early. If there's any penalty right now because of the fixed rate then you can do it when the fixed rate ends.

gkan1972 said:

I know Cornmarket run an AVC scheme for the public service and I did speak to them several years ago. However, my recent research (mainly on this forum) was not very positive both in term of fund performance and fees.

I am hoping the good folks here might be able to advise me of alternatives.

Click to expand...

There are many existing threads that touch on this.
This only slight drawback is that you may have to claim tax relief manually rather than getting it automatically via payroll.
Maybe check the usual suspects for an AVC PRSA maybe on an execution only basis:
https://www.prsa.ie

gkan1972 said:

If I work until age 66, this will give lump sum of €75k and annual pension of €30k

Click to expand...

That's not necessarily bad!
Might you also have any entitlement to a PRSI based contributory pension if you had prior non public service employment?

You should analyse your current expenditure to see what's a reasonable estimate of your essential expenditure to get an idea of what sort of retirement income you might need.
See here for example:
For example ... I'm an early (late 50s) practically/de-facto retired single parent of a third level student and well able to run our household comfortably on a tax free (due to tax credits) income (pension 60%/passive 40%) of c. €30K p.a. even though (or even because) my remuneration a few years ago when working was in 6 figures - plus I cleared my mortgage years ago. But different people/households have different lifestyles and needs, and more to the point, wants, so there's no one size fits all solution necessarily...

gkan1972 said:

I’m losing money keeping savings in traditional banks and so would like recommendations for this also.

Click to expand...

Reducing your mortgage and/or boosting your pension cover via AVCs is probably the best place to start to get better than deposit returns (which are likely negative after inflation).

Do more research on the AVC you want to buy. Know exactly what product provider, product and fund/s you want to invest in before you go on the execution only journey, if that's the route you're going to take based on the AAM consensus. If you think that this route is beyond you and that it may overwhelm you, then use an advisory service.

For the level of contribution you've available there aren't that many (EO) product players. A Standard AVC PRSA should be suitable for your needs. I'm seeing a few questionable recommendations for Non-Standard ( AMC > 1%) products purely based on advice for a partial investment in outlier fund that wasn't available on a Standard (max 1% AMC). Usually, the type of assets that are in those outlier funds are in the multi-asset funds (on Standard products) of companies anyway.

Pay down the mortgage with some of the savings when it's possible to do so. At least you'll feel like you've done something with the money.

Make a will, if you haven't one made already.


Gerard

www.execution-only.ie

Thank you CharlieMac, Clubman, and GSheehy for your comments and advice.

I'm a new poster and so I don't yet have the ability to like posts.