AVCs Mortgage And Retirement

J

Justlookin4help

Registered User
Messages
14
Hey guys.
I have questions.
1.Can you retire from your current job and draw down your pension at 55.
2.Can you work after you draw down your pension early or work after you retire.
3. Would it be financially better off to Pay down mortgage by €400 every month for next 17 years untill 55 or put the money into avcs and then draw it out with early pension in 17 years time at 55 years old and pay it off the mortgage then. Which gives more bank for your buck??
Ps.The answer is always easy when know how.

Thanks
 
Q1 depends on the features of your occupational pension scheme.

Q2, yes, of course, it's a free country, you can of course work while you receive a pension from a previous job.

Thousands of people do this daily.
 
Justlookin4help said:
3. Would it be financially better off to Pay down mortgage by €400 every month for next 17 years untill 55 or put the money into avcs and then draw it out with early pension in 17 years time at 55 years old and pay it off the mortgage then. Which gives more bank for your buck??
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Probably the latter especially assuming that you're getting full (40%?) tax relief on the (additional?) €400 pension contribution and it's likely to earn significant tax free returns over 17 or so years. Also assuming that the pension charges are reasonable. On the other hand the €400 accelerated mortgage repayment gives a guaranteed return of the interest avoided.
 
ClubMan said:
Probably the latter especially assuming that you're getting full (40%?) tax relief on the (additional?) €400 pension contribution and it's likely to earn significant tax free returns over 17 or so years. Also assuming that the pension charges are reasonable. On the other hand the €400 accelerated mortgage repayment gives a guaranteed return of the interest avoided.
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Yes i earn 69k net this year so its 40% tax.
I dont know what the company charge for my avcs. Its Mercer. i have never got any statement of fees owed to them so its free i assume. They look after the pension i have with the company i work with.
So not including prsi or usc as its common to both I work out €400 net off mortgage will cost me €666 (€666-40% tax =€400).
And €400 toward avc cost me €240 as i dont pay 40% tax on the €400 avc.
So which is best in that case.
 
Protocol said:
Q1 depends on the features of your occupational pension scheme.

Q2, yes, of course, it's a free country, you can of course work while you receive a pension from a previous job.

Thousands of people do this daily.
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1. Not sure what features it has.
2.Can you draw avc early with early pension. What percentage lump some is tax free. and what percentage of your actual pension do you get if you take it ealry. Is there a table for dummies.
 
ClubMan said:
I very much doubt that! Maybe worth checking.

Isn't that obvious now that you've put rough figures on it?
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Honestly iv never paid them a penny so i assumed it zero.
No its not obvious to me,i dont how to work it out with mortage interest rate. Please take it that im not as financially or mathematically intelligent as one may assume.
 
Justlookin4help said:
Honestly iv never paid them a penny so i assumed it zero.
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Charges will come out of your contributions.
The chances of there being no charges at all are almost certainly zero.
Justlookin4help said:
No its not obvious to me,i dont how to work it out with mortage interest rate. Please take it that im not as financially or mathematically intelligent as one may assume.
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I already said that the pension route is almost certainly more financially efficient. Caveats being that you don't see the benefit until c. 17 years later whereas the mortgage overpayment gives an immediate benefit.

If it was me, the mortgage was at a manageable level in terms of outstanding balance and ongoing repayments, my earning capacity wasn't compromised, and I had spare cash then I'd stick it in the pension.
 
ClubMan said:
Charges will come out of your contributions.
The chances of there being no charges at all are almost certainly zero.

I already said that the pension route is almost certainly more financially efficient. Caveats being that you don't see the benefit until c. 17 years later whereas the mortgage overpayment gives an immediate benefit.

If it was me, the mortgage was at a manageable level in terms of outstanding balance and ongoing repayments, my earning capacity wasn't compromised, and I had spare cash then I'd stick it in the pension.
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Thank you.
My mortgage repayments are 27.5% of take home pay due to lowish interest rate n circa 10k in overpayments last 3 years.
Thanks clubman.
I worked out the balance in 17 years woul be 100k was hoping to use avc to pay it off.
 
Justlookin4help said:
So not including prsi or usc as its common to both I work out €400 net off mortgage will cost me €666 (€666-40% tax =€400).
And €400 toward avc cost me €240 as i dont pay 40% tax on the €400 avc.
Click to expand...

Not sure about this comparison.

This is how I would look at it.

You have €666 in gross pay what is the best thing to do with it?
A) You put it into a pension fund and the pension fund gets €666
B) You pay it as salary and you get €400 into your hand.

However, the €666 is in your pension scheme and when you draw it down you will be taxed on it.
Let's say 25% will be tax free and the balance will be taxed at 20%. So the tax hit will be €100, so you get €566 into your hand.

The investment in the pension fund will grow tax-free. (But it will be taxed when you draw it down as pension)
But so too will the overpayment of your mortgage. You will get a return on your €400 equal to the mortgage rate.

So if your mortgage is at a comfortable level and you are paying 40% tax , then it's better to contribute to a pension.

At this stage, that is all you need to know.

When you hit 55, you can decide what you want to do then. It would usually be better to leave the pension fund where it is growing tax-free rather than taking it out to clear the mortgage. It wouldn't make sense to retire just so that you can get a lump sum to clear your mortgage ahead of schedule. You may wish to retire for other reasons, but not to clear your mortgage ahead of schedule.

Brendan
 
Brendan Burgess said:
Not sure about this comparison.

This is how I would look at it.

You have €666 in gross pay what is the best thing to do with it?
A) You put it into a pension fund and the pension fund gets €666
B) You pay it as salary and you get €400 into your hand.

However, the €666 is in your pension scheme and when you draw it down you will be taxed on it.
Let's say 25% will be tax free and the balance will be taxed at 20%. So the tax hit will be €100, so you get €566 into your hand.

The investment in the pension fund will grow tax-free. (But it will be taxed when you draw it down as pension)
But so too will the overpayment of your mortgage. You will get a return on your €400 equal to the mortgage rate.

So if your mortgage is at a comfortable level and you are paying 40% tax , then it's better to contribute to a pension.

At this stage, that is all you need to know.

When you hit 55, you can decide what you want to do then. It would usually be better to leave the pension fund where it is growing tax-free rather than taking it out to clear the mortgage. It wouldn't make sense to retire just so that you can get a lump sum to clear your mortgage ahead of schedule. You may wish to retire for other reasons, but not to clear your mortgage ahead of schedule.

Brendan
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Thanks Brendan for your help. I understand alot better now.
Thank you.
 
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