That's the element that I think is most problematic in this scenario.
As things stand, the ARF will potentially have to produce a meaningful income for 50+ years. That's a big ask.
Case study Have I enough to retire now ?
- Thread starter marsaday
- Start date
As things stand, the ARF will potentially have to produce a meaningful income for 50+ years. That's a big ask.
Brendan Burgess
Founder
- Messages
- 52,098
All this is correct, but increasing it by a net €350k is not changing it enough to justify 10 years work.
If his ARF were €500k and if he were earning €100k in a job he likes, I would agree with you.
But he is right to retire. The financial risk is slightly elevated but not enough to justify the risk of working in a job he is tired of.
Brendan
If his ARF were €500k and if he were earning €100k in a job he likes, I would agree with you.
But he is right to retire. The financial risk is slightly elevated but not enough to justify the risk of working in a job he is tired of.
Brendan
thunderin_eejit
Registered User
- Messages
- 8
Yes, what I'm saying is that if you allow yourself 4% withdrawals from an ARF every year, minus fees, you're left with 3% / 37.5k pre-tax. 4% is reasonably conservative, but as has been pointed out if you retire at a time where there are major stock-market losses close to retirement date you could exhaust your capital. So to give yourself extra security, you might choose to withdraw a smaller amount every year (e.g. 30k pre-tax), at least over the first few years of semi-retirement.
So your ARF is not big enough to safely give you the income you need on its own in my opinion, and you don't have much flexibility in at least the near-term (e.g. by reducing expenses), but there may be options to close the gap without working in a job you no longer enjoy. Even if it's working a 3 or 4 day week, or taking more holidays, or changing jobs entirely to something which might pay less but you are happier in. Longer term the issue I can see is that 38/40k a year post-tax is a big ask from an ARF at that level (unless you were sure the OAP will be paid and you were willing to take some risks on withdrawal rate), and you would need something to happen to make it work - e.g. strong market returns, your wife to bring in a (relatively) small amount of income.
A rainy day fund . I was always told growing up to have at 6 months earnings put side for such situations. I can think of one such situation recently. I wouldn’t have liked to have all my funds tied up when it happened...Covid.
Sorry thunderin- eejit. I’m struggling to understand this. So the mandatory 4% deduction of the ARF of €1.25k is €50,000. You’re saying that that there will be fees of €12,500 (1% of €1.25k) bringing the nett withdrawal down to €37,500. Are these government fees or pension provider fees ? And say I am working and earning still at that stage and have used up my tax credits on the earnings , so I’ll be paying top rate PAYE , USC and PRSI on that €37500 bringing the total withdrawal down to around €18k . Please tell me I’m wrong
thunderin_eejit
Registered User
- Messages
- 8
I'm confusing you on the 4% minus fees and it's my fault - just ignore, it's not a big deal.
Is it just me or has this thread become a bit confusing with people posting inaccurate info about the impact of charges on any ARF drawdown, the original post maybe being inaccurate on the €40k gross annual income, and arguably irrelevant deviations into what might've happened in the past with different facts (e.g. ARF asset allocation)? Well, I find it confusing anyway... 
Yes. I’m particularly confused about how a 4% withdrawal becomes a 3% withdrawal as suggested by thunderin_eejit.Can anyone clarify the situation with this as , with respect , I’m not convinced this is correct and its a key point in the discussion if he is correct.Is it just me or has this thread become a bit confusing with people posting inaccurate info about the impact of charges on any ARF drawdown, the original post maybe being inaccurate on the €40k gross annual income, and arguably irrelevant deviations into what might've happened in the past with different facts (e.g. ARF asset allocation)? Well, I find it confusing anyway...
Sorry for my part in any confusement. I thought I made it clear my current gross income was €40k in my original post which it is. I should have mentioned , in retrospect that I had to dip into my savings to the tune of roughly €20k per anum to meet my outgoing expenditure but I only answered the standard Money Makeover template questions but should have put in a footnote.
In the past , when my earnings were higher , I didn’t have to use savings but now I do. Thats what savings are for I suppose. But I totally get your point about the confusement , Clubman.
Last edited:
Thanks, so it's not just me...
This, in particular, and the earlier post related to it, I find very confusing and I suspect that it's completely wrong.
As I mentioned earlier in the thread, I'm in a somewhat similar situation to you although not planning to draw on pension assets just yet. Hence my interest. I suppose I probably should post my own money makeover style thread rather than trying to piggyback on yours...
This, in particular, and the earlier post related to it, I find very confusing and I suspect that it's completely wrong.
But it's not just that. It's other posts about what might've happened had you retired in 2000 (you didn't) with some different ARF asset allocation. Totally irrelevant and distracting from the matter/question in hand.
As I mentioned earlier in the thread, I'm in a somewhat similar situation to you although not planning to draw on pension assets just yet. Hence my interest. I suppose I probably should post my own money makeover style thread rather than trying to piggyback on yours...
Gordon Gekko
Registered User
- Messages
- 7,370
The 4%/1% point was butchered by the poster alright.
If an ARF is worth €1m and the person is 61, the fee is likely to be 1% and the mandatory drawdown is 4%.
So the ARF needs to be growing at 5% just to maintain its value (and that’s before inflation is taken into account).
If an ARF is worth €1m and the person is 61, the fee is likely to be 1% and the mandatory drawdown is 4%.
So the ARF needs to be growing at 5% just to maintain its value (and that’s before inflation is taken into account).
Just to pick up on this.
I took early retirement. I wasn't sure that I could risk giving my children this gift per annum. At the time they had pretty good jobs but renting their own places. The math said I could afford to, but I didn't want to leave us short.
After a few years I inherited some money so I gave each of them a gift of €25k. I believe that each of my children used this money wisely. When each got married I gave them another €25k each. These monies ended up being used toward the purchase or refurbishment of their own properties. Since then I have given them sums of money per annum ranging in amounts up to €6k each.
I am not sure that giving someone young, single and living in a flat €6k per annum is a good idea. It gets pissed away. It can also create an expectation in them, that this money will be available.
My own children are at an age now, with their own families where €6k per annum can help. Although €6k does not go far these days.
While it might make sense from a tax point of view, my own thoughts are that parents should wait until after their wedding and give their children a decent sized lump sum. Not before the wedding as this may get spent on the wedding. I know that you are saving tax by limiting the gift to €6k but I have no regrets in putting aside a larger sum of money to be gifted to my children when they got married.
Thanks Gordon. Just to clarify are the 1% fees referred to are the fees charged by the pension provider ( Standard Life , Irish Life , Zurich , whatever).?
But if a person has a valuation , in this case , €1.25k the 1% pension fees have already been deducted by the provider in an up to date statement, is this correct?
So say €1.25k statement value on provider portal today , growth in 12 months is 5% i.e €62500 less fees is say €50k.
Arf holder withdraws the manatory 4% which is €50k less PAYE , USC and PRSI.
I presume if the Provider adminstration fees are less or more than 1% , the figures alter accordingly in the exercise above.?
Thanks Gordon.
Last edited:
Gordon Gekko
Registered User
- Messages
- 7,370
Yes, if the fund is worth €1m the ARF provider takes 1% from the fund each year, i.e. €10,000.
And then separately the person is compelled to withdraw 4%.
They’re not related at all.
And then separately the person is compelled to withdraw 4%.
They’re not related at all.
Thank you.
Gordon Gekko
Registered User
- Messages
- 7,370
Going back to the OP’s conundrum, I think it’s a great real-world example of a drum that Sarenco in particular beats frequently: Sequence of return risk.
It’s not so much the self-employed earnings over the coming years; it’s leaving the ARF alone that might help more.
It’s not so much the self-employed earnings over the coming years; it’s leaving the ARF alone that might help more.
The OP has asked whether he has enough to retire now.
Nobody can give a definitive answer to that question because (a) we don't know how long he (and his wife) will live; or (b) what market returns will look like going forward.
He could buy an annuity to provide a guaranteed income for life but we know an annuity will not provide a sufficient income to meet his needs.
So while the past is not predicative of the future, it's the only guide we have.
Gordon Gekko
Registered User
- Messages
- 7,370
I agree with Sarenco. It’s crazy to ignore dodgy 20 year periods if you’re potentially on the cusp of a similar time-horizon yourself.
Virtually every financial plan is based on assumptions which in turn are based on the past performance of equity markets.
I always state the very first step to understanding your retirement potential is to know your expenses, the early posts here all assumed a 40k or less outgoing as we didn't have full info. The many FIRE blogs use a standard 25x annual expenses as the minimum amount to be financially independent (these also don't factor in Irish taxes, fees, inflation etc but are based on the 4% rule, which should overcome sequence of return risk based on the research).
So your current expenditure is roughly 50k which based on that basic calculation would require €1.25m (50*25), so in principle you have met that baseline, and in additional the state contributory pension (if paid) in 10 years would then shore up your incoming at the point the fund might be starting to drain. But that leaves very little room for surprises.
My situation is similar, albiet several years behind you and except I still have the tax free amount available - so when I draw down I will use this as the buffer to cover any extra exp (college) or negative returns. Just for reference to Sarenco's sequence of returns risk, I track the income from my expected ARF over 40 years, based on the 20 years from 2000-2020 twice - so I can see the 2001/2/3 and 2008 crashes factored x2. gives me a dose of reality, but still is feasible.
For me since you have no large buffer either in the fund itself or as a cash reserve to ride out some severe market drops, I would suggest you need to wait until the €50kp.a. exp becomes <40k p.a. which would leave the ARF alone longer to reduce the amount of time you are reliant on it and hopefully grow.
Final thought - You could probably both work a part time job and earn a similar/larger net salary to now, this would give you more freedom (unless you already went part time re the drop to 40k?) and time with the kids and also cover your expenses.
50+0
So your current expenditure is roughly 50k which based on that basic calculation would require €1.25m (50*25), so in principle you have met that baseline, and in additional the state contributory pension (if paid) in 10 years would then shore up your incoming at the point the fund might be starting to drain. But that leaves very little room for surprises.
My situation is similar, albiet several years behind you and except I still have the tax free amount available - so when I draw down I will use this as the buffer to cover any extra exp (college) or negative returns. Just for reference to Sarenco's sequence of returns risk, I track the income from my expected ARF over 40 years, based on the 20 years from 2000-2020 twice - so I can see the 2001/2/3 and 2008 crashes factored x2. gives me a dose of reality, but still is feasible.
For me since you have no large buffer either in the fund itself or as a cash reserve to ride out some severe market drops, I would suggest you need to wait until the €50kp.a. exp becomes <40k p.a. which would leave the ARF alone longer to reduce the amount of time you are reliant on it and hopefully grow.
Final thought - You could probably both work a part time job and earn a similar/larger net salary to now, this would give you more freedom (unless you already went part time re the drop to 40k?) and time with the kids and also cover your expenses.
50+0