Is leaving corporate employment at 50 financially feasible

[ArthurMcB]

friend of mine is 42 and works for corporate america (as someone else put it).

Has 470k in pension, maxes it and forecasts approx 1m by age 50 at which time he is out.

He forecasts savings of 200k by then which
he'll use to bridge to age 52 at which time he will tap his pension. Whatever remains of the 200k + tax free lump sum he plans to have as a hedge against sequence of return risk.

He forecasts 40k after tax to be sufficient.

Whilst he doesnt hate his job, he certainly doesnt relish it. There are many things he would like to be doing as an alternative and so he wants to get out asap and enjoy life as fully as he can, while he can

Same friend is 42 and works for corporate America, as someone once put it.

He has approximately €477k in his pension, maximises his contributions and forecasts a pension pot of around €1m by age 50, at which point he hopes to leave his current job.

He expects to have approximately €200k in savings by then, which he plans to use to fund his lifestyle from age 50 to 52, when he expects to access his pension. He would also have the option of taking a tax-free lump sum from his pension, subject to the applicable rules.

His intention would be to keep the pension invested predominantly in equities, while holding sufficient cash or other lower-risk assets to manage the early years of retirement and reduce sequence-of-returns risk.

He estimates that €40k net per annum would be sufficient to cover his living costs.
Although he doesn't hate his job, he doesn't particularly enjoy it either. There are plenty of other things he'd like to do with his time, and he would prefer to leave corporate life while he's still relatively young and healthy enough to enjoy the alternatives.

A few questions for the forum:
1.Does leaving corporate employment at 50 look financially realistic on these assumptions?
2. Is a €200k savings bridge between ages 50 and 52 sufficient, or would a larger reserve be prudent?
3.What are the main risks or assumptions he may be overlooking, particularly around investment returns, inflation, pension access and college costs?
4. Would you approach the pension and non-pension investments differently to reduce the risk of having to sell equities during a market downturn?

Any observations or suggestions would be appreciated.

 

[Mammysboy]

I would recommend your friend listen to the podcasts from Informed Decisions: https://www.informeddecisions.ie/

They also have a retirement calculator: https://www.informeddecisions.ie/pension-calculator

 

[Fortune]

Would you approach the pension and non-pension investments differently to reduce the risk of having to sell equities during a market downturn?

I'd would just point out that he will be forced to sell equities from age 61 onwards. That will require a rethink of the non-pension strategy, I think.

 

[Sarenco]

€1.2m in liquid assets, with a projected burn rate of €40k per annum, adjusted for inflation, for, say, 30 years.

Sounds fine to me.

I don’t see any issue with keeping the pension 100% in equities and keeping after-tax savings in cash for the time being.

 

[Sarenco]

Obviously the pension drawdowns are taxable but equally there will presumably be a State pension.

For planning purposes, I would just assume that these will net to zero.

 

[Setforlife]

investment returns, inflation, pension access and college costs?

The college costs thing is just mentioned once, apart from net 40k covering his living costs there was no mention of family status, children’s ages, mortgage status at 50 etc. I am already that age and kids won’t be out of college probably until I’m 65.

I could probably retire now on 40k net a year except for kids, with them included in calculations it’s 5-8 years away.

Planning to retire 15 years early with a relatively modest sum for such an early retirement is a whole other calculation if kids, college costs, potentially helping find homes etc is a factor.

I’d also say a ‘corporate America’ job that only gets you from 477k to 1million in 8 years at max pension contributions doesn’t add up at all.

 

[ArthurMcB]

I’d also say a ‘corporate America’ job that only gets you from 477k to 1million in 8 years at max pension contributions doesn’t add up at all

Thanks for the comments. I think it adds up. Max contrib + circa 3% real return gets it to thereabouts.and thats extremely conservative.

477000*(1+3%)^8 + 42000*(((1+3%)^8-1)/3%) = 1,000,000

 

[Setforlife]

Thanks for the comments. I think it adds up. Max contrib + circa 3% real return gets it to thereabouts.and thats extremely conservative.

477000*(1+3%)^8 + 42000*(((1+3%)^8-1)/3%) = 1,000,000

What I meant is it’s extremely conservative and that’s assuming no employer contribution? Any ‘corporate America’ role has at least 10%, most have a lot more.

 

[ClubMan]

I'd would just point out that he will be forced to sell equities from age 61 onwards.

I don't understand this. Can you clarify please? Are you talking about ARF/vested PRSA mandatory drawdowns or something? But you seem to be referring to the non-pension equity investments?

 

[ClubMan]

Any ‘corporate America’ role has at least 10%, most have a lot more.

I was "corporate America" for 15 years up to packing it in c. 2021 and the employer contribution was nowhere near that. It was somewhere between 3-5% if I recall correctly.

 

[Fortune]

Are you talking about ARF/vested PRSA mandatory drawdowns

Yes

But you seem to be referring to the non-pension equity investments?

Yes.

If they are planning to live off cash held outside the pension, using this to avoid selling equities, they will need to consider the ARF/PRSA distributions will force they to sell equities from within that product. This will upset their strategy and needs to be considered.

 

[balders93]

Any ‘corporate America’ role has at least 10%, most have a lot more

5% here

 

[ClubMan]

they will need to consider the ARF/PRSA

But not if their non-pension savings/investments are sufficient to allow them to avoid buying an ARF or vesting a PRSA?

 

[ArthurMcB]

Emp cont is 10% so along with his 25% cont. Is a total of 40250 pa.

 

[joe sod]

has approximately €477k in his pension, maximises his contributions and forecasts a pension pot of around €1m by age 50, at which point he hopes to leave his current job

So he is contributing 40k per year in total aswell but even apart from all that is going from 477k to 1 million in 8 yesrs a bit aggresive, what if there is a big market crash in the meantime that will throw all those assumptions off. The last decade especially regarding us tech stocks has not been the normal apart from the covid crash which tech stocks escaped largely aswell. Is his pension concentrated in us market?