Public sector, 50 year old want to retire at 62 with 22 years service

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buzybee

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Age: 50
Spouse’s/Partner's age: 57

Annual gross income from employment or profession: 56,000
Annual gross income of spouse: 60,000

Monthly take-home pay 2,500 for me, a bit more for my partner.

Type of employment: e.g. Civil Servant, self-employed both civil servants

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

Rough estimate of value of home about 300,000 euros
Amount outstanding on your mortgage: none
What interest rate are you paying?

Other borrowings – car loans/personal loans etc none

Do you pay off your full credit card balance each month? Yes
If not, what is the balance on your credit card?

Savings and investments:
post office bonds of 60,000 euros. Standard Life fund value 23,000 invested.
I pay 150 euro a month into an Irish Life fund values 1 to 6. You choose your risk rating. I have 10,000 euros in this.

I save about 5000 euros a year.

My partner would have similar savings, maybe more.


Do you have a pension scheme?
Yes, with civil service, i joined in 2007. My partner joined in 1990.
Another small scheme from a previous employer with about 15,000 in it.
Do you own any investment or other property? No

Ages of children: 14 and 11

Life insurance: no

I joined CS in 2007 and I will have about 22 years worked when I am 62. I take some parental unpaid leave and a few unpaid weeks in the summer.

I would like to retire at 62. I should get around 9,000 or 10,000 from civil service directly if I don't buy any notional service and the remainder as a supplementary pension 12,500 when 66. I know that the amount I get at 62 would be cost neutral and not the full amount as I would be retiring in advance of 65.

Would I be better to do avcs or buy a few years back? The price for buying 9 years back is given at roughly 100 euro a week if I work til 65. This would be after tax. I would not be able to buy the full 9 as I would hope to retire at 62.

I calculated that I would need to draw the pension for 9 or 10 years to get back what I put in. Buying back years would give an extra yield of 3,000 a year on top of my 10,000. I like the idea that buying years means you know what you have, it will increase in line with salary. However if you don't draw down the pension for 10+ years, that money is gone.

The avcs mean the money is there anyway. It can be stressful if funds do not perform.

What advice would you give
 
Hi Buzybee,

I have seen your other thread today also.

I'm ten years younger but in very similar position so reading this thread with interest.

Are you sure you will get 10k civil service pension based on 22 years service and 56k salary. There is a civil service pensions modeller that you could check that figure on.

To me a PRSA AVC independent of your work pension is the way to go. You can get tax relief on the contribution at the higher rate. I would argue that you would get higher return on the PRSA AVC than the Irish Life fund.

You mentioned the charges associated with AVCs and you are right on that but there are execution only options available. The majority of people use the AVCs offered through their payroll but there are other options.

Will await replies on this with interest.

2bmortgagefree
 
I use the pensions modeller. The top of my scale is 65k. Then I put in my salary as a bit more to allow for inflation salary increases over the next 12 years. Then I inserted 80% service for the future, allowing that I may take a certain amount of unpaid leave in the summer. I should get it provided that I work steadily and do not scale back to a 3 day week.

I like the idea of buying back years in that you are not worried about markets and know exactly what you are getting.

I want to claim back the tax through payroll. My partner and I are joint assessed. It is messy claiming a refund at the end of the year as my partner may get the refund and think it is for them. It can be so hard to explain.

What are execution only options in avcs?
 
As mentioned on your other thread, I benefited from buying back years, starting about 15 years ago, up to about 5 years ago. I've been advised by two separate pension advisors, both experts in public sector pensions, that the rates currently charged for buying back years are not competitive, and I'd be better off putting any spare funds into an AVC rather than starting a new contract to buy back more years.
 
@buzybee First off, you are in a pretty good financial place. You have two secure, above-average incomes. You have no mortgage and six figures in savings. Second, you need to start thinking about the best way to put yourself in a good financial position in the decades to come, not fixating on retiring at 62.

  1. If I read it correctly you can buy back a year for about €8k. For each €8k contribution you will get (1/40)*(€30k-13k)=€425 a year in pension payment plus €2250 of a lump sum. The €425 a year will be index-linked to wages and it looks like good value to me;
  2. You can also buy AVCs (it's not an either or) which you can tap into as early as 60. If early retirement is your goal these make sense too;
  3. Remember you have the option of an actuarially reduced pension at any point after 55. See the link on the other thread;
  4. Are you and spouse contributing to civil service spouse's and children's scheme? If so, good. If not, you could look to pay back retrospectively.
  5. Life insurance. It might make sense to have small policies on each other's lives until retirement age, something like €100k, as you will have kids' education to fund;
  6. The state savings of €60k looks a bit high given two secure incomes. Sure, it means you don't have to borrow to buy a new car but it would be better deployed on retirement saving rather than rotting on deposit.

Finally, you seem to take a bit of a "his&hers" approach to your finances, for example not knowing your spouse's savings. You really start to think about things jointly. You are a family and are dependent on each other. Good luck and let us know what you do!

RetirementPlan said:
I've been advised by two separate pension advisors, both experts in public sector pensions, that the rates currently charged for buying back years are not competitive, and I'd be better off putting any spare funds into an AVC rather than starting a new contract to buy back more years.
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Were these people by any chance trying to sell you AVCs? It's a bit apples and oranges anyway as it depends on your time horizon and risk tolerance.
 
Also, with your savings, and the fact that they are earning you nothing, you could buy AVCs for last year. This option is available, as a lump sum, until the end of October. It is available up to a maximum of 30% (total contributions including current pension contributions) of your pensionable income.
For example, the first time I did an AVC, I paid a lump sum of 7,000 for the previous year. This was to max out my available AVCs (30% of pensionable salary) for that year. This actually only cost me €4,200 after tax. At my age (55) I regard AVCs as medium term savings. And savings at an initial 40% return, which you will not get anywhere else.

By the way, I'm not in CS, so I don't have the option of buying back years.
 
NoRegretsCoyote said:
Were these people by any chance trying to sell you AVCs? It's a bit apples and oranges anyway as it depends on your time horizon and risk tolerance.
Click to expand...

One was an independent consultant with sales facility or brokerage. The second did have a sales facility, but weren't hard selling at all. It was a similar message from both.

I agree that it's always worth reviewing your own personal situation, so I wasn't suggesting a general rule for everyone.
 
Is buying back years not eye wateringly expensive and if you feel in front of a bus you loved ones would get nothing, with AVC you can get full lump sum and then rest into ARF or equivalent...
 
Buying back 10 years would cost about 90 euro a week. The spouse would get the money if anything happened as it would go into your estate.

I have some of the Irish Life funds over the last few years for savings. The return is quite low once you take into account all the charges.

With the avc, I know I would get tax reduction but the fund holder would make me withdraw them on my exact date of retirement. If the fund value was low then, I would be inclined to delay retirement until the fund value was reasonable. This would be very stressful if I was depending on it. The only reason I have some current savings with the Irish Life is that if fund value goes down I can afford to leave it there for years. I had a bad experience with another money mgt years ago where I barely got out what I put in, after 7 years.

Also I would be trying to take as much of the avc as lump sum. If I purchase an annuity, the fund holders would not let me draw it down as an income until I am 75. This is because my other income i.e. pension from civil service would be less than the 12k. This defeats the whole purpose of avcs as I really want something to bridge the gap between 63 and 67.

I think that I would be wary of putting all retirement provision in avcs. I do not react well to stress and I am cutting back a lot of other things to find this 100 a week. If I couldn't do service purchase I would nearly save independently and be prepared to live on this when I retire. I would only put into the avcs someting small where I could walk away if it perforned badly at my retirement date. I know there is the tax relief but I feel you only get out what you put in, with a little more money and a lot more stress, watching the fund.
 
buzybee said:
Buying back 10 years would cost about 90 euro a week. The spouse would get the money if anything happened as it would go into your estate.
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As I understand it only if you are making spouse's and children's-level contributions. You are doing that, right?

buzybee said:
If the fund value was low then, I would be inclined to delay retirement until the fund value was reasonable. This would be very stressful if I was depending on it.
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Nothing in life is certain, and no guarantee that hanging round for a few more years will see recovery in value.

buzybee said:
as I really want something to bridge the gap between 63 and 67.
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At 65 you will get your "supplementary" civil service pension until you get the contributory state pension at 66 (or 67 if the age has risen by then). If you want to bridge a gap and are very risk averse just put it in state savings products.
 
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