Retiring in my 40s

T

TheJackal

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Hi, I have a tricky one here which I hope you can help me with to see if my logic is right.

I started in the service in 2007 aged 23. I hope to retire (to raise my family) in my late 40s. Spouse loves job and happy for me to go early. We should be mortgage free by then, kids in primary school so no creche. So 1 income very doable.

Let's say I have 25 years service of possible 40 at that stage. It is too early for CNER (age 55+ for me). CNER is also very punitive so I would plan to wait til 65 to draw drown my pension and lump sum til 65.

Q1. Can I retire at 48 but wait til 65 to draw down pension and lump sum, thus avoiding CNER penalties?

As I started at 23 and would have 42 years service possible at 65, I cannot buy back years now to add to my 25 years of service if i go late 40s.

Another option is to save into an AVC now for the next decade. As I'd have 25/40 years service, I could save a good bit into an AVC and get it all out as tax free lump sum
e.g. say final salary 90K. Lump sum with 40 years is 135,000. Lump sum earned with 25 years is 84,375. So I could save and take out 50,625 from an AVC at 65 tax free?

One disadvantage of the AVC is that it would be front loaded i.e pay in for first 10 years, but then zero contributions (as not working) for 15 years or so. At mercy of the markets from then, and still have to pay annual fees, etc.

Q2. I believe I cannot drawn down my AVC at 60 as I won't be drawing down by pension and lump sum til 65, as these are linked, even if I have resigned from the service?

For me the question of which company to go for an AVC with (historical returns and fees) is important as my pension will be lower (25 of 40 years service).

Q3. Is there any analysis out there? My union recommend Cornmarket. I also see Lyons Financial Services. No idea which is the better.
 
TheJackal said:
Can I retire at 48 but wait til 65 to draw down pension and lump sum, thus avoiding CNER penalties?
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Yes - it is called a "preserved pension". If you "retire" (or leave) at 48 you cannot access CNER anyhow. So you could not leave at 48 and then ask for your CNER pension at 55 (ASAIK).

TheJackal said:
Another option is to save into an AVC now for the next decade. As I'd have 25/40 years service, I could save a good bit into an AVC and get it all out as tax free lump sum
e.g. say final salary 90K. Lump sum with 40 years is 135,000. Lump sum earned with 25 years is 84,375. So I could save and take out 50,625 from an AVC at 65 tax free?
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Yes.

TheJackal said:
Q2. I believe I cannot drawn down my AVC at 60 as I won't be drawing down by pension and lump sum til 65, as these are linked, even if I have resigned from the service?
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True.

TheJackal said:
Q3. Is there any analysis out there? My union recommend Cornmarket. I also see Lyons Financial Services. No idea which is the better.
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These are Brokers - who just set up your pension plan with an insurance company. Cornmarket will do a conventional AVC - administratively easy as deductions are arranged directly by them via your wages offices, with tax deductions made. But you may do better with fees and charges elsewhere. This would entail a PRSA-AVC. The tax relief is the same but you have to set this bit up via Revenue, so a bit more work. I am not familiar with the various providers but there have been previous threads where other posters went down this route. Try a search.
 
Sorry just something else to consider, and if your mind is made up to to this, then please disregard my post.
With the ability to work remotely shown to be possible during the lockdown and the likelihood that the civil service is more likely to facilitate remote working going into the future, would it be worth thinking about that as an alternative to retiring at 48? Depending on where you work a much more family friendly approach by the civil service might be feasible, it is of course some time away (from your post i'm guessing another 10 years at least) and if you can afford it the AVC option could be done in tandem.
 
Have you contacted your HR Department as they will be the deciding if it is possible to retire early, that is what l was told. Also l think CNER, work pension is possible from 50 following a change in rules a few years ago, also does that pension sum include/exclude the old age pension contribution.
 
Marco 1972 said:
Have you contacted your HR Department as they will be the deciding if it is possible to retire early, that is what l was told. Also l think CNER, work pension is possible from 50 following a change in rules a few years ago, also does that pension sum include/exclude the old age pension contribution.
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Leaving work at 48 is not retiring (CNER) - it is resigning. Any accrued pension (once minimum term has been served) is preserved. It is not a matter for HR as to whether an employee can resign or not.

CNER is available from age 50 for pre-2004 (April) public service entrants (10 years before "normal retirement age" for this scheme). For "new entrants" after that date it is 55 (ie, 10 years before their "normal retirement age"). This applies for the majority of public servants - the rules are different for certain "uniformed" grades (Gardai, Prison Officers, etc).

The pension sum referred to by the OP is the lump sum. The state pension/old age pension is irrelevant for this calculation.
 
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"Another option is to save into an AVC now for the next decade. As I'd have 25/40 years service, I could save a good bit into an AVC and get it all out as tax free lump sum
e.g. say final salary 90K. Lump sum with 40 years is 135,000. Lump sum earned with 25 years is 84,375. So I could save and take out 50,625 from an AVC at 65 tax free?
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Yes."
Are you sure about this? On another thread on this topic, it is stated that top up of lump sum, tax free, from AVC is max 25%. Also, as OP will preserve his pension based on 25 years, what top up could he avail of, given that there is no CNER reduction?
 
Slim said:
Yes."
Are you sure about this? On another thread on this topic, it is stated that top up of lump sum, tax free, from AVC is max 25%. Also, as OP will preserve his pension based on 25 years, what top up could he avail of, given that there is no CNER reduction?
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Yes, I am sure.

The AVC benefits are subject to the rules of the OPs Occupational Pension Scheme. This scheme allows a lump sum up to 120/80 of pensionable salary - subject to service. She will have 25 years of service, which would entitle her to a lump sum of 75/80 of pensionable salary from the main scheme. However, Revenue allow a retiree to top this up to 120/80 (ie, another 45/80) from an AVC provided the retiree has served at least 20 years in the scheme.

The 25% max lump sum from an AVC relates to Defined Contribution pension schemes. The OP is in a public service "Final Salary" scheme with defined benefits.

The caveat, of course, is that these are today's rules. There is always the possibility of future change.

The Revenue allowed lump sum benefits are outlined here at 7.2 :https://www.revenue.ie/en/tax-professionals/tdm/pensions/chapter-07.pdf

More on AVC benefits are outlined in this Irish Life booklet : [broken link removed]

The OP is not looking at the CNER route. Just to note in passing, though, that Revenue also have a reduction in the lump sum limit allowed in the event of CNER. As she is looking towards a preserved pension at normal retirement age this is not relevant.
 
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This is more life than financial advice, but.........a man of 48 has an average of 32 years to live. Kids grow up fast and that's a long time to have to fill the day. Your plan also leaves you vulnerable to a change in your wife's financial situation.

My advice would be to transition to some kind of self employment that you fit around family responsibilities. Maybe it won't make much money but would keep you busy and has the potential to be scaled up if you ever want. It will also keep you in the system for PRSI.
 
Another less drastic option to resignation would be to apply for a "Career Break", which may be available for up to 5 years, pending HR approval. This does not prejudice a final decision. The OP could return to work and continue in post (although with some caveats around possible alternative post), return and later apply for CNER at some future date after 55, or decide against returning and retain the preserved pension benefits.
 
A career break is absolutely the way to go here.

You simply don't know what life could throw at you. Say, God forbid, your husband got sick or some other calamity was to befall you or your family? Maybe you will not like to be at home all the time and seek to resume your career?

At least with a Career Break you know you would have a job to go back to you if circumstances changed that necessitated a return to work.
 
NoRegretsCoyote said:
This is more life than financial advice, but.........a man of 48 has an average of 32 years to live. Kids grow up fast and that's a long time to have to fill the day. Your plan also leaves you vulnerable to a change in your wife's financial situation.
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Apologies if I got your sexes wrong here.

A woman has a longer life expectancy than a man btw:)
 
tallpaul said:
A career break is absolutely the way to go here.

You simply don't know what life could throw at you. Say, God forbid, your husband got sick or some other calamity was to befall you or your family? Maybe you will not like to be at home all the time and seek to resume your career?

At least with a Career Break you know you would have a job to go back to you if circumstances changed that necessitated a return to work.
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Yes, I think the 5 year career break option is what I'd choose and then see if I wish to return to the workforce then (at 53) or to resign.

Reality of all day at home with young kids might have me very keen to return!
 
Hmm, the PRSI stamps issue is something I hadn't thought of too much. AFAIK being in the public service, PRSI class A, part of my pension will come from State Pension Contributory (SPC) and the balance from my final pension.

e.g. final pension say 25/40 years * 90K final salary * 50% = 28,125 pension due p.a.

SPC is currently c. 13K so my pension would be 13K SPC (if full stamps which I won't I guess with just 25 years worth) + balance of 15,125 from my Dept = 28,125 due

If say my SPC is lower as less PRSI stamps, then the balance paid by Dept would just be higher to make up the shortfall?
 
TheJackal said:
Hmm, the PRSI stamps issue is something I hadn't thought of too much. AFAIK being in the public service, PRSI class A, part of my pension will come from State Pension Contributory (SPC) and the balance from my final pension.

e.g. final pension say 25/40 years * 90K final salary * 50% = 28,125 pension due p.a.

SPC is currently c. 13K so my pension would be 13K SPC (if full stamps which I won't I guess with just 25 years worth) + balance of 15,125 from my Dept = 28,125 due

If say my SPC is lower as less PRSI stamps, then the balance paid by Dept would just be higher to make up the shortfall?
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Not Quite.

Your preserved Occupational Pension (from Dept) with 25 years service would be circa €20K. As 65 is your normal retirement age, you will be expected to apply for any Social Welfare you are eligible for then - State Pension or Jobseekers. If not eligible you could then apply to the Dept for a Supplementary Pension - which would be approx €8K. When you reach State Pension age you apply for it and this replaces the Supplementary. If it should so happen that the amount of State Pension granted amounts to less than €8K you are eligible to apply for a Supplementary to top it up to this amount.

However, the amount of State Pension granted will depend on your total PRSI record (not just your 25 years in current job). So it could be greater than €8K. It could be anything up to €13K - if you were able to maintain your record after retirement, eg, any eligible Credits, or subsequent employment/self-employment. If you have any PRSI prior to your public service job, this would also be relevant.

In short, if you have the 25 years you should be eligible for a combined preserved pension income of €28K after 65 (but made up differently than you had posited). But depending on your total PRSI record it could be more than this.
 
TheJackal said:
Yes, I think the 5 year career break option is what I'd choose and then see if I wish to return to the workforce then (at 53) or to resign.

Reality of all day at home with young kids might have me very keen to return!
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If you do take a career break look into whether you would qualify for home-maker credits towards your contrib pension - AFAIK they follow the Child Benefit, but that is be default paid to the mother so you may be better off having it transferred to yourself for the duration.
 
Early Riser said:
Not Quite.

Your preserved Occupational Pension (from Dept) with 25 years service would be circa €20K.
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Interesting. How is that amount calculated?

So 20K Occupational Pension + possible 13K more of SPC depending on PRSI stamps? As mentioned by Mrs Vimes (nice Terry Pratchett reference btw!), I'd try for the Homecarer credits so during 5 year career break
 
TheJackal said:
Interesting. How is that amount calculated?

So 20K Occupational Pension + possible 13K more of SPC depending on PRSI stamps? As mentioned by Mrs Vimes (nice Terry Pratchett reference btw!), I'd try for the Homecarer credits so during 5 year career break
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Your SPC will be calculated based on your total-life PRSI record and the rules in place at the time you reach state pension age. The current rules are due to change at some stage, with pension to be based on a percentage of your record up to 40 years. So each year gained would equal 1/40 State Pension. Credited contributions would count up as far as a limit still to be defined (and which could change in the future anyway).

Your preserved pension is calculated as follows:

1/200 of your pensionable salary up as far as 3.3333333 times the current SCP rate, multiplied by years of service. So 43,329/200 multiplied by 25 gives €5419. Plus:
1/80 of pensionable salary above this multiplied by years of service. So 46,671/80 multiplied by 25 gives €14,671.

€14,671 + €5419 = €20,001.

The maximum Supplementary Pension is the difference between this and what your pension would have been if it had been uncoordinated, ie, €90,000 * 25/80. So €28,125 - €20,001 = €8,124. Supplementary only comes in to play after normal retirement age (65 for you) and you have to meet the conditions regarding applying first for any eligible Social Welfare, and not being in any insurable employment. If your SCP equals or excels this amount you do not qualify.
 
So I spoke with Cornmarket the other day and was told I wouldn't get the supplementary pension from 65-68 if I retire before 65?

Doesn't seem right
 
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