NoRegretsCoyote
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You would need to allocate €35,000 of your marginal gross income each year to save €21k outside of a pension fund whereas the €21k pension is probably only costing you a net €10,000 each year with a 5% employer contribution.
Standard rate tax on excess lump sums over €200,000 to a maximum benefit of €440,000.
That type of analysis gives advisors a bad name even though all the numbers are 'factually correct' -I think that this type of analysis gives financial advisors a bad name. While all the numbers are factually correct (ignoring USC and PRSI) the impression given is that pensions are 3.5 times better than savings by comparing gross with net and assuming employer contribution.
Well, as a financial product, it’s benefits should be evaluated based on financial metrics.
And they are more than just perceived benefits.
You get;
- Tax relief on contributions of up to 40%
- Tax free investment growth
- Tax-free lump sums up to €200,000
- Standard rate tax on excess lump sums over €200,000 to a maximum benefit of €440,000.
Not only that, as a married individual with dependent spouse, you could amass a fund of up to €400,000 before you start paying any tax on your income in retirement.
You might live to regret making a big decision like this based on something that may or may not happen in the future.
In any case, figuring out the best way to distribute the proceeds of a €738k pension fund would a very nice problem to have.
Kevin
www.thepensionstore.ie
No, it's a full deferment of income tax.Its a partial tax deferment.
I think this is missing the point a bit. An annuity is insurance against two things: 1) living a long time; 2) investment losses.
That type of analysis gives advisors a bad name even though all the numbers are 'factually correct' -
Good one
Kevin
www.thepensionstore.ie
Yes one can obviously invest in Cash but the return (currently) will be zero or negative after charges. And with 4%/5% drawdown the fund will gradually reduce.Is it not possible to invest an ARF in cash or govt bonds thus avoiding risk 2 if one wishes.
But isn't this effectively what annuity providers are doing? Investing in risk free instruments?Yes one can obviously invest in Cash but the return (currently) will be zero or negative after charges. And with 4%/5% drawdown the fund will gradually reduce.
Govt Bonds still involve investment risk (particular if interest rates rise in the future).
So Cash may eliminate investment risk but at cost, no upside.
What's the investment risk with government bonds held to maturity Vs an annuity at a fixed rate?
Held to maturity? You tell me.How would you be doing today if you'd put 100% of your pension into Greek government bonds c 2008?
I know.Also please note that German government bonds are now negative at every point on the yield curve
Fair enough.
If we're factoring in sovereign default risk, we can't overlook default by the life company providing the annuity either?
Also, Eurozone banks (including Irish banks) now routinely charge interest on large corporate deposits so cash can certainly lose value, even in nominal terms.Yes one can obviously invest in Cash but the return (currently) will be zero or negative after charges.
Is there an Irish company currently offering 4.5% for a relatively healthy person?For a male retiring at say 65, a single life Annuity rate is circa 4.5%. Whilst that may seem poor value, it offers certainty. An ARF involves investment risk (something that retirees often cannot stomach). If one looks back to 2007, 2008 when Equity markets fell by c40% many ARF investors could not hang in long enough for markets to recover (which they did from mid 2008).
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