Key Post Some wealthy people are worrying unnecessarily about their finances.

[Dublin Walker]

I agree with that, it can be hard. However, I also agree with Brendan's priority. Having you house and then pension as best you can. I myself don't have a huge pension, but I had my house and borrowed against it with a retirement mortgage for the bigger things. This was a life saver when they came back into the market. No point living with the heating off, or not enjoying ones retirement after working all my life.

 

[misemoi]

Financial literacy is so low in Ireland, (maybe everywhere) and this 100% shows up in retirement planning. So it's not just the pot people need to worry about, but the phasing as health declines and spending patterns change. And how to consider downsizing and impacts of fair deal loans etc. There is def a space for short courses or information packs to explain some of this, should come automatically on a certain birthday. Like the way we get referendum packs etc.

 

[joe sod]

Not sure how accurate Standard life's calculator is as the headline figure of €15,158 seems to be just a 60% of the national median income

That's interesting, where did you find that statistic for national median salary? By my calculations from your figure that would be 25,000 euros? You often hear the average industrial wage quoted which is of the order of 44,000 euros. Obviously the national median salary is alot more meaningful statistic than available industrial wage as it is not distorted by a few very high income earners at the top . However it seems to be a difficult statistic to get hold of, I think your figure would be a bit low?

 

[time to plan]

2m will give you more than that if you are not trying to preserve some or all the capital.
You could have 100k a year gross for 20 years if taking it out of cash. From 65 to 85 you could hardly spend it all and who needs a lot if you are even lucky enough to reach 85+

Exactly. And after 20 years, it is likely that there will have been some fund growth so you are not left with zero pot. Of course, you have to factor inflation into this.

 

[Cervelo]

That's interesting, where did you find that statistic for national median salary?

From the Standard Life website

How much do I need to retire? | Pension Planning | Standard Life

When you're planning for retirement it's important to think about the income you'll need to live the lifestyle you want. Our calculator can help you start planning today.

www.standardlife.ie

How do we work out the basic cost of living amount?​

We've based our calculations on the 2021 Survey on Income and Living Conditions (SILC) from Ireland's Central Statistics Office. It identifies the 'risk of poverty' threshold as 60% of the national median income, or €15,158.

 

[time to plan]

Allowing for hopefully good health then early to mid 80s is more likely slow down time and less spending in theory, while spending on hols/socialising might reduce my experience with my father was that heating/tv costs increased. Heating obviously as at home more all day and couldn't begrudge him all the sports etc he wanted on Sky when he could no longer do gardening! All these things are very personal and won't apply to everyone obviously but must be thought about, another big expense for us was having to build on a downstairs bedroom/bathroom so if anyone doesn't have that think about it in time.

Property tax is missing from that list but rest is pretty accurate!

I know my father never had a foreign holiday after retirement (mind you they were scarce before that too) and any trips were a few days up the country to stay with his brothers when he was still driving. Never used free travel as rural living, once a week bus to nearest town all that was available so of zero use, I'd say he hadn't been on a train since his youth if ever!

My grandfather, in his 80s, used to spend 6 weeks in January and early February in a hotel in Spain full board with evening entertainment laid on. Keep the heating on at home just at the level to stop the pipes bursting. No other costs at all. And a favourable gender ratio at that age.

 

[Truffade]

It would be interesting to see some graphs of ARF performance vs withdrawal rates over a prolonged period of time.

e.g. how much does investment performance offset the distributions from the ARF

I'm sure there must be plenty of people who retired a decade ago whose ARFs are now worth more than when they retired?

 

[time to plan]

It would be interesting to see some graphs of ARF performance vs withdrawal rates over a prolonged period of time.

e.g. how much does investment performance offset the distributions from the ARF

I'm sure there must be plenty of people who retired a decade ago whose ARFs are now worth more than when they retired?

Would be nice to see this accounting for inflation as well.

 

[Monbretia]

My grandfather, in his 80s, used to spend 6 weeks in January and early February in a hotel in Spain full board with evening entertainment laid on. Keep the heating on at home just at the level to stop the pipes bursting. No other costs at all. And a favourable gender ratio at that age.

Excellent plan! That's where health comes into it, if you are able it's great idea.

 

[Shakespeare]

A €2m pension pot delivers pension income of around €60k a year. That’s not massively more than the average salary. There are lots of people in Ireland earning lots of money who couldn’t get by on €60k a year. Equally there are people for whom €60k would be a king’s ransom. It just depends, different strokes for different folks.

I’ve actually done my own numbers and if I was retiring today I estimate that I need €5,000 a month net of tax in today’s terms so that’s the starting point for my own planning.

Hi Gordon
Interested in your calculations as I'd be looking at something similar as required. There is such varying info out there - if you want to feel much better (but I am dubious about the genuine feasibility of this), the pension store website suggests that Eur2m pension pot would get you Eur7k per month (I haven't a hope of having Eur2m, probably not even Eur1m the way things are shaping up but it's interesting to see how different it is to the figure of Eur60k per annum from Eur2m - is that Eur60k gross, or net?).
The suggestion there is that Eur1.2m will get you Eur5k per month??
With such varying figures around, no wonder people feel fearful of what the future may bring financially (unless your PS of course!)
https://www.thepensionstore.ie/how-much-do-i-need-in-a-pension-to-retire-comfortably/

 

[Truffade]

Hi Gordon
Interested in your calculations as I'd be looking at something similar as required. There is such varying info out there - if you want to feel much better (but I am dubious about the genuine feasibility of this), the pension store website suggests that Eur2m pension pot would get you Eur7k per month (I haven't a hope of having Eur2m, probably not even Eur1m the way things are shaping up but it's interesting to see how different it is to the figure of Eur60k per annum from Eur2m - is that Eur60k gross, or net?).
The suggestion there is that Eur1.2m will get you Eur5k per month??
With such varying figures around, no wonder people feel fearful of what the future may bring financially (unless your PS of course!)
https://www.thepensionstore.ie/how-much-do-i-need-in-a-pension-to-retire-comfortably/

2 million pot; take 25% off for Tax free (somewhat) lump sum.
Leaves 1.5m
Using the 4% rule, that's 60k p.a.

 

[time to plan]

2 million pot; take 25% off for Tax free (somewhat) lump sum.
Leaves 1.5m
Using the 4% rule, that's 60k p.a.

Where does the 4% rule come from? If I retire at 66 and take 4% of the original sum each year, that will last me until I am 91, assuming no capital growth whatsoever. It seems unreasonably cautious to me. If I am taking 4% of what is left in the pot each year, I will still have over 500k after 25 years.

What am I missing?

 

[Truffade]

Where does the 4% rule come from? If I retire at 66 and take 4% of the original sum each year, that will last me until I am 91, assuming no capital growth whatsoever. It seems unreasonably cautious to me. If I am taking 4% of what is left in the pot each year, I will still have over 500k after 25 years.

What am I missing?

I don't think you're missing anything - it's just a common rule of thumb that's been used for decades.

 

[Fortune]

Where does the 4% rule come from? If I retire at 66 and take 4% of the original sum each year, that will last me until I am 91, assuming no capital growth whatsoever. It seems unreasonably cautious to me. If I am taking 4% of what is left in the pot each year, I will still have over 500k after 25 years.

What am I missing?

Trinity study - Wikipedia

en.m.wikipedia.org

 

[David_Dublin]

I think it's a rule based on annuities, so it's really not a thing that applies

 

[time to plan]

I don't think you're missing anything - it's just a common rule of thumb that's been used for decades.

Sometimes there is some sense in Rules of Thumb, but what I think is easily overlooked is considering your overall pension provision including your state pension. The full state pension is €14,469 p.a. If you reverse the 4% (multiply that by 25) you get a notional fund of €361,728, ignoring the fact that it is worth more as it is effectively indexed by government policy to keep up with cost of living. That figure never gets smaller when you get paid your state pension. So one way of looking at this is that you should add that to the 1.5M to get 1.86M and withdraw 4% of that which is 74.5k p.a. And you will still be left with >500k and your state pension at age 91!

 

[Truffade]

Sometimes there is some sense in Rules of Thumb, but what I think is easily overlooked is considering your overall pension provision including your state pension. The full state pension is €14,469 p.a. If you reverse the 4% (multiply that by 25) you get a notional fund of €361,728, ignoring the fact that it is worth more as it is effectively indexed by government policy to keep up with cost of living. That figure never gets smaller when you get paid your state pension. So one way of looking at this is that you should add that to the 1.5M to get 1.86M and withdraw 4% of that which is 74.5k p.a. And you will still be left with >500k and your state pension at age 91!

Well actually, you'll probably still have somewhere close to the 1.5m original number as you will have invested it in global equities.

 

[elcato]

Not sure how accurate Standard life's calculator is as the headline figure of €15,158 seems to be just a 60% of the national median income
But from my own 2023 figures and removing Mrs C from the equation I come up with a with a slightly lower figure with a couple of additions

Groceries	€3120
Gas	€2280
ESB	€1175
BB	€360
Refuse Collection	€210
Mobile Sim Only GoMo	€120
TV including TV Licence	€500
Car Insurance, Tax including, a full tank every month and servicing	€2500
Health Insurance Laya Control 300 Create	€1500
House Insurance	€400
Property Tax	€497
Total for year 2023	€12662

I doubt very much if a single person could/would have what most of us would call a "fulfilling life" on the remaining balance of €2000
But you can very much live on or more accurately survive on should you have no alternative income stream

So get rid of the car and health insurance and you have 4k for holidays a year. Also good for your blood pressure to walk rather than drive

 

[time to plan]

Well actually, you'll probably still have somewhere close to the 1.5m original number as you will have invested it in global equities.

Well quite. I was pretending no growth.

 

[AAAContributor]

I think it's a rule based on annuities, so it's really not a thing that applies

My understanding is that the 4% rule is based on a portfolio invested in stocks and bonds.

It was trying to solve for:

- What % of the starting portfolio balance,
- can an investor spend (increasing by inflation),
- for at least 30 years,
- with a very high probability of success (100% I think, or maybe slightly lower),
- from a stock/bond portfolio (I think it was 60/40),
- based on historic US data of returns from stocks and intermediate term bonds,
- given the worst period of returns.

4% was the result.