Moneymakeover Stopping work at age 45, spending savings, PS pension, investing

R

Richard45

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Personal details

Your age: 45
Your spouse's age: n/a
Number and age of children: n/a and probably won't have any.

Income and expenditure

Annual gross income from employment or profession: nil. Currently on career break and I may not return to my employment. If I do return, my salary would be 69k gross.
Type of employment – Public service.

Expenditure pattern

I currently spend about 22000 per year and don't believe I am very tight. I run two cars, have sky sports, mid range health insurance, eat out regularly, albeit in McDs. :) If I return to work my expenditure will increase but I will also be adding to savings so no worries in that regard.

Summary of Assets and Liabilities

Family home value: 400k
Mortgage on family home: nil

Cash: 1.35 million mostly in long dated, fixed term State Savings deposits. There are about 90 separate deposits with a wide variety of amounts and maturity dates. AER (No DIRT) of about 2%.

No other assets or liabilities.

I will shortly receive an inheritance of about 250k net of tax.

Pension information

Public service pension. Final salary based, payable at age 60. 17k per year in today's money based on accrued service to date and current salary scale. 17k includes the supplementary pension.

My questions

The last few years have been rough. Family members have become ill and died and I now have no family left. Work was also not going well before I took my career break and things are worse now according to colleagues that I stayed in touch with. I could go back to it but it would mean commuting 3 hours per day by car. I did that for years and coped but have a different perspective on life now. My work is specialised and there are no opportunities close to home. There is another public body where I could work which would have a better working environment but it is an even longer car commute, a 4 hour round trip.

On the financial side, were I to never do paid work again and live off my capital, my calculations are that it would do me until at least my late 80s. Psychologically, it would be much better for me to have a salary coming in, even a low one as long as I enjoyed the job and didn't have a long commute.

If a job doesn't happen and I spend 22k of my capital per year and compound inflate that by 3% per year, do these amounts seem right. This doesn't take account of any interest and also pessimistically assumes that the 17k public service pension doesn't increase.

Age 45: 22000
Age 46: 22660
Age 47: 23339.80
.
.
Age 60: 34275.28
Age 61: 18303.54 (35303.74 minus pension of 17000)
.
.
Age 88: 61419.37

Total spend to age 88: 1.47 million.

By age 88, if I am still alive, I can't see myself needing to spend 61k per year. I'll probably be dead anyway or else demented in a nursing home and availing of state supports such as the Fair Deal if it exists.

I welcome discussion and ideas that encompass life and career advice as well as financial. Anything at all, general, specific, tell me I'm mad to be spending capital and not invested in the stock market.
 
Richard45 said:
tell me I'm mad to be spending capital and not invested in the stock market.
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You are absolutely mad to have €1.6m in state savings (or similar) at age 45.

I’m guessing you are not particularly financially inclined. You have a very large lump sum. I usually think financial advice is not necessary for most, but I strongly feel you would benefit from it.

You should be able to generate €50k+ (increasing with inflation) for the rest of your life and never touch the initial capital. A competent adviser will put you in a position where you never need to think about finances again.
 
If your annual expenditure is projected at as little as €22k, adjusted for inflation, and you have no particular desire to leave a legacy, then with €1.6m, a paid for house and a €17k pension payable at 60, you can certainly retire now if you wish.

With such a low drawdown rate, it doesn’t really matter what you invest in - barring some unforeseen disaster you have more than enough to see you out.

Having said that, I think you should invest at least 25% of your savings in equities, regardless of how risk-adverse you might be. Inflation is the single biggest risk that you need to guard against.

My suggestion would be an investment trust like FCIT. You will have to do an annual tax return but it’s not that big a deal.

If that sounds like too big a jump for you to handle on your own, then I think you should engage a financial adviser or wealth manager.
 
Thats a bit harsh, calling somebody "mad".
I do think you are ultra-cautious, and probably very frugal too (maybe not as extreme as myself).
These are positive qualities, and often dissed by people.

Building up a huge savings figure, and paying off a mortgage by age 45.... not easy to do, living in a high-cost country.
I would not worry about average inflation rates, as you will still be compounding your savings each year.
You have a sound plan, laddering the state savings accounts, and I bet you have a detailed spreadsheet to manage the flows.
I would not push anyone into stock market investments, if you are risk-averse.
 
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I very much doubt the OP saved €1.35m and paid off a mortgage on a €400k home by 45 on a €69k salary!

I wouldn’t worry about “normal” inflation rates either. I would, however, worry about 1970s inflation rates re-emerging.
 
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You are financially independent at this stage.

You need to think through where you live and where you work and what is important to you. Do this first without thinking of the financial side of it.

Why are you living a 4 hour commute from where you would like to work?
You have a few options.

1) Default option - retire now. You should be fine.
2) Find a job you like and buy an apartment or house near it. You can keep your existing house if it's the family home or in a place you want to live.
3) Retrain in a new field where there are job opportunities locally. You can comfortably afford to go to college for three or four years.

So your next stop should be a career advisor. They would run some psychometric tests. They might come up with some options you have not thought of. You can afford to do a much lower paid job if it's what you love doing.
 
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fistophobia said:
I would not push anyone into stock market investments, if you are risk-averse
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If you plot inflation adjusted returns for ‘fixed term deposits’ vs the stock market over a 40 year time horizon, you will see one almost always delivers a loss, the other always delivers a large gain. In fact, id wager the worst 40 year return ever for the stock market beats the best ever cash return in real terms.

In this particular instance, it’s not being ‘risk-averse’. It’s just an outright poor decision usually driven by a lack of understanding (hence why OP should get an adviser). This decision brings a significantly higher risk for the OP that his finances run out. Investing in equities can eliminate that risk.
 
Thanks all. I don't mind being called mad, I did ask was I mad. I didn't pay off the mortgage and save that amount on my own. I inherited. But having said that, I also practiced extreme saving over many years and adopted a laddering approach with the State Savings.

State Savings product limits are per issue. I have multiple issues. Also limits don't apply when reinvesting and limits used to be 250k for earlier issues of some products.
 
There is a certain point where one's wealth means that working makes little financial difference.

You have €2m of assets + a pension worth €17k inflation adjusted from the age of 60.

You can earn €69k. Assuming you invest your money properly, then you will pay about 50% tax on the €70k leaving you with €35k per annum.
If you have to drive 4 hours a day, that is presumably about 160 miles a day for 5 days a week for about 48 weeks a year or about 40,000 miles a year. The cost must about about 50 cents a mile, so that is €20,000 a year, which means you are getting about €15k a year for working.

An additional 1% return on your €1.6m of assets is €16,000 a year.
So working is unlikely to affect your overall wealth materially.

So only work if it's a job you want to do in an institution you want to work in and in a location you are near enough to. The money is not material.
 
There is no place to invest €1.6m without risk.

You are not being risk averse putting it in state savings. You face the real risk that this will fall in value over the remaining 40 years of your life due to inflation. And there is very little upside. It's very unlikely that the return will exceed inflation giving you a real return.

If you invest it in equities, the values will rise and fall, sometimes steeply, over the next 40 years. But over the next 40 years, the returns should exceed what you will get from the deposit returns you are getting at the moment.

It's possible, but very unlikely, that over the next 40 years, that the returns on deposits will exceed the returns shares. But even if it does, you have the safety of being mortgage-free and having a pension from age 60. So in the very unlikely event that you run out of money, you will not be on the breadline.
 
Richard45 said:
Public service pension. Final salary based, payable at age 60. 17k per year in today's money based on accrued service to date and current salary scale. 17k includes the supplementary pension.
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I'm assuming for the moment that this is composed of about €9k to €11k PS pension and €6K to €8k Supplementary. The Supplementary amount is the same as you will receive in State Pension at age 66/67 based on contributions to date. If you do give up work you should consider paying voluntary PRSI to bring you up to 40 years contributions. This won't increase your Supplementary but it will mean a safety net of the full State Pension.
 
I think given your current yearly spend and what you've banked and what's coming you've more than enough to retire now
On one hand I agree with others, that you should have a sizable part of your wealth invested in the stock market, its what I'd do
But on the other hand you've no direct dependents so what are you growing and keeping it for, (the tax man), spend it and enjoy
Either way a trip to a financial advisor or two would be a prudent move to explore all options open to you

I feel the real decision is not have I enough but rather do I want to retire at this time in my life or do I just need a change in my career path
I'm an early retiree myself 2011 at the age of 44 and though I've never once regretted stepping away from my career,
I did struggle at times during the first five years with purpose and meaning as I adjusted to life without a career or direction
but now 14 years in with a lot of water under the bridge I can honestly say it was the second best decision of my life
For others and maybe yourself, semiretirement for a few years might be the first step in easing yourself into retirement
 
Cervelo said:
But on the other hand you've no direct dependents so what are you growing and keeping it for, (the tax man), spend it and enjoy
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My perspective on this is, the OP is 45. It looks like perhaps leaving money on deposit might support their current lifestyle until death…however there are so many what ifs to consider:
- Extreme inflation event
- Adverse change in circumstances (eg deteriorating health) which requires higher day to day spend
- A new hobby, a new passion for travel which requires a higher budget.

€22k is a remarkably low budget in 2025. Assuming nothing will change in the next 40 years feels very high risk to me. I would much rather secure my future and provide some wiggle room through a sensible asset allocation.
 
What a nice position to be in. I agree it’s about deciding what you want from life, what brings you joy, where your friends live, and if you would like to work. Once decided you have loads of funds to make it happen. Maybe you would like to live less frugally now. When do the next state savings mature? Perhaps with those you would invest. Good luck OP.
 
moneymakeover said:
If the return on the 1.35m is
"AER (No DIRT) of about 2%."

Then that's 27k per year?
And no need to dip into capital?
Or am I missing something?
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To get 2% AER, the money needs to be in a 10 year bond for 10 years. So there are cash flow issues if a person wants to live off that interest. This can be mitigated to an extent using a fixed term deposit ladder. My ladder is quite hapazard.

There are various quirks with State Savings such as the holding limits per product per issue that currently apply to investing new money but not to reinvesting existing money. Those rules might change.

It can take many years to build up a good ladder. As the years pass and assuming that the money is not spent and rules stay the same, it gets easier as new money turns into existing money and there may also be new issues released. Once there is a new issue, a person can invest 120k, even if it is new money and regardless of how much they have already in previous issues.
 
Are there any immediate large payments you have or could do, for example change the car or do things to the house. You'll need to keep a pot aside for things like that in the future anyway. Also from the sounds of it, going travelling or taking a long holiday should be considered.

Personally, I woudn't give up work now but would look for a part time job somewhere. Without knowing your background, an experienced mature person should easily get a part time job in the area and from a mental well being perspective, that could be important. Or failing that, consider volunteering somewhere.

You're in a great position though financially.
 
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