When should I think about retirement

ClubMan said:
I started reading this thread hoping to learn something about some of the stuff mentioned in the first few posts
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I agree completely Clubman. I think @Marc had a brilliant idea for a thread: when should one start thinking about retirement (and how often should you review it).

Personally, I've been shocked at hearing stories of people like Marc mentioned who start thinking about retirement / pension after they've already retired. No idea of their financial budget, or tax planning to try boost their lump sum in the final few years before retiring.

I think it's make for an interesting thread if we could try again, and if anyone wants to discuss what colour folders their advisor / planner has (or if they need one) they can come back here.
 
RedOnion said:
I think it's make for an interesting thread if we could try again, and if anyone wants to discuss what colour folders their advisor / planner has (or if they need one) they can come back here.
Click to expand...

Stop the lights, what's this about different coloured folders I thought there was only one colour :eek:
 
So does anyone have any advice for a late arriver in the pension world.
If someone, aged 55, no pension, but now with spare cash, earning 75k, is looking for a secure, no risk 10 year plan, to save the maximum allowed by revenue, (35% of salary for 5 years, then 40% of salary for 5 yrs) avail of the 40% tax allowance and build a reasonable fund, what is the cheapest option available?
He doesn't particularly want to pay anything, because he is, basically, just looking for a cash fund, but the current rules mean that he has to go into a pension company and pay them 15-20k for doing what Mary down the Post Office would do for nothing. But thems the rules, so, until things change , what would people advise?
 
I don't think that there are any "no risk" options.
Every investment involves some level of risk - even just the opportunity cost/risk of selecting it over another.
E.g. even cash is not no risk due to inflation for example.
But there are options that are lower risk (and consequently lower reward) than others.

I also don't think that the above is enough to go on as it doesn't outline the individual's overall financial situation.
E.g. if they have outstanding debts then those might merit more immediate attention than pension planning.

Otherwise all I can suggest is to shop around to see what sort of funds and charging structures are available to see what might be suitable.
Bear in mind the repeated comments here that the headline charges on many pension products are not necessarily reflective of the total effective charges (including other charges/expenses or "drag" on growth compared to comparable alternatives etc.).

Not really sure if that helps at all now that I read it back... :(
 
I agree with Clubman, I don't think what you're specifically looking for exists
If you want no risk or as little risk as possible then pop down to Mary but you won't avail of the tax break on you contributions but your small return is tax free
If you want to avail of the tax break then I'd say pop down to Zurich and pick one of their low risk mainly cash funds, you'll pay the 5% contribution charge and 1% AUM

Personally based on the info supplied and if I was in your position I would start a PRSA with Zurich, put all my contributions into their Prisma 6 and 5 fund split 50/50 and ride out the next 13 years
I don't have a crystal ball or can predict the future but I'd personally feel you will have a better retirement fund then opting for the low risk cash investment
As an actual example my own small PRSA which I started in '04 and made 6 years payments to totalling €81k gross is as of today 14 years later worth just over €190K
For me its the tax break you get that makes the big difference, the €81K gross probably only cost me in and around €45K net and that to me outweighs the risk of the fund not performing
 
Many thanks to to the Cervelo and Clubman for the replies. I guess it just illustrates my point about being ripped off by pension companies in my original post. The cash fund from Zurich will cost 27500 Euros over the 10 years, if the max pension amount is contributed. This, of course, is just on the capital, any growth will also have a charge, so, probably be 30k. They don't seem to be doing anything for this money, at least not anything different from a basic deposit account. It's true that the fund will gain from the 40% tax allowance, which is a massive difference from putting the money into An Post, but there lies the problem. Zurich aren't giving me that 40%, the Revenue is allowing me tax relief.
I have no problem with Pension companies charging for managed funds, as your example shows it can be money well spent. But why no choice, and what exactly are the pension companies doing, with these low risk bond based funds, that justifies a bill of nearly 30k.
 
I would agree with you that there should be some sort of state saving bond that allows the individual to avail of the income tax break on contributions who don't want to go down the pension companies route
But unfortunately for you and others like you this isn't available at this time and probably wont be in the near (or far) future
My advise to you re the charges is to stop thinking about the charges and concentrate on the end result
I've done a few figures re your situation, please note these are a rough guide done on the back of a cigarette pack and could be wrong (if not correct maybe somebody with more knowledge could correct)
The figures are based on your info supplied already 55 year old earning €75k retiring at 68 in a low risk fund returning 1% per year net of charges and maxing out their pension contributions

Total gross PRSA pension contributions for 15 years €401,250
Contribution charge 5% €20,085
AUM 1% charge for 15 years €22,338
Pension fund value after 15 years €373,885
Total net PRSA pension contributions €240,750

For me its the bottom two figures you should be concentrating on, what your fund is worth and what it actually cost you and not what the pension companies charge is
 
You can probably get a PRSA or personal pension plan with better than 95% allocation rate and 1% annual management charge of you ship around.
On another recent thread somebody (@SBarrett I think?) mentioned 100%/0.5% being possible.
Again, a caveat to mention that some others (e.g. @Marc) argue that the headline charges are not the full story with regard to charges/costs involved - although I'm not really sure what the average punter can do about that to be honest.
 
Allpartied said:
So does anyone have any advice for a late arriver in the pension world.
If someone, aged 55, no pension, but now with spare cash, earning 75k, is looking for a secure, no risk 10 year plan, to save the maximum allowed by revenue, (35% of salary for 5 years, then 40% of salary for 5 yrs) avail of the 40% tax allowance and build a reasonable fund, what is the cheapest option available?
He doesn't particularly want to pay anything, because he is, basically, just looking for a cash fund, but the current rules mean that he has to go into a pension company and pay them 15-20k for doing what Mary down the Post Office would do for nothing. But thems the rules, so, until things change , what would people advise?
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Neither Mary nor the Post Office are authorised to create or run pensions for individuals, so they cannot do what an authorised insurance company does.

There is a misconception that the annual management fee is the cost of running the investment fund. It pays for the cost of running the pension policy, the ongoing adminstration, the ongoing reporting, the cost of staff to do that, the cost of the building and some profit. Depending on the contract, there can be the cost of commission to the person who set it up.

If you contributed 35% of €75,000, that's €26,250. Even at an annual management fee of 1%, that's €262.50 in year one. It will take them a few years to begin making money on that policy.

I've been working in this industry for 20 years now and have seen some shocking practices (I still see them today), most of them from advisors who gouge their "clients" in high commissions. But charges have come down a huge amount over that time. If you are paying too much in management fees, it is most likely because the broker who set it up is taking a large commission and the insurance company is recouping it through the charges in your contract.

Steven
www.bluewaterfp.ie
 
Hi @SBarrett - I'm still confused about the "charges" issue here and on my own separate pension thread. Can you clarify simply what a punter should be looking for if just looking at the headline charges (AMC and allocation rate) is insufficient?
 
Hi @SBarrett - Thanks for your explanation. I am new to this site, but can see that you are held in high regard by the posters who contribute.
I will do the money makeover at some point and put a bit more detail to my issues, so would be very grateful if you get time to have a look at it.
At the end of the day, to me, a pension pot, is really just saving money until the day you need it. In many countries it is possible to get a free, or virtually free, pension account into which you can save money, but here it seems the funds are tied up by a few companies who charge higher fees.

Anyway, happy new year to all, and thanks again.
 
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