Friday 25 May 2018

Can my husband and I afford to retire early - and before the State pension kicks in?

'Previous pension plans will need to be analysed to see whether transferring out of those old schemes is a good idea or not'
'Previous pension plans will need to be analysed to see whether transferring out of those old schemes is a good idea or not'

Eamon Dwyer

My husband will be 60 shortly and is thinking about retiring. He has been in the public sector for 15 years. He will get a lump sum of €25,000 when he retires - and €3,700 annually from his public sector pension. He will also get the State pension when he reaches the age of 68. He also has a pension lump sum of €15,000 - from a previous job.

I am 53 and have only started to pay into a small pension for myself. I earn €35,000 and I pay €8,000 a year into the pension so it has €25,000 in it so far. I would like to retire in another five years. I too will qualify for the State pension at the age of 68.

We own our own home and have no debts. Our children have long flown the nest. We have about €50,000 in savings between us - and we have no other investments.

We feel we could live comfortably on €26,000 a year.

Can we afford to retire?

Marguerite, Fairview, Dublin 3

Firstly, it is important to clarify the age at which one can receive the State Pension. A couple of years ago, the retirement age for this pension was pushed out to 67 if you retire during or after 2021 - and 68 for during or after 2028. In this case, your retirement age (for State pension purposes) will be 68 and your husband's will be 67.

The State Pension, should you qualify for the maximum, will provide you with circa €24,000 per year as a couple. However, this won't materialise for another eight years for your husband - and 15 years for you. So if you are considering retiring in five years time (as a couple) or even phasing into retirement (with your husband retiring now and you retiring then), you will have to plan for life without the State pension for quite a while.

Let's assume you both retire in five years time, when your husband is 65. You might consider investing the two pension lump sums of your husbands', along with a 25pc lump sum from your fund, and €24,000 from your savings. In doing so, you could still leave €26,000 of the savings fund simply on deposit in the bank, as a rainy day fund. By investing the remaining cash, an income stream of about €4,000 could be generated, whilst making a reasonable attempt to preserve the capital value of your money.

If you add in the income from your husband's public sector pension, and a 4pc distribution from your own private pension, you could arrive at a total income figure of just over €10,000 per year. This, as you can see, would be well short of your desired income level.

However, three years after this, the State pension would kick in for your husband, with about €12,000 per year of additional income.

I suggest delaying your own retirement until your husband's State pension does kick in - that is, in eight years time. At that stage, you will have a bigger fund and your income potential from your savings, lump sums and retirement funds will be much closer to what you desire.

Alternatively, you will need to save considerably more now.

I have been in the same job now for about 20 years and will retire in another five years. I changed jobs quite regularly when I was younger and have four pensions from those jobs - which I stopped paying into a long time ago. What's the most cost-efficient way of managing those old pensions now? Will I get crucified on charges if I consolidate them all into my existing pension - or is there a way of consolidating them cost efficiently?

John, Letterkenny, Co Donegal

This is a common problem as very few people stay in the one job for their entire career today.

People who have a number of pensions might have a mixture of defined benefit plans (where the pension scheme 'promises' to pay you an income in retirement) or defined contribution plans (where a fund is ring-fenced for you with the pension income ultimately depending on the value and performance of that fund).

Every previous pension plan will need to be analysed on its own merits to see whether transferring out of those old schemes is a good idea or not - especially if the old pension is defined benefit in nature.

There can certainly be administrative and record-keeping benefits if the old pensions are tidied up, especially when it comes to retirement age and you want to access benefits.

Within your old pensions, there might well be invaluable defined benefit promises, or even guaranteed annuity rates (that is, income rates in retirement), so they should be left alone if appropriate.

Even if you do consolidate one or more of the plans, there is no reason for you to be crucified in charges - but it is worth getting some independent advice first.

I am 60-years-old and recently accepted a voluntary redundancy payout of €150,000. I'd like to leave €50,000 of this in my current account so that I can dip into it whenever I need it. However, I'd like to set the other €100,000 aside for my pension. What's the best way to go about investing that €100,000 now? I don't want to take much risk with the money.

Jim, Celbridge, Co Kildare

Investing private money as a form of secondary retirement fund (as distinct from a 'pension', which has certain tax implications) is a very sensible way of complimenting any other income streams you might have when you retire.

In this case, a common approach would be to first clarify what your understanding of risk actually is. It is important to not only weigh up your personality traits when it comes to risk, but also to take a look at your "capacity" for risk - that is, if the investment performed worse than you expected, would you have the financial wherewithal to ride this out.

A five-year time frame for investing is good, but a ten-year timeframe is better. If you believe the academic research suggesting that you must take on some risk to generate a meaningful return (via the stock market or the property market for example), a longer time frame gives you the opportunity to take on a fraction more risk, suggesting a better return.

You or your adviser should develop an investment portfolio that is diversified across the major asset classes, as no-one knows with any certainty which asset will perform best in the coming day, week or month. You might well take a slightly higher position in one asset class depending on where you find yourself in a market cycle, but you should only do this if you understand why.

As an example, some exposure for the coming couple of years to Irish commercial property is likely to help your portfolio because of the obvious recovery story - but this too will need to be reviewed regularly and such an allocation scaled back again.

Most importantly, review your investment once or twice a year with your adviser and try and avoid short-term decision making.

Email your questions to or write to 'Your Questions, The Sunday Independent Business Section, 27-32 Talbot Street, Dublin 1'.

While we will endeavour to place your questions with the most appropriate expert to answer your query, this column is a reader service and is not intended to replace professional advice.

Managing director with City Life Wealth Advisers

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