Civil service early pension: should I stay or should I go?
Q I am a civil servant who can either take early retirement in 2014 based on 37 years' service under my current salary of €70,000 – or wait until 2015. If I wait until 2015, I will get a new pension based on the reduced salary arrangements ironed out under the Croke Park and Haddington Road agreements. 2015 is my normal retirement age – that is, 65. Which option is better for me financially?
Tom, Howth, Co Dublin
AThere are two schools of thought on this and neither is correct nor incorrect – it comes down to what is most beneficial to you. The question is should you go now or next year? Your salary is €70,000 a year. Your annual pension will be almost half of this – €32,500. Therefore if you leave in 2014, your annual earnings are halved. Does that suit you? If you stay, you will earn €70,000 in 2014 and 2015.
Now to the sting in the tail – by staying until 2015, your first pension year will be 2016 and this is computed on a lower salary number. However, you will have at least another full year of service, bringing your total years' service to 38. I would estimate that your pension rate would be €31,000 a year.
Longevity for males is 78, and 84 for females, so for each year you live, you have a higher pension if you retire in 2014.
A simple question to ask yourself – do you like your job? If the answer is yes, stay and use your final salaried earnings to pay off debts or build up a nest egg. Otherwise, jump now and secure a marginally improved pension.
Q I have recently received a large inheritance of almost €100,000. I want to use some of the money – about €10,000 – to go on a really nice family holiday with my two adult daughters and their three children. I don't need access to the rest of the money. I retire in six years' time. Deposit rates are low so what are the alternatives?
Maeve, Douglas, Co Cork
AThere are typically four core types of investment: cash, which includes bank deposits, credit union savings accounts and so on; bonds, which are issued by government or corporate bodies; property, residential or commercial; and equities – such as shares in companies.
Investing in a managed fund will give you exposure to all of these types of investment. Outside of these managed funds are the satellite funds such as water, commodities, gold, and wine to name a few.
With the exception of cash, you need to give all other investment types a five-year spin. Otherwise, you won't have much chance of getting a good return on your investment.
One golden rule of investment is to diversify – not just between types of, but also among, investment funds. With €90,000 for investment, you should consider having at least five or six investment funds.
I would consider the following investment fund types for you – corporate bonds; European commercial property; equity funds with or without capital protection; water funds; and alternative energy. Before investing, seek professional advice. Ensure all of your money is invested from day one, and that none of your investment is swallowed up in up-front charges.
Don't forget another golden rule of investing: "You will never go broke taking a profit." With your professional adviser, set yourself a desired, yet realistic, rate of return on your investments. When your investment reaches that return, take the profit.
John Fagan is principal partner of the Dublin taxation and financial advisers, Fagan & Partners
Sunday Indo Business