Should I invest in a pension or save money in a bank account!?
Last week I shared some ideas about the value (or potential lack thereof) in having a pension of 'average' size. The reaction to that piece was really quite interesting; it seemed to have surprised some people! There is no question that €100,000 is a lot of money, no matter what way you slice it however having that in a pension fund at the point of retirement leaves one with, to be fair, quite limited options to access a meaningful withdrawal income. In last weeks' piece I referred to a previous blog we shared about the value of amassing a pension pot of €1m, and the considerable options that offers one at retirement. That got me thinking and so this week I take a hearty stab at comparing the merits of saving into a regular deposit savings account, or into a pension if one was aiming for a lump sum of €1m! We will explore which of these in this 2-horse race, in Net terms stands to offer you the best possible chance of success. This is not something that I have never seen done before, maybe there's a reason for that.....let's see!
The title of this piece may seem overly alarmist, however it is my firm belief that most pensions that people here in Ireland have are really ineffective and the investors would quite possibly be better off doing something else with their funds. Are pensions useful? Absolutely they can be hugely useful (read here for 1 example!) however if they are entered into in a half-baked way they can be pretty useless, and unfortunately I have seen it far too many times.
We all see lots of articles and blogs and media mentions of not enough people having pensions etc etc, however it is also true that getting a pension just for the sake of it is not necessarily the right solution. In this article I hope to share insights which will potentially help you avoid getting into something that is of no value nor use to you, and give you a good chance of getting into something that stands a strong probability of being of real value to you.
What Is The Average Pension or Retirement Income In Ireland?
It really depends on what survey or research you are relying on but I have seen various figures quoted. Some say that the average pension pot for those retiring is €60,000 and other 'research' that puts that figure at €90,000. Either way I am not sure how those figures are arrived at, but my experience would suggest that for those that have pensions it may indeed be an average of that sort of level. Some have pension pots of €20,000 and others have pension pots of €1m or more, so it varies greatly! Depending on the size of the pot, the level of volatility you are exposed to and the number of years over which you intend to draw that income, you'll have a varied retirement income available to you.
'What should I do with an inheritance' and 'How should I invest an inheritance' are questions we might never hope to need to consider but many are forced to consider these every year here in Ireland.
This week in Ireland's award-winning and unbiased personal finance blog I hope share some insights which might be of value to anyone that does every find themselves faced with this question. The reason I guess that this is a relevant topic here is because I have seen several cases where people inherit money, then act irrationally or in ways that is to their own detriment, and they end up blowing the lot on senseless stuff that they wound up regretting a short time later.
That is hardly a respectful way to behave with the likely hard-earned legacy that a loved-one has left you!? Likewise I have seen some people handle it really well and have made decisions that have supported their goals, and the result being the inheritance was a positive impact on their life. Surely, a better outcome! I'm out to help even a handful of people to avoid that same regret.
Paddy Delaney QFA RPA APA Coach
Welcome back to the new home of Personal Finance in Ireland, where we share insights which we hope help you to avoid mistakes and achieve the results you seek. All we ask in return for sharing these ideas is to tell a friend, and use the ideas with the intention in which they are shared, thanks!
The title of this week's blog is a little vague or possibly might appear abstract, granted, but I do believe that it's contents will help people to see the light! To help explain, I was speaking to an advisor recently who I was helping to connect with and recognise the real value she can bring to her clients. She is an experienced advisor who is trying to transition from an old-school sales-person to operate in a more transparent and client-focused way. As you know I am all about the transparency and the client-focused side of things so I was more than happy to play a small part in helping her make this transition.
Anyway, we were chatting about investments and recent volatility, I passing the recent volatility off as 'par for the course' while she was very much seeing it as a distraction and bordering on something to be fearful of as an investor. At that point I mentioned something like 'but sure it's only down in the region of 15%, that happens every year on average, and it's the very thing that rewards those who stay invested'. She looked at me as if I had two rock-filled heads. She stated that there is no way that global equities have declines of that amount every year, even on average.........and that is where she was very much ill-informed, and where I guess the vast majority of us are also ill-informed. Let's fix that!
J.P Morgan Guide To The Markets
I have mentioned this beauty of a quarterly document before here, and I wish to re-iterate that (as far as I am concerned) it is one of the most easily digestible and insightful economic/investment/macro reflections available anywhere, at absolutely no cost. Click here to get the December edition. So in my conversation with the advisor I was working with I referred to this nugget. Page 14, to me, is essential reading for anyone that is ever contemplating investing in any form of decent equity portfolio. Irrespective of the fact that this chart, as you'll see below, is a reflection on the top 500 Companies in the USA only (S&P 500 Index), summarises what long term investing is about, and indeed portrays the great contradictions of equity investing, you face temporary declines but always win over the long term!