Back in 2001 I made a modest lump sum pension contribution into an equity fund with a well-known pension provider.
My timing was bad that year – the Nasdaq crash and 9/11 reduced the value of my contribution pretty quickly. It recovered but then last year happened.
That’s pretty much the story of most of my pension funds at the moment, though one or two have fallen far less, thank goodness, and one has actually remained entirely in the black.
I still have more than a decade before retirement, but my ‘early’ retirement plans have pretty much been …well, retired, after the devastating losses of the last year and the poor prospect for a recovery in the immediate future.
The substantial tax relief that I’ve enjoyed on my pension contributions is some consolation for poor performance but how long this huge, €2 billion tax break lasts for private pension contributions is another matter
The Government finances are under extreme pressure. Long term retirement problems will either be sorted out once and for all once the Pension White Paper is published, or the pensions issue will be shelved as more pressing issues like our eye-watering budget deficit take up our paymasters’ attention.
Younger people still have time on their side. Last week, Bank of Ireland suggested that a 30-year-old earning €30,000 who has been contributing to a pension for the last decade should add another €112 a month to make up for current losses – at a real cost, after tax relief of just €66.
But what about the person in their 50s or worse, on the verge of retirement who were counting on their 20/30/40 years worth of occupational and personal pension contributions or AVCs to provide them with a decent retirement?
Higher contributions may not be possible if they are already making maximum payments.
Last week I mentioned the author Nathan Lewis’ unconventional, but practical suggestions to employers and workers who desperately need to find ways to stay afloat as their economic conditions deteriorate.
He proposes the company as ‘family’, meaning that it does more than just provide an increasingly fragile paycheque at the end of the month.
But he also has some rather ‘off-the-wall’ views about baby boomer pensioners, who spent more than they saved these past decades, who are now worrying about their heavily depleted retirement funds: he suggests moving back in with their old college room-mates.
In a recent column on the excellent (and free) DailyReckoning.com newsletter, Lewis produces some interesting figures to support the idea that four, or six can live a lot more cheaply than two.
He describes his own parents, just retired, who have suffered big stock market and pension losses in the past year and whose mortgage-free home has also fallen dramatically in value.
Even running a paid-off home doesn’t come free – there are basic living costs that need to be paid – the car, utilities, insurance, food and taxes.
Here in Ireland, a €20,000 combined contributory/adult dependent state pension will barely meet all those overheads and leave much money left over.
“Like many older people, [my parents] would like to stay in the house they have owned for about 20 years now, in the community they are accustomed to, and near the friends they have,” writes Lewis. “It’s not so easy to start over when you’re over 65.
“So, here’s the plan: You get together with your friends. You say: We’re all retired now. I’ve got a big empty house. You do too I suppose. Maybe we can think of living together. That would help reduce our living expenses. Plus, it might be fun, and it would be a good way to keep an eye on each other. That can be important when you’re getting older.
“Everyone is repulsed at first, because we Americans are all taught that we have to live as far away from each other as possible. But, they remember that, when they were in college, they used to share houses, and it was kind of fun.
“Also, everyone is older now and a lot better behaved than when they were in college. And, it is true that it might be good to have someone keeping an eye on you.”
Lewis shows how by combining resources – sharing one existing (larger) house on which a proportionate rent is paid to that owner by the incoming couple or couples, who then rent out their smaller house(s) to supplement their own incomes – can make the combined incomes go much further.
Food, utilities and other costs are also shared; the savings can be converted into more discretionary income – to run a car (if they can’t otherwise), for travel, etc. or to pay for domestic help and eventually, even nursing care as the housemates get older.
Could it work if the parties really were compatible and flexible? Personally, I could see two or three older fellas living happily together more than the three fellas and their respective wives. But sometimes desperate times call for desperate measures.
You just need to be willing to let that light at the end of that gloomy tunnel shine.
