Making Cents: Trump tariffs and retirement funds

Question
Liam, I opened an investment account last year for €20,000 and before Trump announced his tariffs, it was valued at €27,657 and as of today its now valued at €22,778. I was thinking of adding more funds to it but because of the uncertainty I’m not so sure. I was actually thinking of closing the account and moving the funds into my current account. Any thoughts?

Answer
I received many questions similar to yours in recent days and we’re recommending no change in strategy at the moment for clients who don’t need access to their money for 2 to 3 years.
And my reason why is because I’m in contact with investment houses and trading rooms every day and from an asset allocation perspective many have reduced their equity allocation for the time being until this event plays itself out. So, they have reduced their exposure to equities by c. 5% and I suspect this reduction may have already been applied to the funds you are invested in as well. You should ask the financial institution you are invested with or your financial adviser if this is the case.
And investment companies are also allocating less exposure to the US and more to Europe. And they have allocated more to longer dated bonds for the first time within their various managed funds as well as maintaining a material allocation to Gold and Copper.

READ MORE: Three financial mistakes people make in their 40s
And from a financial advice perspective, it is worth remembering that actively managing a financial plan does not always mean taking action, sometimes it’s: don’t just do something, stand there.
If we look back to Covid when markets reduced very quickly by about -19%, it’s interesting to note what happened to three different investors who did three different things, which were:
(a) people who did nothing with their fund
(b) people who moved everything to cash and
(c) people who moved to cash for 3 months and then re-entered the market.
And the factual cold hard data revealed what happened to each of them which was.
Those who moved everything to cash and never re-entered the market had returns of -10.71%.
Those that moved to cash for 3 months and then went back into the market had returns of +16.68%.
And those who decided to stick with the plan and stayed invested, riding out the turbulence in the market at the time achieved returns of +46.62%.
So, you can see they had a 30% better return by not switching to cash at any point.
And just to point out the fund I’m referring to was a mid-range equity fund which had a risk rating of 4.
So, very long story short, despite what’s being happening to markets in recent days and weeks, I would caution anyone against making wholesale changes or any changes especially if they don’t need immediate access to their funds but for sure they should keep things under review and consult with their financial adviser.
And whilst there’s a temptation to do something to stop any further reductions, I’d say try and resist that urge because trying to time the market in order to capture gains and avoid losses is not a road I’d travel because it’s incredibly difficult to achieve and it can lead to lost opportunities i.e. when markets rebound.
And that’s exactly what happened yesterday (at the time of writing this, the date is the 10th April).
Who would have thought or known that some markets would have finished the day +12% which was the single biggest one day market increase in the past 25 years.
And we have clients who are actually adding to their investments even though markets are down and that is absolutely the right thing to do. When markets are down in value you are buying at a discount and it’s called buying the dip where values reach that point where they won’t go any lower and will begin to increase in value and we’re not sure if we are at the dip but some would say we’re close. People make the mistake of reinvesting when markets go back up but they should have done it earlier.
So, it’s a case of being patient and calm and observant and not to panic but having said all of that, if you would feel happier closing the account because the volatility is keeping you awake at night then I’d say close the account because you have to be okay with volatility when investing in markets, and if you’re not then they’re not for you.

Question
Liam. Have you any quick and easy formulae or calculation that I can use to work out how much I need to retire?

Answer
There are three steps you could use to find out what your retirement number is, and they are:
First off figure out how much you are likely to spend each year in retirement.
If you don’t know, there was a report released by the Pensions Council last year which serves as a useful guide. Their study suggests that if a single person wanted to have a comfortable retirement, they’ll spend €33,600 every year and for a couple the amount is about €43,200.
But this is just a guide, and everyone is different, and these numbers could be more or less for you so it’s worth trying to figure out how much you would spend. And using your current spending would be a useful measurement where you could remove some of the things you won’t be paying for in retirement e.g. a mortgage, kids expenses etc. and then adding in things that you may spend more on e.g. health expenses, more travel etc.
Next, from the amount you’ll spend each year, subtract from this number what would be considered reliable sources of income that you’ll be in receipt of e.g. state pension, rental income, investment income etc.

READ MORE: How to get mortgage approved in 2025
For example, let’s assume your single (Single 1) and you are going to spend €30,000 per year and you’ll be entitled to the full state pension at retirement i.e. €15,044, then you’re going to have an income gap of €14,956.
Now we know what the deficit is, and we can work out what size fund you need to accumulate, and I’ll reveal this number in a moment in the third step.
Let’s look at a second example for a single person (Single 2) who is going to spend €40,000 each year and based on their PRSI contribution record they qualify for the third highest state pension payment which is €13,525 per year.
The gap they have to plan to bridge is €26,475 per year.
Two more quick examples.
Couple 1 will spend €55,000 in retirement and will have (a) rental income of €5,000 and (b) state pension income of €25,064 of a state pension.
Their income gap they have to bridge will be €24,936.
Couple 2 will spend €80,000 in retirement and will have (a) farm income of €8,000 and (b) state pension income of €22,594 of a state pension.
Their income gap they have to bridge will be €49,406.
Multiple the deficit or gap that exists by 25 and that’s the figure you need to be aiming to accumulate
Single 1: Will need to accumulate a find of €373,900 i.e. gap of €14,956 x 25.
Single 2: Will need to accumulate a find of €661,875 i.e. gap of €26,475 x 25.
Couple 1: Will need to accumulate a find of €623,400 i.e. gap of €24,936 x 25.
Couple 2: Will need to accumulate a find of €1,235,150 i.e. gap of €49,406 x 25.
The premise behind the multiplier of 25 is based on The Bengen Rule which is more commonly known by another rule called the 4% Rule.
And if you withdraw 4% from the value of your fund every year in retirement it should last for a period of 25 years but that could be higher or lower depending on how your pension fund performs in retirement so it could be even longer than that.
For example if you withdrew 4% and your fund grew at a rate of 0% then your fund would last for those 25 years I just referred to. But if it grew by 1% per year then it would last for 33 years and if it grew by 2% it would last for 50 years.

Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at liam@harmonics.ie or www.harmonics.ie