Getting ready for retirement

As a result of changing jobs or for other reasons, you might have multiple pension pots. It’s important to review your pension portfolio and make sure your plans are aligned with your goals.

Combine your pensions

It might make sense to combine your pensions under one provider. Sometimes, having multiple pensions on the go can result in more admin and hassle. Merging your pensions might make life easier.

Review your investment strategy

Check that the investment strategies of each of your pensions are aligned with one another, that you’re happy with the level of risk in the investment strategies, and that your overall portfolio is working towards your retirement goals.

Seek professional advice

Consider talking to a financial advisor or a broker who can help you decide how to manage your pensions, optimise your strategy, and make informed decisions about your portfolio.

No one can answer this question but you – it depends on your personal circumstances, your goals, and what you want. It’s a really big decision, so you need to take the time to assess your finances, lifestyle, health, and emotional readiness before you take the plunge.

Financial Readiness

Evaluate your retirement savings and investment strategy to ensure you have the funds to support the retirement lifestyle you want.

Debt Management

Review your outstanding debts, including mortgages, loans, credit cards, and other obligations.

Healthcare

Evaluate your current health and potential healthcare needs in retirement. Remember that your health could easily change over the coming years.

Lifestyle

How do you want to spend your time in retirement, and how much will this cost? If you want to travel the world, you’ll probably need to be more financially diligent than someone who simply wants to spend time with their family.

Emotional and Psychological Readiness 

Even if you’re looking forward to retirement with every fibre of your being, it’s a huge lifestyle change. Adjusting to this can be tough, especially when it comes to filling your time and maintaining your social life.

Once you retire, you can take a retirement lump sum from your pension fund, some or all of which may be tax free. Depending on your pension arrangement, you may have different options for this lump sum. 

Some arrangements allow you to withdraw up to 25% of the pension value as a retirement lump sum, while some base the lump sum on your salary and years of service. You can receive a tax free lifetime limit of €200,000 on retirement lump sums from all sources. The amount between €200,001 and €500,000 is taxable at the standard rate of tax (20%). Any amount in excess of €500,000 is taxed under Pay As You Earn (PAYE) at the marginal tax rate (40%).

Taking a retirement lump sum is the best choice for almost everybody who has a pension, but seeking advice at this point is crucial - more than one option may be available to you.

After any applicable lump sum, you will generally have a few options:

Annuity (buy a pension for life)

This is a regular income paid to you for the rest of your life. It stops when you die, unless you choose an option to continue it. This means it cannot be passed on to your husband, wife, civil partner, or dependents.

Approved Retirement Fund (ARF)

This fund allows you to make withdrawals whenever you need them, although it is your responsibility to ensure that you have enough money in this fund throughout your retirement. You must make a minimum withdrawal each year from age 61. If you die, this fund can be passed on to a beneficiary.

Vested Personal Retirement Savings Account (PRSA)

If you have a PRSA then you have the option to keep your pension fund in the PRSA after withdrawing your lump sum. This is known as a Vested PRSA and is similar to an ARF.

Taxable cash sum

Depending on your pension plan, you may be able to withdraw the rest of your fund as a single lump sum. When the first €200,000 is tax-free, lump sums between €200,000 and €500,000 are taxed at the standard rate and a lump sum greater than €500,000 will be taxed at your marginal rate and subject to Universal Social Charge (USC), applicable Pay-Related Social Insurance (PRSI), and any other taxes or government levies.

Tax on retirement income

Income from annuities, ARFs, and other pension arrangements may be subject to income tax, USC, and PRSI contributions.

Whether your pension pot is large enough for you to retire depends on you. The answer will change based on your retirement goals, income needs, lifestyle, and other finances. Consider the following:

What are your expenses in retirement?

Estimate your expected retirement savings including housing, healthcare, groceries, bills, hobbies, travel, and other discretionary spending. Don’t forget to account for inflation and the potential increase in healthcare costs as you get older.

What will your income be in retirement?

As well as your pension you may have personal savings, rental income, investments, part-time employment, or other sources of income. Make sure that you include all of these when assessing your retirement.

How long will it need to last?

Make sure that your pension pot is sufficient to support you throughout your retirement years, taking into account both increased life expectancy and potentially significant healthcare costs in your later years.

In Ireland, anyone over the age of 66 with enough Pay Related Social Insurance (PRSI) contributions is entitled to receive the contributory State Pension. The amount you receive depends on the number of years of PRSI payments you have made.

At a minimum, you must have been employed before the age of 56 and paid 520 full-rate PRSI contributions (10 years’ worth) before you reach retirement age.

In addition to the State Pension available to those who have enough Pay Related Social Insurance (PRSI) contributions, people in retirement may be able to avail of the following benefits:

• Free travel: every permanent resident of Ireland aged 66 or older can travel for free on public transport and selected private buses and ferries.
• Medical Card: this is available to people aged over 70 on a means tested basis and can be used to help with the cost of medical care.
• Household Benefits: the Household Benefits Package (HBP) is available to people over 70 to assist with the cost of electricity, gas, and TV license payments.