I just turned 41, and although 60 (when I want to retire if I can) seems like a long way away, I can’t help but think about what it means to stop work, and how my clients might feel as they approach retirement.
I don’t like the word retirement. In many ways, this word isn’t associated with good feelings. Retirement might seem like the end or old age. But I think in many ways it’s a new beginning. In many ways, it’s your second life. You have the option and freedom to do what you’ve always wanted to do, whether that’s travel the world, get involved in a new hobby, learn a new language, or live in a different country. The shackles of earning money for a living come off.
I travelled the world in 2010, and it’s a goal of mine to do the same route again in my 60s with my wife. It’s a very exciting period when someone retires, with the advancement of medicine people are living longer, and in many instances, people are living two or three more decades after they stop working.
As I get older, I realise that certain areas of life become more important, such as health and happiness, that I often took for granted when I was younger. I do believe that these areas are vitally important as we all get older. Standard Life has analysed what is important to people as they approach old age.
These areas prove to be very important as you get older.
- Staying Physically Active
- Staying mentally sharp
- Having a sense of purpose
- Being part of a community
- Being in control of your finances
Although I’m very interested in all of the above, I help people ensure they’re in control of their financial situation. I help people to ensure that there’s a good strategy in place to have a great second life.
The key to a good second life is knowing what you will end up with from a financial perspective and having a plan to decumulate your hard-earned savings. I have outlined what should be done during key decades.
IN YOUR 20’s
Early on in life, it’s important to get a handle on what a Pension is and to begin funding one, without worrying too much about how much you’re paying in.
IN YOUR 30’s
In your 30’s it’s about fine-tuning. Understanding the future impact of your current contributions and identifying gaps. Also reviewing your investment choices
MIDDLE AGE
In your 40’s and 50’s, hopefully, the foundations of your Pension have been built in your 20’s and 30’s. It’s time to really accelerate funding your Pension. Getting projections can help you visualize your retirement number at retirement. Making sure you’re invested in the right investment strategy is also critical.
5 YEARS OUT FROM RETIREMENT
Ensure you have control of all of your Pensions, and that you’re receiving statements. Get projected values of your Pension on a yearly basis.
Review other sources of income that might help you in retirement (Investment income, property-related income, or part-time work)
Budget realistically – Is the money you think you’ll need in retirement in line with what your projected income is? If not there’s still time to boost your Pension.
Do remember if you have different Pensions, you can retire them at different times, you can delay your retirement if needed.
ONE YEAR OUT TO RETIREMENT
Contact the Department of Social Protection about your state Pension a few months before your 66th birthday.
3 months before you retire, get your retirement options from your Financial Adviser (if it’s not me), or get your retirement options from the Insurance Companies, to ensure a quick transition.
WHEN YOU RETIRE
You can take a tax-free lump sum and the balance can be used to invest in an Approved Retirement Fund and/or Annuity.
LUMP SUM
You can take up to 25% of your fund as a lump sum.
You can take up to €200,000 Tax-Free.
Lump sum between €200,001 and €500,000 is taxed at 20% with any balance over this amount taxed at your marginal rate and subject to USC.
If you have a Company Pension the lump sum may also be based on your salary and the number of years, you’re a member of the scheme. (This can sometimes be higher than 25% of the fund value)
*There are pros and cons to maximizing your tax-free lump sum
APPROVED RETIREMENT FUND
An ARF is a post-retirement structure you can use when you claim your Pension and you retire. An ARF allows you to remain invested tax-free in the market, with the ability to control your investment and take a flexible income in retirement. You can decide on the amount you wish to take.
There are certain rules.
- You must withdraw 4% once you reach the age of 61.
- You must withdraw 5% once you reach the age of 71.
ANNUITY
An annuity is a product you buy with your savings from a Pension Pot. It converts your savings into a guaranteed income from life.
As an example, if you have €100,000 in your Pension and you bought an annuity today as a 65-year-old male with Irish Life you would receive an income of €5,151 per annum (based on Irish Life Annuit rates May 2023).
Handy website tools
Retirement Hub | Pensions & Retirement | Standard Life
State Pension (Contributory) (citizensinformation.ie)
Here’s to hoping we all have a great second Life.
Please note this is not legal, tax or financial advice.
