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Retirement Planning in Your 50s and 60s

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As the years pass and you find yourself in your 50s and 60s, you’ll probably start thinking about retiring more frequently.

You might be wondering if you’ve saved enough, if your investments are on the right track, and how to ensure a comfortable and secure retirement.

Despite the feeling that retirement is right around the corner, there is still plenty of time to improve your financial situation and increase your nest egg for retirement. 

In this article, we’ll explore helpful strategies and insightful advice for those in their 50s and 60s, helping you get prepared for your retirement.

Read our article, 10 Common Retirement Planning Mistakes To Avoid, for more insights.

Can I retire early in Ireland?

Yes, early retirement in Ireland is possible, but it primarily depends on your unique situation. 

If you’re thinking about retiring before the official retirement age, you need to make sure you have enough savings or a private pension to support yourself until you qualify for the old age pension and during your retirement years. 

It’s crucial to consider the quality of life and the lifestyle you want during retirement. Planning ahead and budgeting can help you determine how much you should save while you’re still working.

When can I retire?

Whenever you want to, but whether you can access your retirement benefits to live from will depend on the specific plan you have in place.

If you established a pension plan while self-employed or while working for an employer that did not make contributions to your pension, you possess a Personal Pension, the value and rules of this pension will indicate to you what you can retire.

If you were employed by a company and enrolled in a pension scheme with contributions from your employer, you hold a Company Pension. This can come in the form of a Defined Contribution (DC) pension, a Defined Benefit (DB) pension, or an Executive Pension Plan.

If you opted to top up your company pension by making extra voluntary contributions, you possess an Additional Voluntary Contribution (AVC) pension.

Alternatively, you might have a Personal Retirement Savings Account (PRSA). This pension plan is open to individuals in various categories, including employees, self-employed individuals, homemakers, the unemployed, and others.

If you left an employer and moved your pension fund to an independent pension account, you hold a Retirement Bond.

Personal Pensions

You might have the option to access funds from your personal pension under the following conditions:

  • Any time between the ages of 60 and 75.
  • You might be able to retire early in the event of severe illness
  • You may retire before the age of 60 when you are permanently unable to work.
  • People in some occupations are allowed to retire early, such as golfers, rugby players, jockeys, and similar occupations.

Company Pensions

  • The standard retirement age is determined by your employer and usually falls within the range of 60 to 70. 
  • If you are 50 or older, early retirement is a possibility, provided it’s approved by your employer and the pension trustees. 
  • Additionally, early retirement due to serious illness is an option. In specific cases, you may be able to retire at any age if you are permanently incapable of working.

Personal Retirement Savings Accounts (PRSAs)

  • You can access your PRSA at any point within the age range of 60 to 75. 
  • In some situations, it may be possible to start receiving benefits from as early as age 50.

Additional Voluntary Contribution Pension

Given that your additional voluntary contributions are associated with your company pension, you must use the funds from both at the same time.

Retirement Bonds

  • Your standard retirement age is established within your company pension plan and remains unaltered when transferring to a Retirement Bond. 
  • It can be between 60 and 70. 
  • You have the option to opt for early retirement starting at age 50. 
  • Additionally, early retirement due to severe illness is possible, contingent on approval from the Revenue.

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What options do I have when I retire?

You will have various options when you reach retirement, and, subject to specific guidelines from Revenue, you can potentially combine these options. 

The range of choices accessible to you upon retirement is contingent upon the type of pension you hold.

There are four main options available to you:

  1. Take a tax-free retirement lump sum (subject to a lifetime limit of €200,000)
  2. Take a taxed retirement lump sum
  3. Invest in an Approved Retirement Fund (ARF)
  4. Buy an Annuity

What is an ARF?

An Approved Retirement Fund (ARF) provides retirees in Ireland with increased control over their pension funds. 

ARFs allow you to remain invested in the financial market, giving you flexibility in managing your investments and enabling you to take a variable income during retirement, while continuing to benefit from compound interest growth. Financial advice is needed here.

You, as a retiree, can decide the portion of your pension fund to invest and select your desired risk level with an ARF.

You should be aware that the value of the fund can vary due to market conditions, even though you have the option to make periodic or as-needed withdrawals from it.

Learn more by reading our article about Approved Retirement Fund (ARF).

What is an Annuity?

Once you’ve received your tax-free lump sum upon retirement, you might have the option to select either an Annuity or an Approved Retirement Fund (ARF)

An annuity is structured to offer a consistent and assured income stream for your lifetime. It’s crucial to select an annuity that aligns with your own and your spouse’s retirement needs. 

Learn more by reading our article about Annuities.

What if I die after Retirement?

Retirement Lump Sum

When you pass away, this money becomes part of your estate. Different levels of taxes will apply depending on who inherits the money.

Annuity

You have the option to determine what will happen with your pension upon your passing. For instance, it can stop immediately, or it can continue to be paid, at a reduced rate, to your widow/widower or partner.

It can provide a guaranteed level of pension income for your spouse or civil partner for up to 10 years.

For instance, if your annuity provides an annual payment of €30,000 and you pass away one year after retiring, your family might receive €30,000 each year for the subsequent 9 years.

Learn more by reading our article about Annuities.

Approved Retirement Fund

The worth of your ARF is transferred to your estate when you die. The applicable tax levels vary depending on who inherits the money.

Learn more by reading our article about Approved Retirement Fund (ARF).

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Steps to planning for your retirement in your 50s

1. Reevaluate your retirement goals

The first step to boosting your retirement savings later in life is to revisit your retirement goals. 

Consider what you want your retirement to look like and adjust your financial plan accordingly. 

Determine how much income you’ll need to maintain your desired lifestyle and create a new savings target.

2. Maximise Pension Contributions

In your 50s, it’s an excellent moment to begin reviewing your pension contributions and make sure that you’re on the right path to a financially secure retirement.

At this stage, your retirement is approaching, so you have a shorter time frame to save and invest for your retirement compared to someone in their 20s, 30s or 40s.

Make extra contributions

You have the flexibility to increase your pension contributions, whether you have a personal pension, an occupational pension, or a PRSA (Personal Retirement Savings Account).

Consider making Additional Voluntary Contributions (AVC) to your pension fund. 

AVCs work as a top-up pension scheme. You can choose to make AVCs through regular contributions or as lump-sum payments, based on your personal preference and the guidelines of your pension plan.

Usually, contributions to AVCs are deducted from your pre-tax income, offering potential tax benefits.

3. Review Your Investment Portfolio

As you approach retirement, consider shifting your investments towards more conservative options to protect your savings from market volatility.

Consult a financial advisor at True Wealth to review your investment portfolio.

4. Take Advantage of Tax Benefits

One of the main advantages of making contributions to a pension in Ireland is the tax relief available. When you contribute to a pension scheme, you become eligible for tax relief based on your marginal tax rate, provided you stay within the annual limits. 

This implies that if you are a higher-rate taxpayer paying 40% income tax, you have the opportunity to claim an equivalent amount in tax through your pension contributions.

For instance, if you decide to contribute €1,000 to your pension and are subject to a 40% income tax rate, your actual cost after tax deductions will be only €600.

Pension Contribution Limits

In Ireland, annual pension contributions eligible for tax relief are subject to age and income-based limits, ensuring full relief within those boundaries. Earnings up to €115,000 annually are considered for tax relief calculations.

These limits might not apply to directors, key employees, or professional sports people.

limit for tax relief on pension contributions table

Example:

Brid, aged 45, has an annual income of €60,000. The maximum she is allowed to contribute to her pension is 25% of her annual income, which amounts to €15,000.

In this scenario, Brid falls into the higher tax bracket, and her marginal tax rate is 40%.

This implies that she can avail of a 40% tax relief, which equals €6,000, refunded by the government for all her contributions. 

Consequently, she will only be responsible for a net amount of €9,000 while still achieving the full €15,000 contribution towards her pension.

5. Track Down Old Pensions

One often overlooked aspect of retirement planning is tracking down and potentially consolidating old pension accounts. This can significantly boost your retirement savings and simplify your financial life.

Pension tracing is the process of locating forgotten pension accounts or accounts from past employment, whether you or your employer contributed to them. This can result in the discovery of additional retirement funds that you may not have been aware of, potentially boosting your retirement savings unexpectedly.

Learn more by reading our article, The Importance of Pension Tracing in Shaping Your Retirement Strategy.

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6. Mortgage Strategy

Evaluate your mortgage situation. If you have an outstanding mortgage, consider a strategy to pay it off or reduce the cost of it by switching or remortgaging before retirement. 

This can reduce your post-retirement expenses and increase your financial security.

It’s important to understand that the most effective approach to handling your mortgage can differ based on various factors, making each situation distinct and unique.

To illustrate this point, consider these three distinct situations:

1. Switch your mortgage 

You can opt to refinance your mortgage to secure a lower interest rate, resulting in reduced monthly payments and savings. The money saved can then be redirected towards your pension contributions.

2. Pay off your mortgage

If you expect to receive a lump sum, consider using it to pay off your mortgage entirely. By doing so, you eliminate one significant expense from your retirement budget, and the funds previously allocated for mortgage payments can be diverted into your pension fund.

3. Put a lump sum into your pension pot

You expect to receive a lump sum that is sufficient to pay off your mortgage. However, to make Additional Voluntary Contributions (AVCs) to your pension. This allows you to capitalise on potential tax benefits and continue building your retirement savings.

Additionally, you decide to refinance your mortgage to secure a better rate, allowing you to save money on monthly payments. 

These are merely illustrative scenarios, and there are numerous other possibilities based on your unique circumstances. 

Determining the best approach in relation to your mortgage strategy will depend on your specific financial landscape. 

Our personalised retirement pension approach considers factors like your mortgage interest rate, investment growth potential, and more, tailored to your individual situation. 

Steps to planning for your retirement in your 60s

1. Confirm Retirement Readiness

Ensure you have enough savings to support your desired lifestyle in retirement, considering the Irish cost of living.

Calculate your retirement expenses

Calculating your retirement expenses is a crucial step in ensuring your financial security during your post-working years. Consider all your expenses such as:

Essential Living Expenses: Estimate your monthly costs for housing, utilities, groceries, transportation, and healthcare.

Healthcare Costs: Consider healthcare costs, which encompass insurance premiums, medical copayments, and prescription medications. Account for any specific medical needs you may have.

Debts: Calculate outstanding debts such as credit card balances, loans, and mortgages. Develop a plan for reducing or clearing these debts during your retirement.

Leisure and Hobbies: Think about the activities and hobbies you want to enjoy in retirement, such as travel, golf, or cultural pursuits.

Inflation: Account for the impact of inflation on your expenses over the years.

Review your pension savings

Review your pension savings, including both state and private pensions. 

The State Pension (contributory) is available to individuals who have enough PRSI contributions. Depending on your contribution history, it can provide you with a basic level of income in retirement. 

If you have a private pension, consult with a financial advisor at True Wealth to ensure it is sufficient to meet your needs.

Savings and Investments

Examine your savings and investment accounts. Make sure they are allocated properly, and are they on track to meet your retirement goals.

2. Consider downsizing

When your home becomes too big for your needs, you can switch to a more affordable place to save money and boost your retirement savings.

Downsizing comes with financial perks like the money you get from selling your current home, a cheaper mortgage or rent, and reduced utility bills.

Moving to a smaller home or apartment also means less maintenance, which is easier as you grow older.

Moreover, by saving money on a more budget-friendly mortgage or rent, you’ll have extra funds to cover services like lawn care, cleaning, and repairs. This allows you to have more leisure time, enjoy yourself, and spend less time on household chores. 

One of the advantages of downsizing is the potential to add the money you save as an additional contribution to your retirement fund, which can also help cut your retirement expenses.

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3. Think about whether postponing Retirement is an option

Consider working a few years longer than initially planned. Delaying retirement can significantly increase your savings and reduce the number of years your savings need to support you. Plus, it provides more time for your investments to grow.

4. Tax Planning

Understanding the tax implications of your retirement income is essential. In Ireland, different tax treatments apply to various sources of income. 

For example, when you begin to receive money from an ARF or annuity provider, that provider becomes your “employer” for tax purposes.

It’s important to assign any tax credits you qualify for to your ARF or annuity provider. This prevents you from being taxed at a high emergency rate. 

Revenue will give your provider a tax credit certificate that guides them on how to tax your retirement income.

5. Develop a Withdrawal Strategy

Create a plan for drawing down your pension, taking into account tax implications and retirement income sources.

The type of income you get during retirement is determined by the plan you choose. 

You can go for an Approved Retirement Fund (ARF) or an annuity. Understanding how each option works and any potential taxes involved is crucial. This knowledge will help you plan better and maximise your retirement benefits.

Approved Retirement Fund (ARF)

One of the key components of retirement planning in Ireland is the Approved Retirement Fund (ARF)

An ARF is a tax-efficient investment vehicle that allows you to invest your retirement savings and draw down an income from it. 

Withdrawing from an Approved Retirement Fund (ARF):

An ARF allows you to leave some or all of your retirement savings invested and take out money when you want. You have these options:

  • Take a fixed amount of money regularly (before taxes).
  • Take a regular amount based on a percentage of your ARF’s value before taxes.
  • Increase or reduce the amount you take out regularly.
  • Take out a one-time lump sum.

The money you take from an ARF is considered income, and it’s taxed through the Pay As You Earn (PAYE) system.

Every December, you might need to take out a specific portion from your ARF to meet Revenue regulations:

  • 4% if you are 60 or older for the entire tax year.
  • 5% if you are 70 or older for the complete tax year.
  • 6% if your total assets in ARF and vested Personal Retirement Savings Accounts (PRSA) amount to €2 million or more, and you are 60 or older for the entire tax year.
Withdrawing from an Annuity:

An annuity turns the money in your pension fund into a guaranteed income for the rest of your life. You have options:

  • Get a regular fixed income amount.
  • Have your income increase every year.
  • Ensure your spouse or civil partner continues to receive income after you pass away.
  • Choose a fixed period (guaranteed period) for which annuity payments continue, even if you pass away before the period ends.

Your choice affects your income. For instance, if you want your spouse or civil partner to receive more income after you’re gone, your own income during your lifetime will be lower.

Annuity payments count as income. This means they will be subject to taxation through the PAYE system and are liable for income tax and the Universal Social Charge.

6. Seek a Financial Advisor

Talk to one of our financial advisors at True Wealth. We are experts in retirement planning, and we can create a comprehensive and personalised retirement strategy to ensure your savings will last throughout retirement.

Retirement Planning with True Wealth

We at True Wealth are experts in personal and business financial planning, retirement planning, pension tracing, savings and investments, and wealth management.

Don’t hesitate to seek advice from our financial advisors, who specialise in retirement planning, to ensure you’re on the right track. Remember, it’s your financial future, and taking steps now will make a meaningful difference down the road.

By working closely with True Wealth, you can get a comprehensive retirement savings strategy that maximises your savings potential, optimises investment returns, and provides the best chance of achieving your retirement goals.

Get in touch to find out how we can help you.

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