Retiring

If you are coming up to retirement, or you retired recently, it may take time to adjust to your new circumstances, particularly when it comes to your finances.  We have lots of information to help you, including some things you need to think about.

  • Consider your saving and investment options
  • Shop around for insurance
  • Releasing equity in your home
  • Keep an eye out for special offers
  • Managing your daily expenses

Consider your saving and investment options

When you retire, you may have a lump sum that you want to save or invest. Consider contacting a financial advisor if you think you need help making a decision. We have lots of information on saving and investing, including comparing options, understanding risk and information on how deposits and investments are protected.

Shop around for insurance

Some insurance providers offer cheaper insurance cover for senior citizens, so it may be a good time to review your insurance. Our home insurance and motor insurance shopping around checklists will help you organise quotes and compare prices and benefits.

Releasing equity in your home

You may be aware of schemes and products available that allow you to release equity in your home, such as lifetime mortgages or home reversion. We outline many issues you should consider in our information on equity release.

Managing your daily expenses

Retirement might mean you will have less disposable income and you may want to adjust your spending. Use our handy budget planner to set yourself a budget for your day-to-day spending and help you keep track.

Keep an eye out for special offers

Take advantage of the many offers available from retailers and banks such as free banking, award systems and deal days for senior citizens. See our money saving tips for more hints to help you get better value for your money.

Pension benefits explained

When you retire, what happens to:

Annuities/ARFs

The amount of regular pension income you get from an annuity will already have been guaranteed and you will have chosen to suit your needs. Once you take the pension, your income level is fixed and can’t be changed afterwards, so watch out for significant changes in inflation.

Your annuity income is usually just for your own lifetime and generally does not go to your dependants when you die. However, there are some guaranteed annuity products that may pay out some benefit to your dependents.

One alternative to taking out an annuity is to set up an Approved Retirement Fund (ARF). In retirement, you can withdraw from an ARF regularly to give yourself an income, on which you pay income tax and any other levies, such as the income levy. However, the income is not guaranteed in value and an ARF can run out during your lifetime if:

  • you make large, regular withdrawals from it
  • investment returns are less than expected.

ARFs are also subject to yearly management charges, which are taken from the fund and reduce the value of any growth in the fund. From 1 January 2015, the yearly drawdown requirement for ARF’s has been reduced from 5% to 4% for those under the age of 71, where funds are under €2 million. For those aged over 71 years, a 5% drawdown still applies and a 6% drawdown applies for funds over €2 million. So you will be charged tax whether you have taken an income or not. Any money left in the ARF after your death can be left to your next of kin.

An Approved Minimum Retirement Fund (AMRF) is similar to an ARF and as of 1 January 2015 AMRF holders can drawdown up to a maximum of 4% of the fund value each year. Under the old rules, you could not withdraw any of your original capital until you reached 75, unless you reached the minimum income threshold of €12,700. These new rules replace the previous income and drawdown rules and apply regardless of age and the fund value. Once you reach 75 your AMRF will automatically become an ARF.

Employer pensions

When you retire as an employee from your employer’s pension plan, you can usually take your benefits in two separate parts.

  • a tax-free lump sum; and
  • a pension for life (subject to income tax).

The amount you can take as a tax-free lump sum depends on the rules of your employer’s plan.

It usually makes sense to take the biggest lump sum you can tax-free. If you took the same amount of money as an annuity or guaranteed pension income, you have to pay income tax on it at your top rate. In addition, you get the lump sum now, to invest or spend as you want.

However, in some cases taking a lump sum can reduce your annual pension so you would have to carefully consider the consequences before you choose.

You can also leave some of the lump sum to your dependants if you die soon after retirement.

If you have paid Additional Voluntary Contributions (AVCs) into your employer’s pension plan, or into a separate Personal Retirement Savings Account (PRSA), you must normally take these benefits at the same time as you retire. You may be able to take part, or all, of your AVCs as a tax-free lump sum. If there is any money left in your AVC fund, you can use it to:

  • increase your basic pension
  • transfer it to an Approved Retirement Fund (ARF) or an Approved Minimum Retirement Fund (AMRF)
  • take it as a cash lump sum on which you pay income tax.

Personal pensions

If you have a personal pension plan or Personal Retirement Savings Account (PRSA), you can immediately take a tax-free lump sum of up to 25% of your pension fund, up to a maximum of €200,000, when you retire. Amounts over this will be taxed at the standard rate. You can use the rest of your fund to buy an annuity, which gives you an income for the rest of your life.

If you have a secured income of €12,700 -you have the following options: If you don’t have a secure income of €12,700
– 25% tax free lump sum – 25% tax free lump sum
– Annuity – Annuity (€63,500 or the remainder of the fund)
– ARF – AMRF (€63,500 or the remainder of your fund if less than €63,500)
– Taxable sum

With personal pension plans, if taking 25% tax free lump sum and the balance of the fund is less than €20,000, you may be able to take the remainder as a taxable lump sum, for more information go to the Revenue.

What age?

With most pension plans, you can take your pension benefits at any time if you become seriously ill and have to give up work. Otherwise, the earliest you can take your pension benefits depends on the type of plan you have. Usually your money is tied up until you reach retirement age, so you can’t take money from your pension until you retire.

Type of plan Earliest age you can take benefits
Personal Pension Plan Age 60. You can continue working and contributing if you want, and delay taking benefits up to age 75.
PRSA Age 50 if you are an employee and retiring from that employment. Age 60 for others, such as people who are self employed or not earning an income. You can continue working and contributing if you want, and delay taking benefits up to age 75.
Employer pension plan (including AVCs) Usually 60 or 65. Some plans allow early retirement from age 50, with your employer’s consent.

People in certain occupations, such as professional sportspeople, are allowed to take their benefits from a younger age.

Remember that if you retire early, your pension will normally be much lower than if you continued making contributions up to the expected retirement age for your pension plan.

If you have paid Pay Related Social Insurance (PRSI) during your working life, you may be entitled to a state pension at the age of 65, or 66 if you are self-employed. You should consider this when working out the best way to take your pension benefits. Check with the Department of Social and Family Affairs to see if you are entitled to a state pension.

 

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