Retirement Planning: 10 Common Questions Answered

Retirement planning can be a daunting task, with many questions and uncertainties to navigate. As a top Irish financial advisor and insurance provider, we have decades of experience in retirement and pension planning. Here at FitzGerald Flynn Insurances, we understand the challenges our clients face when it comes to planning for their golden years. In this blog post, we aim to answer 10 of your most common questions about retirement planning in Ireland, providing you with the knowledge and confidence you need to make informed decisions about your retirement. Whether you're just starting to think about retirement or you're well on your way to building your nest egg, this post will provide valuable insights to help you achieve your retirement goals.

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What is the retirement age in Ireland?

The retirement age in Ireland has been gradually increasing in recent years, in line with demographic changes and a growing life expectancy. As of 2023, the State pension age in Ireland is 66 years, meaning that individuals are eligible to receive the State pension once they reach this age. However, the retirement age and planned changes to it have caused controversy and backlash in recent years. Last year, in response to backlash surrounding the Government’s plans to change the retirement age to 68 in 2028, it was announced that, as of January 2024, Irish employees will have the option to work until they are 70 in return for a higher rate of State pension once they retire. 

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Can I retire early in Ireland?

Yes, it's possible to retire early in Ireland, but it will depend on your personal circumstances. If you plan to retire before the official retirement age, you will need to have enough savings or a private pension to support yourself up to receipt of the old age pension and through your golden years. One of the most important things to consider when looking at whether you can retire early is to look at the standard of living and lifestyle you would like to have once you retire. By budgeting for your retirement in advance it can help you calculate how much you must be contributing to your nest-egg while you are still employed.

Another important factor to consider is the age at which you can access your pension. In Ireland, those with Defined Contribution Occupational Pension Schemes and Personal Retirement Savings Accounts (PRSAs) have the option to begin accessing their pension funds from the age of 50. However, this is only an option in specific circumstances (ill-health or complete retirement) for PRSA holders. Those with personal pension arrangements, such as Retirement Annuity pensions, are eligible to start drawing down on their pension funds from the age of 60. It's important to note that the age at which you can access your pension depends on the type of pension scheme you have, so it's always best to check with your pension provider or financial advisor for the specific rules and options that apply to your pension plan.

Early retirement is becoming an increasingly popular goal for many individuals. If you are interested in retiring early, it is important to consider a few key factors to help you achieve this goal. In addition to pensions, you may also want to consider other types of financial planning to help you retire early. For example, investing in property can be a great way to build wealth over the long term. You may also want to consider alternative investment options, such as stocks, bonds, and mutual funds, to help you diversify your portfolio and achieve your retirement goals.

Ultimately, retiring early requires careful planning and preparation. By taking the time to consider your financial situation and goals, and by working with a trusted financial advisor or retirement planner, you can create a plan that sets you on the path to achieving your dream of retiring early. Learn more about how to retire early in Ireland by reading our previous blog here. 

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What are pensions?

A pension is a long-term savings plan that is designed to provide you with an income when you retire. 

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What are the different types of pensions in Ireland?

There are several different types of pensions available in Ireland, each with its own set of features and benefits. The most common types of pensions are:

State Pension: The State Pension is a weekly payment made to people who have reached the State Pension age, which is currently 66. There are two types of State pension, Contributory and Non-Contributory. Which type of State pension one is entitled to is based on whether you contributed to the system by paying taxes during the course of your life. To learn more about the State pension system in Ireland check out our previous blog, What Financial Cover Does the Irish State Pension Offer. 

Occupational Pension: An occupational pension is a retirement plan offered by an employer. The plan is funded by the employer and the employee, and the amount of pension you receive is based on your salary and length of service.

Personal Pension: A personal pension is a retirement plan that you set up yourself. You make contributions to the plan, and the amount of pension you receive is based on the amount you have saved and the performance of your investments. Typically this has been used by ‘Sole Traders’.

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What is a PRSA?

In Ireland, the most common type of personal pension is the PRSA. PRSA stands for Personal Retirement Savings Account, and it is a type of pension plan available in Ireland. PRSAs were introduced in 2002 to provide individuals with greater control and flexibility over their retirement savings. PRSAs are a pension plan that you can set up with a financial institution or insurance company.

One of the key benefits of a PRSA is the flexibility they offer. With a PRSA, you have control over how your contributions are invested, and you can choose from a range of investment options to suit your individual needs and risk tolerance. You can also adjust your contribution levels as your financial situation changes, giving you greater control over your retirement savings.

When you retire, you have several options for accessing your PRSA. You can purchase an annuity  which will provide you with a regular income for the rest of your life or transfer your money into an ARF (Approved Retirement Fund). 

Alternatively, you can take a lump sum payment or a combination of lump sum and regular payments. There are lifetime limits on lump sum payments and maximum amounts you can have in a pension pot. The maximum amount in a pension pot is currently €2,000,000. The current tax-free amount is calculated as a percentage of the total pot. In this case one would calculate 25% of the pot being €500,000. The first €200,000 is tax free, this is your lifetime limit and the remaining €300,000 is taxed at 20%. The remaining balance of the fund, i.e. 75%, is transferred into an Approved Retirement Fund where one must take 4% of the funds from 61 years of age and 5% from 70 years of age per annum. Alternatively, you can take the 75% balance as a taxable lump sum where you would pay your marginal rate, plus USC and PRSI. 

If you have a smaller pension pot the same percentages apply. Assume the pension pot was €800,000, again one would take 25% of the pot being €200,000. This €200,000 is tax free and is your lifetime limit. The balance of 75% of this fund is then transferred into an ARF where the above rules apply.  

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How do I choose a pension plan?

Choosing a pension plan can be overwhelming, but there are a few things you should consider when making your decision. First, consider your retirement goals and your appetite for risk. Secondly, you should also consider the fees associated with the plan and the level of flexibility it provides. It is also important to consider how many years away you are from retirement - especially if you plan to retire early. 

Speaking to an experienced pensions expert is always a great place to start. Contact us today to discuss the best pension options for your situation. 

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How much should I be putting away for retirement?

The amount that you should be putting away for retirement largely depends on your individual circumstances and retirement goals. A good rule of thumb is to aim to have at least 50% of your pre-retirement income coming in once you retire, with two-thirds being an amount that will allow for a more comfortable lifestyle. .

To calculate how much you should be saving for retirement, you should first determine your expected retirement expenses. This includes your living expenses such as housing, food, and healthcare, as well as any additional expenses such as travel or hobbies. Once you have an estimate of your retirement expenses, you can subtract any expected sources of retirement income such as social security, pensions or investment income. 

Calculating just how much you need to put away can be complex. That’s why we recommend reaching out to one of our retirement experts here at FitzGerald Flynn Insurances, who have decades of experience in advising our Dublin and Irish clients. 

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When should I start planning for retirement?

It's never too early to start planning for retirement. The earlier you start, the more time your investments have to grow. Even if retirement seems far away, it's important to start planning and contributing to your nest egg as soon as possible.

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Are there tax implications when it comes to retirement planning?

When planning for retirement, it is important to consider the tax implications of your retirement savings and income. In Ireland, there are various tax incentives and relief available for retirement savings, such as tax relief on pension contributions and tax-free lump sums on retirement. It is important to work with a financial advisor to understand how these tax rules apply to your individual situation and to ensure that you are making the most tax-efficient decisions for your retirement.

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How can I incorporate ethical and sustainable investments into my retirement portfolio?

With the growing awareness of climate change and social responsibility, many individuals are interested in incorporating ethical and sustainable investments - also known as ESG investing - into their retirement portfolios. In Ireland, there are various options available for ethical and sustainable investing, such as investing in green bonds, renewable energy funds, or socially responsible funds. Contact us today to learn more about the ESG investment options available to you. You can also learn more about ethical and sustainable investments by reading one of our previous ESG blogs. 

Planning for retirement can seem daunting and overwhelming, but it is a necessary step in ensuring a comfortable and secure future. By understanding the key factors that go into retirement planning you can make informed decisions that suit your unique needs and circumstances.

Remember to regularly review your retirement plan and adjust it as necessary, taking into account changes in your life circumstances, financial situation, and retirement goals. Seek advice from trusted financial advisors and retirement planners such as ourselves who can guide you through the process and help you make the best decisions for your future.

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With the right mindset, knowledge, and guidance, you can enjoy a happy and financially secure retirement. Don't wait - start planning today!

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