Preparing for Retirement
Whether you're starting to save for your pension, planning your retirement or have just recently retired, the best way to ensure the lifestyle you want in retirement is to take ownership of it now.
Planning your retirement
There are lots of factors to consider before you start planning your retirement. It's a very special time and the decisions you make now can make all the difference to your lifestyle in retirement. With the right information, you should be in full control of when and how you take your money. Because there are a number of pension options available to you, deciding what's best for you can be difficult. So when you're choosing your retirement option, having all the information you need is key. We're here to help you understand your options, and will guide you as you take the next steps in planning your financial future.
Given the increase in life expectancy, most of us can look forward to a longer and more active life in retirement. If you're nearing retirement age, there are a few things you may want to think about. The first thing you should consider is the lifestyle you would like to have in retirement and the financial support you will need to enjoy that life. If you have a pension, you may want to consider making Additional Voluntary Contributions (AVCs) if applicable. If you don't have a pension, talk to your financial advisor or call our financial planning team on 1850 804 164 and they can advise you on the pension options to best suit you.
An income in retirement
Once you have retired you will need to decide how best to arrange your retirement income. On retirement you can take a cash lump sum that is tax free, subject to Revenue limits. You'll want the remainder of your retirement fund to see you through the rest of your life, so it's important to consider options that will suit your personal circumstances.
Before you start receiving your pension payments you'll need to decide how you would like these payments to be made. You could decide to receive your pension income from an Approved Retirement Fund (ARF) subject to minimum requirements, which allows you to withdraw from your fund on a regular or adhoc basis, or an Annuity, which pays you a regular income.
With most financial matters, a good plan is invaluable, and that's certainly true if you plan on retiring early. How much you need to be financially secure in retirement depends on the lifestyle you would like to have. It is also worth considering that due to better health, life expectancy is increasing and we can expect to live longer in retirement. While there is no mandatory retirement age in Ireland, your employment contract may state when you can take early retirement. Employees who plan on retiring early may need to build up a larger fund to help them through those additional years of retirement. Usually, the minimum age at which you can start receiving pension income is 50.
With an Annuity you will receive a regular income for the rest of your life. Annuities may be more suited for people who wish to avoid potential risks, and would prefer a guaranteed income for their retirement. There are three choices you need to make when purchasing an Annuity:
A Single Life Annuity is payable for the rest of your life only. With a Joint Life Annuity, a percentage of your pension is payable to your spouse after you die.
If you choose to include a guaranteed period, your pension will be payable for a minimum of the guaranteed period, even if you die during that time.
Escalating or Level
A Level Annuity means your payments remain the same throughout your life. An Escalating Annuity means your payments increase at a fixed rate each year.
Approved Retirement Fund (ARF)?
An ARF gives you more control over how your retirement fund is managed. An ARF is an investment plan with the intention of growing your fund during your retirement years based on your own investment strategy.
An ARF works by allowing you to invest all or part of your pension fund after you retire. You can decide on the type of fund you would like to invest in, and the amount of risk you're comfortable with. With an ARF you can still withdraw from your fund on a regular or ad hoc basis (subject to income tax and USC. PRSI may also apply). It's worth remembering that since your pension fund is still invested, its value may go down as well as up.
To set up an ARF you must have a guaranteed pension income of at least €12,700 per annum or have invested €63,500 in an Approved Minimum Retirement Fund (AMRF) and/or Annuity.
The minimum requirement for an ARF stated above is the current Revenue limit and may change in future.
Tools to help you choose
Use the ARF or Annuity tool to see which option might be more suitable for you at retirement. There's no right or wrong answer as to which option is better - just which one is better for you.
Use the Retirement Drawdown Calculator to look at the different options available in retirement. It compares the benefits of investing in an Approved Retirement Fund (ARF) with those of an Annuity.
The information contained herein is based on Zurich Life's understanding of current Revenue practice as at October 2017 and may change in the future.