At 59 should I just retire now?

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agencydude

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Hi
I'm 59 yrs old and work as an employee in a multinational in Ireland
Over the years I've been maxing out my pension contributions when ever I can .

The plan I had was to aim to retire at 60 yrs. The multinational I work for would prefer if I work until I'm 65.

I've been reviewing my DC pension pot over xmas and the start of the new year. I also reviewed the value of a few paid up pensions from previous employers.
When I combine the the values of my DC pension and the paid up pensions I see I have a total pot value of about 1.3 million.

I'm currently thinking of doing the following :
If I transfer the paid up pensions into the DC pension I could then say to my employer I want to resign and then after leaving the company start to draw down the pension and live off the pension.
If I just draw down 4 % via an ARF I reckon that will give me an income of about 50k per year.
I don't think an annuity pension would work for me as I still have to pay some more prsi in the next few years to get the full state pension.
I don't see any need to take a lump sum as my wife and I have plenty of savings in various savings accounts.

She has just completed 40 yrs service in the public service this year and plans to retire later this year .
She expects to get 30k annual income and 90k lump sum on retirement.


I reckon then we'd have a combined income of 80k per year gross and was wondering what tax we'd have to pay .
I presume combining the income we'd pay tax at 20%?
Is there anything else in taxes we'd have to pay?

Checking our annual expenditure for last year I reckon we had outgoings of about 60k.
We paid off the mortgage a few yrs ago.
We have no loans.
We have no rental property.
We have a child in third level college and will have this as an expense for another year or so .

Questions I have are :
1. When you move the pension plan to an ARF does the money get extracted from the existing investment schemes and then put into an ARF investment scheme that typically invests in stocks and shares?
2. How long would this process take?
3. IS there any issues or hidden costs when transferring paid up pensions into a DC pension scheme? IS there anything I need to be aware of? The paid up pensions I have are:
a. A personal pension
b. A buy out bond
c. An executive pension
and
d. A standard PRSA.


4. I read before that some people draw down their different pensions they setup over the years at different times. I was wondering is there any advantage in this ?
IS this something I should consider? I was thinking putting all my funds in one pot would keep things simple for me and the bigger the pot of money the easier for me to just live of the interest of this pot of money.
5. If my wife and I had a gross income of 80k from our pensions what would the taxes be we'd have to pay.?



Any thoughts are most welcome.
Thanks in advance
 
It seems like you have had a successful career and had the foresight to invest in your retirement. A pot of €1.3m gives you options and security. If you don’t mind my saying it sounds like you now need to get up to speed on retirement income planning ….before you make some big decisions. That’s not the work of a day or a week….or some posts on AAM (although I found them a very useful part of my learning journey).

Regarding taxation, I use this to calculate my net income after deductions. The income amounts you mention should keep you both at the 20% rate. That may not be the case by the time you start drawing the state pension though. In 2025 a married couple can earn a total of €88000 (split €53k and €35k) without paying tax at 40%.

Income Tax Calculator | Deloitte Ireland

Use Deloitte’s income tax calculator to estimate your net income based on the provisions announced in the latest budget.
services.deloitte.ie services.deloitte.ie

It would be unusual not to take the tax free lump sum and it’s one way to reduce your income tax bill in the future. See point above.

Sign on for JSB after retiring and the credits that you will earn will maintain your PRSI record to age 66 for contributory state pension purposes. You can have a max of 520 weekly credits (10 years) that count towards the pension amount calculation. That leaves open the option of an annuity.

You are likely set for a comfortable retirement, income wise, but I think that you might benefit from professional advice, especially on how to invest in an ARF. The advisor will explain/answer all of your other questions in context. Costs vary from advisor to advisor and also what type of service you require. It can be good to get several proposals for comparison purposes. Beforehand perhaps spend some time reading the various retirement and pension posts on AAM.

Pensions and retirement provision are complex and the more you educate yourself the less confusing future important conversations might be.
 
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No expert on this but most pensions require you to wait until 65, you indicate your current employer wishes you wait until 65, how do you intend drawing down at 60?
 
Just re question 4, keeping the pots separate means you don’t need to draw down your 25% TFLS in one go - you may not need the money now, but you may want it in a few years time to help your child with a house deposit, for example. Secondly, you will be obliged to take 4% per annum on an ARF, with all the tax implications that involves and whether you need that level of income or not. By retaining separate pots, you can control your level of withdrawal to optimise for tax and for your needs. Thirdly, the other pots could possibly be utilised to take an income earlier in the event your current scheme trustees won’t allow you to retire before 65.

In short, don’t consolidate them and remove options when options (ie to retire early, to get to full COAP contributions, etc) are exactly what you need.
 
It's interesting that the company wants you to work till 65. My pension provider says I need the company's agreement for early retirement.

Are there cases of companies refusing?
 
I’m in a DB scheme so slightly different but if i want to retire early I need the company to agree. Of course I can just leave but I can’t collect anything until I’m 65. They’ve got a varied history of refusing.
 
There is no need to consolidate your pension before maturing them. You don't have to mature them all in one go and even if you do, it is quicker to mature them individually and invest the proceeds of each into an ARF.

Take the tax free cash, otherwise you are paying tax under PAYE for money that is otherwise tax free.

Don't be too conservative on your estimates of spending. Does the estimated cost include more holidays than before? Doing jobs on the house?


Questions I have are :
1. When you move the pension plan to an ARF does the money get extracted from the existing investment schemes and then put into an ARF investment scheme that typically invests in stocks and shares?
Yes, the policy is matured and a cash value moved to the ARF. The investment options in an ARF are the same as that under normal pensions. You will need some equity content to protect the long term growth of the ARF.
2. How long would this process take?
Depends on the provider. Some are quicker at maturing policies that other. Give yourself at least a month, some will take longer, especially the big administrators such as Mercer and WTW.
3. IS there any issues or hidden costs when transferring paid up pensions into a DC pension scheme? IS there anything I need to be aware of? The paid up pensions I have are:
a. A personal pension
b. A buy out bond
c. An executive pension
and
d. A standard PRSA.
There may be exit penalties under the personal pension and the executive pension. You need to check. No penalties are allowed under the personal pension. To consolidate the personal pension with your work pension, it has to go to a PRSA first and then to the work pension. This is all unnecessary work that you will be charged for and which will take longer.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Annieindublin said:
I’m in a DB scheme so slightly different but if i want to retire early I need the company to agree. Of course I can just leave but I can’t collect anything until I’m 65. They’ve got a varied history of refusing.
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I can see why a DB scheme might not favor granting early retirement but for a DC pot the company has nothing to lose but the employee, who could decide to leave for another company anyway. I can't see why a normal DC situation would be refused.
 
Annieindublin said:
I’m in a DB scheme so slightly different but if i want to retire early I need the company to agree. Of course I can just leave but I can’t collect anything until I’m 65. They’ve got a varied history of refusing.
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You have three options:
  1. See if the trustees will allow you to draw down your pension early. It will be reduced to take into account the early retirement and less money going into the scheme.
  2. Wait until you are 65 to draw down the pension and fund the years in between yourself.
  3. Take a transfer value of your defined benefit pension and move it to a defined contribution buy out bond that you can mature early. Once you leave the defined benefit scheme, you can't put the money back, so you need to be aware of all the pros and cons of this. It is unlikely that the money you receive will be better than the benefit you are giving up. Proceed with caution and don't be distracted by the potentially higher tax free lump sum.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
When you reach age 71 you must drawdown 5% yearly from your ARF. From age 66 onwards you will be receiving your state contributory pension.

If you decide to delay taking some of your pensions beyond age 60, you will risk entering the 40% tax band after age 71.

If you take all your pensions at age 60 and manage to stay within the 20% tax band, this would probably be the most tax efficient method.

Your pre 95 wife would also have opertunities to get reckonable Prsi contributions up to age 66 or 70. If she has AVCs and takes out an ARF, this would assist her in gaining reckonable Prsi. She could qualify for a partial contributory state pension on top of her public sector pension.
 
I would have thought that the better approach here would be to retire the smallest pension first, take the full 25% TFLS and then draw the minimum amount possible from an ARF to maintain your PRSI record, while staying under the thresholds for income tax and USC.

You could supplement the drawn down amounts with your after-tax savings to meet day-to-day expenses.

Once the ARF funded from your smallest pension is nearly exhausted, retire the next smallest pension and rinse and repeat.
 
Sarenco said:
I would have thought that the better approach here would be to retire the smallest pension first, take the full 25% TFLS and then draw the minimum amount possible from an ARF to maintain your PRSI record, while staying under the thresholds for income tax and USC.

You could supplement the drawn down amounts with your after-tax savings to meet day-to-day expenses.

Once the ARF funded from your smallest pension is nearly exhausted, retire the next smallest pension and rinse and repeat.
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Hmmm. This might be a good approach for someone with a smaller overall pot. The OP has a significant sum in his pension savings and I think a more important consideration is to be as tax efficient as possible with withdrawals. If he only withdraws “the minimum amount possible” there is a risk of too much money left in the pot attracting 40% income tax and higher URC later on. PRSI rates are steadily rising too. The rate will be 4.7% by 2028. It might be worth some spreadsheet modelling to see how it worked out.

I don’t think the OP needs ARF withdrawals to maintain his PRSI record unless he is likely to exceed the maximum 520 weekly credits.

Edit: For the benefit of the OP who may already know this, there are no PRSI deductions from an annuity. Downside is that his PRSI record will not improve unless he is receiving credits.
 
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Kev1964 said:
The OP has a significant sum in his pension savings and I think a more important consideration is to be as tax efficient as possible with withdrawals.
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Well, we don’t really have the details but let’s say, for discussion purposes, that the OP’s assets breakdown something like this -

Paid for house - €500k
Pension Pot 1 - €100k
Pension Pot 2 - €200k
Pension Pot 3 - €1m
After-tax savings - €150k
35 years of PRSI contributions.

My suggestion is to retire Pension Pot 1 now, take the €25k TFLS and then draw down the €75k ARF at a rate of €12k pa.

Live on that until turning 66, supplemented by other after-tax savings.

Zero income tax, zero USC and you maintain your PRSI contribution record.

Then retire Pension Pot 2 in the same way at 66, when PRSI falls away if he gets the State pension.

The general idea is to defer retiring the more significant pension pot for as long as possible, while maximising the use of TFLSs and annual personal allowances.

I take the point that the OP could apply for job seekers benefits/credits but could the OP really declare that he is genuinely seeking work?
 
Sarenco said:
The general idea is to defer retiring the more significant pension pot for as long as possible, while maximising the use of TFLSs and annual personal allowances.
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I understand the point Sarenco. If we had the pension pot amounts then some modelling might help.

My gut instinct is that the OP will still have so much money left at age 66 or later he will be hit quite hard with income tax and URC, at least based on the current rules and allowances.

My thinking is fairly mature (although not necessarily final) on this scenario as my wife has a fairly similar age and pension pot profile (multiple and value) to the OP. Our plan is to set up sufficient ARF funds when she retires from January to fund the maximum income that allows her to avoid an 40% income tax rate. As other income streams come on she will reduce the ARF withdrawal to stay within the 20% limit.
 
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aside from the pension, have you looked at what you'll do with the time you will suddenly have?

I know two that took early retirement but both do consultancy work for about 20 hours a week and had that in pace before they retired.

Certainly that's my plan in 4 years and one weeks time. (1st week Feb 2029 :D )
 
agencydude said:
I'm currently thinking of doing the following :
If I transfer the paid up pensions into the DC pension I could then say to my employer I want to resign and then after leaving the company start to draw down the pension and live off the pension.
Click to expand...
Don't assume that combining pensions like this is a no brainer. And don't do it without understanding all of the implications and knowing for sure that any benefits/pros outweigh any costs/cons. In some cases, having pension savings "fragmented" over different pensions/policies can offer flexibility that may not be available if everything is consolidated into one pot. E.g. the ability to retire and access pension assets on a phased/incremental basis rather than it being a one time only/all or nothing decision. Also, the status of your pension (amount and whether fragmented or consolidated) should be no business of your employer's when deciding whether or not to retire now or later. It's your private business.

Edit: I see now that I'm simply repeating what @conor_mc said above, but maybe no harm in reiterating it.

At 59 should I just retire now?

Hi I'm 59 yrs old and work as an employee in a multinational in Ireland Over the years I've been maxing out my pension contributions when ever I can . The plan I had was to aim to retire at 60 yrs. The multinational I work for would prefer if I work until I'm 65. I've been reviewing my DC...
www.askaboutmoney.com
 
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agencydude said:
If I just draw down 4 % via an ARF I reckon that will give me an income of about 50k per year

I don't see any need to take a lump sum as my wife and I have plenty of savings in various savings accounts.
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As mentioned by others above, not taking the tax free lump sum would most likely not be a good idea. If you have significant savings then maybe just draw enough from your pension/ARF/vested PRSA to use up your tax credits and optionally your standard rate band. This (and the pro-rata tax free lump sum) could be a tax efficient way to access some of your pension until such time as you are effectively obliged to take the full 4% (the year that you turn 61 or from your 61st birthday I think?) of an ARF or vested PRSA. And, as I mentioned above, all of this can be done with just a portion of your total pension pot if necessary while leaving the rest of it invested for later. Hence the reason that "fragmentation" can be a benefit rather than a hindrance.
 
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Kev1964 said:
As other income streams come on she will reduce the ARF withdrawal to stay within the 20% limit.
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Fair enough but imputed distributions might well limit your ability to reduce drawdowns from an ARF.

Also, I wouldn’t get too hung up about avoiding paying any income tax at the higher rate in the future - the effective or blended rate will be much lower.

Finally, bear in mind that there’s no USC or PRSI on the State pension.
 
While the OP hasn't said what retirement income he wants it seems that he is expecting an annual gross income of €80k. He says last year he had outgoings of €60k. According to the income tax calculator shared above the net income from that gross is €67,228 which is a bit more than he needs.

That’s an effective tax rate of 16% and sounds quite tax efficient to me. No need to draw enhanced income from savings other than for big or unexpected expenses which is what it’s there for. Taking larger chunks out of the fund in the earlier years reduces what Revenue can take later at 40% (accepting the effective rate will be lower).

I agree with the prevailing thought not to combine pensions other than to achieve a tax efficient withdrawal solution.
Keeping one or more pension pots in reserve offers future flexibility.
 
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