What age to retire from pension

[cremeegg]

I have a small DC pension pot and I am wondering when is the best time to retire from it.

The amount involved is small, just over €50k.

Should I keep it open as long as possible to avail of the tax free roll up and very low charges (subsidised by my former employer), or should I take an income from it now to convert the pension asset into free cash.

I don't need the money currently as I am still working, my mortgage is paid and my kids are mostly independent. I might well just save it if I did take an income.

What are the issues to consider ?

Thanks for any pointers.

 

[S class]

If you retire it now will you be taxable at 40% ?

If you retire it after you start your COAP will you pay tax at 40% or 20% ?

If you are planning to take out an ARF you would avoid payments of Prsi if you retire it after you start your COAP.

 

[ClubMan]

Difficult to answer the question properly without more details such as a money makeover would provide. On the bare information provided I would be inclined to leave it invested particularly since the money isn't needed right now. But perhaps there are other factors not explained that would alter that perspective.

 

[TomEdison]

In general, the longer you leave it, the more it benefits from tax-free roll-up. Plus, as S-class points out, if you withdraw it while you are still earnign a good income elsewhere it is likely to be more highly taxed than if you defer withdrawal to a time when you have relatively little other income.

Finally, the longer you defer withdrawal, the greater the rate of withdrawal that you can sustain while still being reasonably confident that the pension fund will last for as long as you do.

The system, and its tax incentives, are set up to encourage and facilitate the provision of income to retired people who would have little other income. So it's not entirely surprising that, most of the time, withdrawing from your pension fund only after you have retired is the optimal course.

But everything depends on your personal circumstances and your financial objectives. You may be still working but earning very little so you have plenty of tax capacity to take funds from your pension fund and still not exceed the standard rate of income tax. You may be very wealthy with property and investments generating income that will keep you at the higher rate even when you stop working. You may have a pressing need for funds now for personal or family reasons, that eclipses considerations of tax efficiency optimising investment return. You may have been told that you have only two years to live. So without knowing a great deal more about you and your circumstances and your priorities it's not really possible for us to say what's the best course for you.

In general, from the point of view of maximising investment return and minimising taxes, the optimal way to engage with a pension fund is to pay into it while you're working and to withdraw from it only when you have ceased working, and then at a moderate rate. The default position should probably be to do that, unless there's a clear and compelling reason in your own case to think that that wouldn't be optimal for you.