The question of how much you need to retire is dependent on a large number of factors, including the age that you plan to quit working, your level of debt post-retirement, whether you will continue to have financial dependents, your life expectancy, and of course the lifestyle you expect in retirement.
But, with all that said, the consensus is that most of us will be able to enjoy a very comfortable retirement on two-thirds of our final pre-retirement income.
Very fortunate Irish civil servants recruited before 6th April 1995, with 40 years of continuous employment, qualify for just that 2/3rds of final salary as a pension for life, but they don’t get the State Pension.
Private sector employees get the State Pension, based on their PRSI record, with the current contributory payment amounting to €14,500 PA in 2024, in addition to any occupational and or private pension plan benefits.
To help you calculate the after-tax annual income you may need in retirement, we have included this handy link, which assumes no mortgage or other debts.
Let’s say you calculate a need for €36,000 PA net, or in other words €3,000 cash per month. This would mean a gross retirement of €48,000 PA, which is equivalent to 2/3rds of €72,000.
You will most likely be taking 25% of your Defined Benefit pension pot, as a lump sum, after which you will use the balance to provide your retirement income.
So, to give some worked examples, let’s assume retirement before and at the State Pension retirement age, in this case, I have chosen age 60 and then age 66:
How much do I need to retire?
Retiring at age 60, if you have built up a retirement pot of 1m, your residual fund would amount to €750,000 which based on current joint-life annuity rates, would provide a pesnion of circa €36,000 PA. If you instead went the ARF route, the minimum annual withdrawal is 4% from age 61. (The state pension adding to this from age 66).
Of course, if you retire before age 66, you could use your cash lump sum (the first 200K of which is tax-free and the balance taxed at 20%) to bridge the gap, before receiving your State Pension benefit.
Retiring at age 66, if you have built up a retirement pot of €600,000, your residual fund would amount to €450,000 which based on current joint-life annuity rates, would provide a pension of circa €21,600 PA + State Pension of €14,500 = €36,100 PA.
Company Employees & Self-employed
Of course, not everyone will reach these levels of pension funding, although some may well exceed them. If you’re self-employed or you have the option of joining an employer-sponsored pension scheme, then start saving as much as you can as soon as you can, noting these age-related contribution limits, which relate to a percentage of your gross annual salary. There is no better way of saving for your future with contribution tax relief of up to 40% and tax-free investment growth.
Owner Directors
If you’re a proprietary director or limited umbrella company contractor, you can contribute as much as you want without limitation relating to salary, only the standard funding threshold currently amounting to 2M. So, as well as making regular contributions, particularly if you have left it late, you can transfer across company funds as lump sums, with all contributions eligible for full corporation tax relief.
Speak with a Retirement Planning Advisor
To arrange your free no-obligation initial consultation by phone, contact us today. Contact: Ken O’Gorman – Director – CB, QFA, RPA, SIA – One Quote Financial Brokers on: 01 845 0049 or email: ken@onequote.ie
Or enquire online and give us a quick outline of how we can help.
