The question of how much you need to retire is dependent on a 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,
- whether you have other sources of income,
- and of course the lifestyle that you hope to enjoy in retirement.
But, with all that said, the consensus is that most of us will be able to enjoy a comfortable retirement on 50% of our final gross pre-retirement income.
Private sector employees get the State Pension, based on their PRSI record, with the current contributory pension payment amounting to circa €15,000.00 PA in 2025.
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 personal need for circa €2,500 net cash per month (ignoring any state pension). This would mean an annual private pension in retirement of circa €35,000 PA gross, before tax, which is equivalent of course, to 50% of a €70,000 final annual salary at retirement.
You will most likely be taking 25% of your retirement pot, as a tax-free lump sum, after which you will use the balance to provide your retirement income. So, to give some worked examples, let’s assume retirement, both before and at the State Pension age, so in this case, I have chosen age 60 and then age 66:
How much do I need to retire?
1m retirement pot at age 60
Retiring at age 60, if you have built up a retirement pot of 1m, your residual fund (post tax-free lump sum) would amount to €750,000,which based on current single-life annuity rates (assuming 2% annual indexation) would provide a single life retirement pension, called an Annuity, of circa €36,000 PA gross (problem being this does not provide for your spouse on death in retirement)
However, if you instead re-invested your residual retirement pot (750k) in an Approved Retirement Fund or ARF for short, the minimum annual withdrawal is 4% from age 61, meaning that you could take €30,000 PA, look to preserve the capital with investment return, and on death, it can be taken over by your spouse. 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 (providing in this example 240k cash), before receiving your State Pension benefit.
750K retirement pot at age 66
Retiring at age 66, if you have built up a total retirement pot of €750,000, your residual fund would amount to €562,500, which under an ARF would provide a minimum gross income of €22,500 PA, with when added to the State Pension would bring to €37,500 Gross PA in today’s terms.
Company Employees & Self-employed
Of course, not everyone will reach these levels of pension funding, although some will 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 & Umbrella Companies
If you’re a proprietary director, or limited umbrella company contractor, you can avoid PRSI and USC as well as income tax using the companies bank account to fund a private pension plan. 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 also 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.
