How to retire early?

In Ireland, people generally retire at 66, because it’s the current age at which you qualify for the state pension. However, in the coming years, the retirement age is most likely to increase, and you might have to work until at least age 67. 

Retiring early is a dream for a lot of people, but most people don’t even consider it because they want to follow the traditional path or simply assume they can’t afford it. If you want to retire early, it’s possible, but it’s a matter of how well you plan in advance. 

We are going to look into how early retirement works and what type of pension would be the best option if you want to retire early. 

At what age should I retire?

You should know that there is no fixed age at which you have to retire in Ireland. However, in your employment contract, the general retirement age is usually 66. But you should know that in some cases you can draw down from your occupational pension as young as 50. 

Some professions are subject to a statutory age limit for retirement, such as public sector employees. So you might not be able to retire early if you keep the same job. You can still take up a different job when you retire. In most cases. But you will no longer be able to pay contributions to an occupational scheme after the normal age of retirement.

If you happen to be self-employed or a company director, there isn’t a retirement age, but your company regulations may set a maximum age.

If you are permanently unable to work due to serious illness, Revenue will allow you to access your pension fund. 

Do I have to stop working?

A common misconception is that once you unlock your pension, you can never go back to work. Many individuals end up going back to work. Indeed, as they find they need more cash flow or they are a little bored with all the free hours they have.

There is no rule which prevents people over the normal retirement to go back to work as an employee or else become self-employed. Nevertheless, once you reach 66, or are receiving the State Pension, you won’t be making PRSI contributions on your income anymore.

Can I have access to all my money? 

Once you are eligible to access your pension in accordance with the rules of your scheme, you can withdraw a maximum of 25% as a tax-free lump sum up to €200K with the next €300k at the lower tax rate of 20%. The rest of your money must be put into an Approved Minimum Retirement Fund (AMRF) or Approved Retirement Fund (ARF).

As another option, you can purchase an annuity which is a guaranteed income for the rest of your life. But usually, annuity rates are very low, therefore, the value of your fund might not increase as much as you’d like.

Considerations to retire early:

  • If you pick the annuity option, the earlier you retire and take your benefits the lower the annual income is likely to be. As it would need to be paid for a longer period of time. 
  • If you take your pension benefits earlier, you may not be able to work in employment related to that particular pension in the future. Your employer should be able to tell you more.

 

What is an AMRF? (Approved Minimum Retirement Fund)

If you are unable to provide proof of a guaranteed income of €12,700 per year, you must invest up to €63,500 of your pension into an Approved Minimum Retirement Fund (AMRF). 

However, recent pension increases in 2019 mean that anybody who has full state pension entitlement should be over the €12,700 limit and should be able to invest their funds straight into an ARF. The AMRF requirement will only affect you if you’re taking your pension benefits before you’re receiving a State Pension.

Also, those who may have been restricted to an AMRF up to now, may be able to convert to an ARF, giving them more access to their funds.

What is an ARF? (Approved Retirement Fund)

An Approved Retirement Fund (ARF) is a personal retirement fund where you keep your money invested after retirement. It’s controlled by individuals and remains invested as a lump sum. Usually, retirees look to grow this fund and then take regular withdrawals from it.

You should note that those withdrawals are treated as income, therefore you pay income tax, PRSI and Universal Social Charge (USC). 

Retire early with a PRSA (Personal Retirement Savings Account)

From the age of 60, you can access your PRSA, however, if you are retiring from employment, you can take the benefits of your PRSA from age 50. 

Retiring early is not often recommended because the longer you leave your fund, the longer it has the chance to grow. Plus, if you invest your fund in an ARF, your fund may run out, as you take withdrawals for longer. You may also get a lower annuity income, as it will need to be paid out for a longer period.

But, if you have other sources of income and are secure about your finances, don’t hesitate. You can always contact a professional and talk to a financial advisor about your project. 

Retire early with a Personal Pension

If you invested in a personal pension and you stop working, you may take benefits whenever you wish from age 60. 

Retire early with a defined contribution scheme

You should be able to take early retirement from a defined contribution scheme, any time from age 50, as long as it’s permitted in the rules of the scheme. The amount of money you will receive will depend on the current value of your fund at that time, along with your service and salary at the date of leaving. You can request an explanation of your Leaving Service Options from your scheme.

 

Retire early with a defined benefit pension scheme

As a defined benefit pension member, you can access your pension benefits from 50 onwards like any other occupational pension once the scheme rules permit it. As with other pensions, if you take it earlier, your yearly income may be lower than leaving it until 65.

 

How will I be taxed in retirement? 

Your income in retirement is treated as regular income. Therefore, it’s subject to the same taxes. It includes annuities, withdrawals from ARF’s, taxable cash payments, dividend income, and rental income. This will be subject to income tax at your marginal rate, PRSI, (if applicable), and USC.

However, once you’re 65 or more you may be exempt from paying income tax altogether if you elect to avail of the exemption limit. This allows a single person to earn up to €18,000 or a married couple to earn up to €36,000 without being subject to income tax. This amount can be increased if you still have dependent children. You will still be subject to USC at the full rate while availing of the exemption limit. 

There is another saving to be made on PRSI as when you turn 66, you’ll also stop paying PRSI. This saving may be accessed earlier if you draw down from a private work pension as some private pensions are not subject to PRSI regardless of age. Plus, there is also a reduction in USC when you turn 70.

How can we help? 

If you want to retire early and don’t know how to go about it, you can get in touch with a qualified financial advisor by calling 01 853 2727. We will assess your situation and map out the best options for you. If you are in your 20s/30s, this is the best moment to plan your early retirement. 

What we do:

  • Help you set up a pension that suits your future plans 
  • Review your current pension if you have one, and help you make changes if necessary
  • Evaluate if you can invest more money for your retirement
  • Help you unlock your pension and turn your pension into an income

Greenway Financial Advisors Limited is regulated by the Central Bank of Ireland. Registered No. C168372

Debbie Cheevers

Debbie Cheevers

Qualified Financial Advisor

Debbie was born in Dublin and graduated from NCAD with a degree in Visual Communication. She brings a strong customer services background to Greenway.

Debbie qualified as APA in 2017 and a fully qualified financial advisor (QFA) in 2018.

She believes that product knowledge is key to helping customers make the right choices.