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Can I Retire at 60 in Dublin with €300,000?

Can I Retire at 60 in Dublin with €300,000?

 

We have noticed a trending question spread across the web for people asking if it is possible to retire at age 60 in Dublin with €300,000, so we thought we would dive into whether this is feasible, taking into account the necessary financial considerations to achieve this. Retiring at 60 in Dublin with €300,000 presents several challenges due to the high cost of living in the city. We will examine the feasibility of this scenario, including other retirement examples at different ages and savings amounts. Additionally, it outlines strategies to achieve savings targets of €300,000, €500,000, and €1 million.

 

 

Cost of Living in Dublin

 

Dublin is known for its high cost of living, especially in terms of housing, utilities, transportation, and healthcare. According to Numbeo, the estimated monthly cost for a single person in Dublin is around €2,000, excluding rent. This translates to an annual cost of approximately €24,000, which is a conservative estimate and can vary based on lifestyle choices.

 

 

Financial Calculations

 

With €300,000 in retirement savings, applying the 4% rule suggests an annual withdrawal of €12,000. To determine if this is sufficient, we must consider additional income sources, such as the Irish State Pension.

 

The Irish State Pension (Contributory) provides around €13,780 annually, assuming eligibility for the full pension. Combining this with the withdrawal from retirement savings results in an annual income of €25,780.

 

 

Feasibility of Retiring at 60 with €300,000

 

Given the estimated annual cost of living at €24,000, the combined income of €25,780 could potentially cover basic expenses. However, this leaves little room for unexpected costs, inflation, healthcare needs, or lifestyle upgrades. Therefore, while technically feasible, retiring with €300,000 in Dublin would likely require a very frugal lifestyle and careful financial management.

 

 

Comparing Other Retirement Scenarios

 

Retiring at 50 with €100,000

Retiring at 50 with €100,000 is highly unlikely to be feasible in Dublin. The 4% rule would provide only €4,000 annually. Without access to the state pension until age 66, significant additional income sources would be necessary to cover the cost of living for 16 years.

 

Retiring at 55 with €200,000

Retiring at 55 with €200,000 provides slightly better prospects but remains challenging. The 4% rule yields €8,000 annually. This, combined with the state pension starting at 66, would provide approximately €21,780 per year thereafter. However, for the first 11 years, the retiree would need to supplement their income significantly to cover basic expenses.

 

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Retirement Strategies to Achieve Savings Targets

 

 

Achieving €300,000

Achieving €300,000 - Can I Retire at 60 in Dublin with €300,000

 

  1. Start Early: Begin saving as early as possible to benefit from compound interest.
  2. Regular Contributions: Contribute consistently to retirement accounts. Aim for 15-20% of your income.
  3. Investment Growth: Invest in a diversified portfolio with a mix of stocks, bonds, and other assets to achieve an average annual return of around 6-7%.

Example: If you start at age 30 and save €400 per month with a 6% annual return, you would accumulate approximately €300,000 by age 60.

 

 

Achieving €500,000

 

Achieving €500,000 - Can I Retire at 60 in Dublin with €300,000

  1. Increase Savings Rate: Aim to save 20-25% of your income.
  2. Higher Returns: Consider a more aggressive investment strategy while managing risk appropriately.
  3. Employer Contributions: Maximize employer-matched contributions in retirement plans.

Example: Starting at age 30, saving €600 per month with a 6% annual return, you could accumulate around €500,000 by age 60.

 

 

Achieving €1 Million

 

Achieving €1 million

  1. Maximize Contributions: Save the maximum allowable amount in tax-advantaged accounts.
  2. Side Income: Generate additional income through side jobs, freelancing, or passive income streams and invest these earnings.
  3. Real Estate: Consider investing in rental properties for additional income and asset growth.

Example: Starting at age 30, saving €1,200 per month with a 7% annual return, you would reach approximately €1 million by age 60.

 

 

Conclusion

 

Retiring at 60 in Dublin with €300,000 is possible but requires a frugal lifestyle and careful financial planning. Earlier retirement with smaller savings is significantly more challenging, especially in a high-cost city like Dublin. To achieve larger savings goals of €300,000, €500,000, or €1 million, starting early, saving consistently, investing wisely, and maximizing additional income sources are crucial strategies.

 

Consulting with a financial advisor can provide personalized guidance to help navigate the complexities of retirement planning and achieve financial security.

 

 

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The Power of Early Pension Contributions

The Power of Early Pension Contributions: Case Study

 

Meet Sarah: Sarah, a 45-year-old marketing professional. When she started working at her first job at age 25, her employer did not offer a pension scheme. She thought it prudent to start funding her own private pension, as she knew the importance of building up a retirement fund for the future. At age 25, she made the maximum allowable contribution of 15% (based on her age and earnings) to obtain the full pension tax relief available to her.

 

While her friends focused on enjoying their disposable income, Sarah understood the long-term benefits of early pension planning and the associated tax benefits.

 

Let’s look at a retirement case study 👇

 

Assumptions:

 

  1. Both Sarah and her friends are all marketing professionals and started earning €30,000 per year at age 25,
  2. By age 45, their salaries had doubled to €60,000.
  3. Sarah started contributing at the age of 25, while her friends only started contributing at the age of 45.
  4. To simplify the case study, we have assumed an average annualised investment return of 6%; however, in real life, this will likely fluctuate every year.
  5. Inflation significantly impacts future value forecasts when calculating your pension and future retirement income. To account for this, we’ve factored in an average inflation rate of 5%.

 

Assumptions not included: 

 

  1. We have not included the full state pension that you may be entitled to, which is €277.30 per week.
  2. Its important to note that contribution amounts will vary each year due to factors like annual salary increases, pausing contributions or taking premium holidays. For the sake of this case study, we will keep the contributions consistent throughout the term.

 

Early Pension Contribution Case Study

Sarah’s Pension Calculation:

 

Sarah's Pension Calculation - The Power of Early Pension Contributions

 

 

 

 

Using the above figures, Sarah started contributing €375 per month (15% of her salary) into her pension at age 25, of which the actual net cost to her each month is only €300 (20% tax relief at her marginal rate of tax).

 

 

Pension Contribution Calculation: (Age 25 vs 45)

 

Pension Contribution Calculation (Age 25 vs 45) - The Power of Early Pension Contributions

 

 

Sarah’s total contributions over the 40 year term from age 25 to 65 would have amounted to €180,000. At retirement, Sarah would have walked away with a staggering €746,809. The power of compound interest, along with tax-free growth in her pension, would have significantly increased her retirement nest egg.

 

If Sarah started her pension at age 45 along with her friends, her retirement pot would have only amounted to €173,265. We can observe the significant impact that the first 20 years have had on the growth of her pension.

 

However, when calculating her retirement pot at age 45, we have not factored in the assumption that Sarah’s salary would have most likely increased between age 25 and 45. If we assume that Sarah and her friends salaries as marketing professionals doubled to €60,000 by the time they reached age 45, then we can use the below calculation to determine a more accurate outcome.

 

We will now calculate the retirement pot that Sarah’s friends would have accumulated if they started contributing at age 45. 👇

 

 

Sarah’s Friends Calculation:

 

Sarah's friends calculation

 

 

 

 

Similar to the first example, we will assume a rate of return of 6%, and that Sarah’s friends also paid the maximum allowable contribution into their pension, which at age 45 would be 25% of their net relavant earnings, equal to €1,250 per month.

 

 

Sarah’s friends start contributing at age 45:

 

Pension Contribution Calculation

 

Looking at the results above, you will notice that we haven’t adjusted Sarah’s contributions in line with any increase in her salary but have kept her contribution level at €375 per month over the 40 year term. Despite maxing out their pension contributions at €1,250 per month, Sarah’s friends’ pensions still fell short of Sarah’s by a significant €169,258 at retirement.

 

This exemplifies the critical impact of time horizon, compounded returns, and consistent, regular contributions on the long-term growth of paying into a pension.

 

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The Impact & Key Takeaways:

 

Early Contributions:

The power of compound interest is significant. Starting a pension early, even with small contributions, makes a huge difference in the long run.

Tax Advantages:

Pension contributions offer valuable tax benefits, effectively reducing your taxable income and giving your retirement savings a boost.

Pension Growth:

Sarah managed to accumulate a pension pot of €746,809 at retirement by contributing €375 per month over the 40-year term. Keep in mind, we have not factored in any increase in her contributions over the period simply to demonstrate the powerful effect of early contributions. If she had increased her contributions in line with her earnings, her pot would be significantly larger.

Flexibility:

Sarah’s strong pension allows her to consider early retirement or pursue career breaks without financial worries.

Financial Security:

Over a 40-year period, Sarah’s pension pot has grown substantially, providing her with a sense of financial security for her future.

Peace of Mind:

Sarah enjoys a greater sense of control over her financial future, knowing she has a solid foundation for her retirement.

 

 

Relevant Resources:

 

How to boost your pension - The Power of Early Pension Contributions

 

 

 

Benefits of Employer Contributions - The Power of Early Pension Contributions

 

 

 

Reduce your Income Tax bill - The Power of Early Pension Contributions

 

 

 

 

Where to from here?

 

Planning for retirement can feel overwhelming. Everyone’s situation is unique, and there’s no one-size-fits-all answer.

We offer complimentary consultations to help you navigate your options. Contact our team if you’d like to learn more.

 

 

Speak with a Financial Advisor:

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Early Retirement Options in Ireland

What age can you take early retirement in Ireland?

 

You may be nearing the age where you are deciding what the next step with your pension fund should be regarding early retirement options in Ireland. Each person has different needs leading up to retirement and you may want access to your pension earlier than waiting on the Irish state pension, which the default retirement age is 66 (as at 2023).

 

That being said, if you are looking to retire earlier than this, taking retirement benefits will depend on the type of pension plans you have built up and your retirement options available to you. Your retirement decisions can also have far reaching implications on your financial future, including your pension entitlements, changes to taxation rules, access to state benefits and other schemes so its important to make an informed decision, and plan accordingly.

 

How much you will need to retire at age 50, 55, 60 or 65 really depends on the lifestyle you would like to have in retirement, while ensuring you in fact have sufficient savings available to live out your twilight years. In particular, you will need to consider things like your income, expenses, debt, loans, and future holidays.

 

If you do decide to continue working beyond your normal retirement age its important to note that you need to take or retire your pension benefits before your 75th Birthday (discussed under the “PRSA” below).

 

 

Can I retire at 50 in Ireland?

 

Yes you can. Although the general retirement age (to access the state pension) is 66, there is no specific age at which you must retire in Ireland. However, depending the type of pension arrangement that you have, if you are looking to retire your pension before normal retirement age (NRA), there are age limits to which you can take your pension arrangement. For example, in some cases, you can draw down from your occupational pension as early as age 50.

 

There is certainly a huge incentive to do this given that you can get access to a tax-free lump sum. It is one of the biggest advantages of contributing to a pension arrangement. However, the age at which you can access your lump sum is important.

 

 

Retiring from an Occupational Pension Scheme

 

Occupational Pensions can include Defined Benefit (DB) pension schemes, Defined Contribution (DC) pension schemes, and Executive Pensions Plans.

 

If you are a member of an occupational pension scheme you will usually take your retirement benefits at your normal retirement age (set by the scheme trustees between ages 60 and 70), however, some schemes may have an earlier retirement age or offer early retirement options, and you may be able to access your pension benefits from age 50 with your employer’s and/or trustees consent.

 

The following are some of the circumstances when you can take your benefits before your normal retirement age:

 

1. You are seriously ill and due to your ill health you have to permanently give up work, or,

2. You cease employment, and your employer and the trustees of your pension scheme agree, you may be able to take early retirement from age 50.

 

 

Defined Benefit (DB) pension schemes:

 

A DB scheme is designed to provide you with a pension for life after retirement in which the amount that you will receive is calculated based on your salary and length of service. Alternatively, it may be calculated as 1.5 x your final salary.

 

As mentioned above, as a member in a DB scheme you can potentially access your benefits from age 50. However, it will be dependent upon the specific scheme rules. Each scheme has a different set of rules so its important to review your pension and leaving service options before making any decisions.

 

 

Defined Contribution (DC) pension schemes:

 

Similar to the above DB scheme arrangement, the rules depend on the specific scheme. However, in most cases, once you have left the employment where benefits accrued, you will likely be eligible to access your benefits from age 50 onward (once certain criteria have been met). The amount you receive will depend on your combined level of contributions and the fund performance.

 

 

Additional Voluntary Contributions (AVC’s):

 

Alongside your company pension scheme, you may have also paid additional voluntary contributions (AVC’s). Your company pension scheme and AVC’s will be linked and so the retirement age for both will be the same, hence, these benefits must be taken at the same time.

 

 

Retiring from an Executive Pension Plan

 

Executive Pension Plans are treated similarly to occupational pensions (mentioned above) in that you will be eligible to access your pension from age 50 onward, with trustee permission and where employment has terminated. You will also be able to retire the pension early on the grounds of ill-health. It is, of course, advisable to consult a financial advisor before making this decision to ensure that your pension is taken in a tax-efficient manner.

 

As an Executive Pension is designed for company owners and directors, if its the case that you own or control more than 20% of the shares in the company, you will also have to sell those shares so you can retire early.

 

 

Retiring a Personal Retirement Bond

 

As with Occupation Pension Schemes, if you are deciding on retiring your Personal Retirement Bond (PRB), your benefits can be taken from age 50 provided certain criteria are met. As mentioned above, early retirement would be based on factors such as ill health, or if you have ceased employment.

 

 

 

Can I retire at 60 in Ireland?

 

Yes you can. Again, there is no set age at which you must retire in Ireland. Most people aim to retire at 65 (their ‘normal retirement age’), although if you wish to retire your pension before age 65 you can.  Under personal pension arrangements, retirement benefits can be taken from age 60. If your personal pension is linked to employment, this will be outlined in your contract of employment.

 

 

Retiring from a Personal Retirement Savings Account (PRSA)

 

If you have a PRSA, you can take your retirement benefits at any age between 60 and 75. You do not actually have to retire and stop working. As soon as you reach age 60, you can take your benefits and continue working.

 

There are some circumstances when you can take your benefits before age 60. You may take your benefits if:

 

1. You are seriously ill and due to your ill health have to permanently give up work; or,
2. You work in a specific occupation  where it is normal to retire before 60. These can include specific professional like sportspeople or pilots; or
3. If you are an employee linked to Schedule E employment, you can take your benefits from age 50 if you stop working for that company.

 

Similar to other pension arrangements, the above circumstances will be scheme-specific. If you are unsure of your eligibility, contact your scheme administrators who will explain this to you.

 

If you are a Company Director and you control more than 20% of the shares in the company, you will also have to sell those shares so you can retire early. This option does not apply if you are self-employed, a sole trader or a partner.

 

 

Retiring from a Personal Pension (RAC)

 

The rules for Personal Pension arrangements are similar to PRSA’s when it comes to early retirement. If you have a Personal Pension plan, you can take your retirement benefits at any age between 60 and 75. You do not actually have to retire and stop working. As soon as you reach age 60, you can take your benefits and continue working.

 

There are some circumstances when you can take your benefits before age 60. You can take your benefits if:

 

1. You are seriously ill and due to you ill health you have to permanently give up work; or,
2. You work in a specific occupation where it is normal to retire before 60. These can include specific professional like sportspeople or pilots.

 

 

What options are available to me when accessing my pension?

 

You will usually have a few options available when you retire, after you have taken your tax-free lump sum. 

 

 

Pension Lump Sum

 

At retirement, everybody has the option of taking a retirement lump sum. The lump sum amount you can take will depend on the type of pension plan you have and your personal circumstances. 

 

Currently, you can take or withdraw a maximum 25% as a tax-free lump sum up to €200,000 from all your pension plans, following your scheme rules. If you take any amount above that, you will have to pay the standard-rate of income tax (currently 20%) between €200,000 and €500,000. For amounts above €500,000 you will be taxed at your marginal rate with the Universal Social Charge (USC), PRSI (if applicable) and any other taxes or government levies that may be due.

 

Approved Retirement Fund

 

After taking your retirement lump sum, the balance of your money can be transferred to an Approved Retirement Fund (ARF). Most people choose this option as it allows to stay invested in the market while allowing you to draw an income, depending on certain restrictions.

Advantages of an ARF

 

What is an ARF?

An ARF is a separate plan that allows you to continue investing after you retire. You can manage the fund and have the option to invest in a wide range of investment funds. You can also make withdrawals as you need them. On all withdrawals you make, you also pay income tax at your highest rate, the USC, PRSI (if applicable).

 

If you have a PRSA, you can continue investing in your PRSA after you take your retirement lump sum. Your PRSA will become a vested PRSA and will be treated the same as an ARF until you reach age 75. When you die, any money left in your ARF or (vested) PRSA will pass to your estate, and your nominated beneficiaries. If passed to your spouse or civil partner, they can have the option of continuing to invest in a separate ARF.

 

Minimum withdrawal amounts

There will be a minimum withdrawal each year from your ARF, that will also be liable to income tax, PRSI, and USC. 

The current minimum withdrawal amount is 4% of the value of your fund from age 61, and 5% of the value of your fund from age 71. Currently if the total value of your ARF and vested PRSA is more than €2,000,000, you must withdraw at least 6% of the total value every year.

 

 

Annuity

 

An Annuity is an alternative to the ARF. This is a pension for life and pays a regular income to you for the rest of your life. Your regular income stops when you die unless you choose an option which continues this payment.

Advantages of an Annuity

 

Annuity Options 

Single-life: This is payable for the rest of your life only.

Joint-life: A percentage of your pension is payable to your spouse after you die.

 

There are also a number of extra options available:

 

Guaranteed Period: If you die during this period, your dependents will continue to be paid the pension.

Level Annuity: The payment remains the same throughout your life.

Escalating Annuity: The payment increases at a fixed rate each year to account for inflation (depending on Revenue limits).

 

 

Take remainder as a taxable cash sum

 

Depending on the type of plan you have, you may be able to take the rest of your fund altogether as taxable cash (after the retirement lump sum). This is known as the Trivial option and it is for individuals with smaller pension funds.

 

 

Maximum Pension Fund (€2,000,000 and over)

 

When you retire, the maximum pension allowed from all sources for tax purposes is €2,000,000. This is called the standard fund threshold (SFT). Any pension fund over €2,000,000 will be taxed at the higher rate (currently 40%). This tax is taken from the pension fund before your retirement benefits are paid.

 

If you have pension funds that are soon to accumulate to €2,000,000 and want to avoid paying excess taxes, Transferring your pension to Malta could be a solution for you…

 

 

 

 

 

 

 

Need help with your Retirement Options?

 

When planning your retirement, your goals and circumstances will be unique compared to other individuals and so there is no one-size-fits-all approach. When accessing your pension early, or assessing your retirement options, we cant stress how important it is to get professional advice before taking any action on your pensions. By not doing so, you could potentially run the risk of paying exorbitant amounts of tax by not taking or retiring your pension entitlements correctly.

 

If you would like guidance and to discuss your retirement options, contact our Financial Advisors by completing the below form.

 

 

FAQ:

The qualifying age for all State pensions in 2023 is 66.

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

 

Once you are age 65 and older, you can earn up to €18,000 tax-free as a single person, or €36,000 as a married couple/civil partnership without being subject to income tax.

 

Once you turn 66, you will stop paying PRSI which is currently at a rate of 4%.

After you access your pension it doesn't mean you can't return to work. You can continue to working if you choose to.

As a rule of thumb, its recommended to have at least 75% of your current income once you retire. However, this will depend on your chosen retirement age, your lifestyle and spending habits in retirement, and your retirement goals. For an accurate calculation, a Financial Advisor can help you project how much you will need saved by retirement, while taking into account your personal situation and pensions.

 

 

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