Have you ever given real thought to your Roadmap to Retirement? In other words, the key stepping-stones that will get you to your ideal life after work. Without a doubt, this next big milestone is one that should be thoroughly planned for. To help make this exciting new chapter in your life possibly the best one yet, here is a handy checklist to guide you on the way to Retirement Day!
Take stock of all your finances
Do you know exactly how much money you have? Gather all information about your finances, including what’s in your bank and savings account, investments, company shares and pensions. Create a clear overview of everything you have. Then do the same for your debts, such as outstanding mortgage payments, loans and even your credit cards.
Create your budget for retirement
Draft your retirement budget based on all your incomings and outgoings. Your mortgage may be paid, and you may no longer have the cost of third level education as dependants fly the nest, however you will still have day-to-day, or health expenses and you may even be planning to take a holiday. You should build all of this into your budget and roughly gauge if your post-retirement income will be enough to cover these costs.
Explore opportunities to top-up your pension before you retire
If you have savings, you may be able to use them to boost your pension before you retire. There are very generous tax incentives to encourage people to fund for their retirement. If you are a higher rate taxpayer, you may be able to:
- avail of tax relief at 40% on your pension contribution and
- pay less tax when it comes to taking it out in retirement.
If you decide to top-up your pension, the amount you can benefit from will depend on your income tax rate before and after you retire and, of course, if you can take some of it tax-free. It’s important to be aware of certain key dates, for example:
- Making a pension top-up – may need to be done before the tax deadline which, for many, is 31st October
- Claiming the relief as part of your tax return - talk to your financial/tax adviser about the deadline for this.
Pinpoint your State Pension details
You should source a record of your PRSI Contributions from Social Welfare and determine what Contributory State Pension you will be entitled to and at what age. The current age to qualify is 66, although the government intends to increase this to 68 by 2028.
If you are retiring soon, most people can still retire at 65, at which point you can receive a payment between age 65 and 66 which is similar to Job Seekers’ Benefit and will help you to bridge the gap until your Contributory State Pension becomes payable.
Pick a date
Many people retire at 60 or 65 simply because that is their Normal Retirement Age, but in most cases, you are in control of when you retire. You may be in a position to:
- retire a little earlier than expected
- work on a few extra years
- reduce your hours for a year or two… and ease yourself into retirement!
Whatever you decide, pick the date you want to retire on and then work towards it.
Depending on what type of pension schemes you have (you may have more than one), find out how they will work before you retire. When you retire, the first thing you will do is take the maximum out of your pension tax-free, which could be either 25% of your overall pot or 1.5 times your salary. Then you will need to figure out what do to with the balance.
Decide if an Annuity or an Approved Retirement Fund (ARF) is right for you
When it comes to the balance of your pension pot, there are a couple of key options to choose from:
- An Annuity - whereby you give the balance to an insurance company and they pay you a fixed amount, every month, for the rest of your life or
- An Approved Retirement Fund (ARF) – this has more flexibility and allows you to: 1) keep your funds invested and 2) decide how much income you want to withdraw each year. It gives you much more control over how your pension pot is managed and you can also pass on any remaining funds to your loved ones when you die.
The right option for you will depend on your financial circumstances, your Attitude to Risk and your desire for certainty. You can also decide to mix the two, use part of your fund to buy an Annuity to cover essential outgoings in retirement and then put the remainder into an ARF.
Put a Will in place
Let’s face it, most people hope they will pass away well into their retirement. While none of us of want to be reminded of our mortality, retirement is a great time to put your Will in place too. The good news is that, by following the checklist above, you will already have taken stock of all your finances, so putting your Will in place will be relatively straight forward.
If you die without a Will there are certain rules that dictate how your assets will be allocated, which most likely would not be the way you would want. It could also lead to disputes amongst your loved ones, which we all want to avoid at all costs!
What’s more, Ireland has one of the highest Inheritance Tax rates in the World, so a well-thought-out Will may not only save a headache for your dependents, it may also save them a large tax bill. Check out the accompanying piece on Inheritance Planning for more on this.
Get professional Tax advice
Did you know that the two most important years to get professional tax advice are:
- the year you get married and
- the year you retire?
Unlike during your working life, when you most likely had one main source of income, once retirement comes along things get a little more complicated! You could have multiple streams of income, for example from: Contributory State Pension, Employer Pension, Private Pension, an Annuity, an ARF, Widow’s Pension, Job Seekers’ Benefit, or even a part-time job.
‘I thought things got easier in retirement’, I hear you say. This is unfortunately not the case when it comes to your tax as:
- you will probably retire in the middle of a tax year and
- you need to take into consideration your partner’s situation (if applicable), as they may or may not be retired.
If your goal is to have a stress-free retirement, then consider getting a professional to do your taxes - at least for the year you retire.
Shop around for your insurance
“I’m too busy!”, “There’s too many policies to compare!” … Most of us are guilty of finding excuses and allowing our insurance to renew automatically. The fact is, it’s hard to find the time when you’re working.
Now that you’re approaching retirement, hopefully the pressures of work will start to ease off, so it’s a good time to shop around. It will certainly help with your retirement budget! Whether it’s life insurance or car, home or health insurance, you might be pleasantly surprised at how much you could save without having to sacrifice benefits, by simply shopping around. There are many companies, like Cornmarket, who will do the work for you.
Manage great expectations
You’ve worked hard to reach this major milestone, and you deserve to enjoy the fruits of your labour and all the extra time that your life after work affords you. While some people look forward to using this time to take care of grandchildren or other loved ones, it’s important to be clear if that’s not your plan. You are the author of this new chapter in your life, so as you prepare for it, be sure to set clear boundaries with your nearest and dearest so that when your retirement arrives, you get to spend your time doing what truly makes you happy.