You've waited for this day all your working life and it is getting closer. Now is the time to get to grips with how to take your retirement benefits.
Let's start with the State Pension. This is payable from age 66 and if you're entitled to the full amount, The Contributory State Pension provides an income of €1201.63 per month. Your entitlement will depend on your PRSI record so if there are any gaps in your working life this could affect the amount you receive. You can check your record on mywelfare.ie and phone 0818-200-400 for further information. If you have never worked or don't have enough PRSI contributions paid you can apply for the Non-Contributory State Pension which is means tested.
If you have paid into a pension through work then your benefits will depend on the type of pension you have. If you are a civil servant or were part of a Defined Benefit scheme you will be entitled to a tax free lump sum when you retire, dependent on your salary and service. You will be also entitled to a guaranteed income each year until you die. If you made AVC's (Additional Voluntary Contributions) you have a separate pot that you need to decide what to do with. This could be used to increase your tax free lump sum or to boost your annual income.
If you paid into a Defined Contribution pension you will have built up a pot and you will have to decide how to take these benefits. You are entitled to 25% of this fund tax free. The balance can be used to either purchase an Annuity (guaranteed income) or transfered to an Approved Retirement Fund which you take a variable income from. The Annuity will provide a predictable and steady income but the income will depend on Annuity Rates at the time you retire. These are linked to interest rates so when they are high you could get good value but when low not so much.
The Approved Retirement Fund remains invested so it gives it an ongoing chance to grow while you are taking the income. This option requires careful planning to ensure your savings last as long as you need them to. A benefit of this option is that if you die your fund is paid to your estate as opposed to the annuity which would cease when you die. However, with the annuity option; you have the option to commute some of your pension for a spouses pension which would mean a portion would continue to be paid to them after your death.
There is no right option as to which is better as everyone's situation is different so it is important to seek advice before deciding. Your pension income will be taxed at your marginal rate in retirement so it is important to manage withdrawals if possible in a tax efficient way. You can earn up to €36,000 as a couple over 65 before you are liable to pay income tax; €18,000 as a single person. You also do not have to pay PRSI on your income after 66.
We specialise in retirement planning so if you need guidance we offer a free pension consultation which is a no obligation chat to see if we can help: Pension Consultation.