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BASED ON THE average working day, you can expect to gain back around 2,000 hours a year in retirement. For those lucky enough to be active and healthy, this new-found extra time affords people the opportunity to pursue activities like new hobbies, travelling, volunteering and spending time with family and friends.
In the work we do, we regularly survey clients planning to retire, and the majority of them want to remain active in retirement. While they generally welcome the end of the rigid working hours to which they were tied for decades, they still want structure in their lives, but with the freedom and flexibility to be spontaneous.
However, while this extra time is mostly positive as people finally say goodbye to the stresses of work, it’s not always straightforward. Shutting the door on a career can have huge emotional implications and retirement can involve a tricky and sometimes unexpected period of adjustment. So, while all these changes are happening, it’s important to be in control of your finances.
When it comes to retirement, there is no universal answer as to whether 2025 or any year for that matter, is the right time to step away from the workforce. Retirement is a deeply personal decision, influenced by a combination of financial considerations, market conditions, and the life you envision for yourself in the years ahead. As a financial planner, I encourage people to evaluate the core factors that contribute to a comfortable and fulfilling retirement.
Here are several key considerations to help you determine whether 2025 is the perfect year for you:
The foundation of any retirement plan lies in how you will generate income once you leave your job. This is a multifaceted question, and it’s crucial to have a comprehensive strategy in place to ensure financial security.
Many people rely on a combination of income streams, such as the state pension, workplace pensions, private savings and investment income.
The state pension is an essential part of many retirement plans, but it is often not enough to cover all of one’s expenses. Before retiring, it’s important to assess how much income you’ll receive from the Irish Contributory State Pension, based on the PRSI contributions you’ve made throughout your working life. If you plan to retire before reaching the state pension age, you’ll need to look into how to bridge the income gap in the interim—whether through private pensions or personal savings.
According to the National Pension Helpline, the average private pension in Ireland was €111,000 in 2024. Just to be clear, this is the total lump sum, which works out at less than €4,000 a year over the average time from retirement to the end of someone’s life.
When combined with the full state pension, this means the average person is effectively retiring on €20,000 a year in combined state and private pensions.
Private and workplace pensions are also key pillars of retirement income. The type of pension plan you have — whether it’s a defined benefit or defined contribution scheme — will determine how much income you can expect in retirement. Reviewing your pension regularly is crucial so you understand your projected income and whether any adjustments are necessary to meet your retirement goals.
Beyond pensions, other sources of retirement income may include savings, rental income, or investments. Depending on how you wish to live your retirement, it’s important to evaluate whether these income sources will be sufficient and if they require ongoing attention. For instance, if you plan to rely on rental income, you’ll need to assess whether you’re prepared for the responsibilities that come with being a landlord in retirement.
The way you manage your retirement drawdown is just as important as how you accumulate wealth. You may opt for an annuity, which offers guaranteed income, or you might prefer the flexibility of an Approved Retirement Fund (ARF). Both options come with benefits and considerations, so it’s important to take time to navigate them.
Effective tax planning is essential in retirement, as the way you withdraw your savings can impact how much tax you pay. Contributions made during your working life to pension schemes are often tax-efficient, with pension contributions benefiting from tax relief. However, as you move into retirement, it’s vital to consider how withdrawals from these pensions and other savings will be taxed.
In Ireland, withdrawals from pension funds are subject to income tax, and the tax rate depends on your total income for the year. If you plan your withdrawals strategically, you can minimise your tax liability and stretch your retirement savings further. You may also be entitled to tax-free lump sums from your pension, and understanding the rules around these lump sums can help you make the most of your retirement funds.
A tax-efficient withdrawal strategy is important. For instance, it may be wise to prioritise withdrawals from pensions that are subject to a lower tax rate, such as 20%, rather than taking from savings that may face higher exit taxes. Consulting with a tax advisor to structure your withdrawals efficiently can ensure that your retirement income is optimised from a tax perspective.
Understanding the cost of living in retirement is an essential part of preparing for the future. Retirement is often associated with reduced expenses – such as commuting and work-related costs – but new spending habits can also emerge. You may find that you spend more on healthcare, travel, or leisure activities. Additionally, inflation can erode the purchasing power of your money over time, meaning that the amount you can comfortably live on today may not suffice in 10 or 20 years.
Before retiring, it’s important to carefully evaluate your anticipated expenditures, both fixed and discretionary. If you have outstanding debts, such as a mortgage, these obligations will need to be factored into your retirement budget. If you enter retirement debt-free, you’ll have more flexibility to spend on the things that matter most to you, whether that’s travel, hobbies, or spending time with family.
A key aspect of retirement planning is debt management. Being debt-free at the time of retirement can significantly ease your financial burden. However, for many people, carrying debt into retirement is a reality that requires careful management. The priority should be to pay off high-interest debts, such as credit card balances, as these can quickly eat away at your retirement income.
If you still have a mortgage, it’s worth considering whether it makes sense to pay it off earlier. Having a mortgage-free home can reduce the amount of income you need to allocate to housing expenses, freeing up more money for other uses.
It’s also essential to maintain an emergency fund for unexpected costs. Health issues, home repairs, or other urgent financial needs can arise during retirement, and having a cushion can prevent the need to rely on credit or loans.
As you approach retirement, it’s important to ensure that your investment portfolio aligns with your risk tolerance and the timeline for accessing your funds. A diversified portfolio can help mitigate risks.
In retirement, you may still need some exposure to risk, depending on how long you expect your retirement savings to last. If you are relying on your investments to provide income for several decades, it’s essential to have a portion of your portfolio in growth assets, such as equities. However, as you enter retirement, you may want to shift more of your assets into safer investments, such as bonds or cash, to preserve your wealth and generate stable income.
Rebalancing your portfolio regularly, considering the use of annuities or Approved Retirement Funds, and working with a financial planner to tailor your investment strategy to your needs are all important aspects of ensuring that your portfolio will serve you well throughout retirement.
For many retirees, downsizing their homes can be a smart financial move, especially if the value of their current property has appreciated significantly. Selling your home and moving to a smaller or more affordable property can free up equity, providing a financial boost to your retirement savings.
However, downsizing is not just a financial decision — it’s also a deeply personal one. It’s important to evaluate the emotional aspects of leaving a long-term home and to consider how downsizing fits with your retirement goals. Additionally, the costs of moving — such as estate agent fees, legal costs, and potential renovations — should be taken into account when calculating the financial benefits of downsizing.
Before making this decision, weigh up whether downsizing is truly necessary or if it’s a perceived expectation. If your current home meets your needs and is comfortable, there may be no need to move unless it aligns with your broader retirement goals.
Retirement planning is a complex process that requires personalised advice. There is no one-size-fits-all solution, and each individual’s circumstances and goals are unique. Working with a financial planner can help you assess your current financial situation, predict future needs, and navigate the complexities of tax, investment and debt management.
It’s also important to regularly review your retirement plan. Life circumstances, changes in the market, and shifts in tax laws can all affect your strategy, so an annual check-in with your financial planner ensures that your plan remains on track. By being proactive, you can maximise opportunities and avoid potential pitfalls, ensuring that you are well-prepared for the retirement lifestyle you desire.
As I alluded to previously, retirement is not a static phase; it’s a journey with several stages, each with its own challenges and rewards. From the initial excitement of new-found freedom to the eventual realities of ageing, understanding these stages can help you approach retirement with positivity and purpose.
By planning ahead, understanding the stages of retirement, and making informed financial decisions, you can ensure that your retirement years are fulfilling, financially secure, and aligned with your personal goals. If 2025 is the right time for you to retire, with careful preparation, it can be the beginning of a rewarding new chapter in life.
Leah McMahon QFA, RPA, SIA is a Financial Planner with Castle Capital. She has extensive experience working with individuals, families, and businesses, in areas like retirement planning, investment strategies, and financial protection.Â
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