How far does €500k go towards retirement in Ireland?

With the average pension pot in Ireland somewhere in the region of €90,000, a pension pot of half a million is something many people can only dream of.

But how far would it get you?  We’ve carved up a notional €500,000 pension fund at retirement to see if it’s enough.

The lump sum

First, the obvious one.  Revenue rules allow up to 25% of your to be withdrawn tax-free at retirement (up to a maximum of €200,000).

For the vast majority of people, this is a deal worth doing.  It can help clear any remaining mortgage debt, fund big one-off purchases, or bridge any gap until the State pension boosts income, for example.

We’ll assume you trouser the €125K.

The future income

Next, there’s the question of how to secure a future income.  Usually, this boils down to a choice between purchasing an annuity (a guaranteed income for life, purchased with your pension pot), or investing in an approved retirement fund (ARF).

With annuity rates at record lows, many prefer the ARF option these days, at least in the early years of retirement.

Just want to get started?  Read more about starting a pension with Allen Retirement and Finance, or send us the information we need to get working for you today.

The State pension will add some

In addition, the Irish State pension is available to most people who have made PRSI contributions, starting from age 66 (and rising to age 68 in the coming years).

That will add around €12,900 in annual income.

What about the ARF?

If you retire at 66 in Ireland in 2023, you can reasonably expect two decades or more of retired life. So you’ll want the funds in your ARF to last for a quarter-century or more.

A well-invested ARF should deliver returns in excess of inflation. We’ll assume an average growth rate of 4% after charges and inflation.

What’s a reasonable level of income?

Everyone’s situation is different, and typically life in retirement is cheaper.

We’ve assumed you take income from your ARF of €22,500 each year.

Along with the state pension, that amounts to an income of just over €35,400, which would likely be below top-rate income tax limits.

The answer?

28 years.

That’s the approximate length of time you could pay yourself income of €22,500 from a €500,000 pension pot, based on the assumptions we’ve outlined.

Of course, there are many more options to consider, from flexible drawdown methods, to investment strategies, to in-retirement annuities. And that is where we can be of further assistance. Get in touch today.