One of the greatest financial worries, for many of us, is preparing for the transition from the world of work to retirement.
The word retirement can evoke a sense of dread in some people – like a horse being put out to pasture.
That concern is predictably elevated as we get older, and retirement is no longer distant and abstract.
This discussion is intended for those who are around 5 to 10 years from their anticipated retirement date. This allows plenty of time to make meaningful course adjustments and help you to look forward to the time when you stop working.
The first step is always to ensure you have a budget otherwise you will always be like Mr Micawber (a clerk in Charles Dickens’s 1850 novel David Copperfield) – “Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result – happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result – misery.”
The notion of a retirement ‘date’ is changing, with many of us planning to work into our 70s or pursue other interests.
Equally, many people find themselves making career changes mid-life. Perhaps out of a desire to pursue a new opportunity, and sometimes through involuntary redundancy. Whatever the motivation, big life events like starting a business or changing career require an objective analysis of the impact on our finances.
You will see that our mantra is that most of us don’t really have financial goals, we really have lifestyle goals that have financial implications.
Money concerns tend to dominate the list of concerns about our retirement.
“In the grand scheme of things, money’s not that important. It’s important only to the extent that it allows you to enjoy what’s important to you. And not worrying about your finances is critical to having a life that excites you, nurtures those you love, and fulfils your highest aspirations. You want to make smart choices about money, based on what is important to you – your core values.” – Bill Bacharach in Values Based Financial Planning.
Even those of us who have carefully budgeted and saved for retirement still feel a degree of anxiety about the idea of moving from a regular salary (even if self-employed) to having to draw down an ‘income’ from a fixed pot of savings. Most of us have worked out that in order to make ends meet we will need to draw on both income and capital and we know that eventually that capital can run out.
For most of us, there are typically three elements to our retirement ‘pot’:
- State Pension
- Personal or occupational pensions
- Personal savings and, for some, potential inheritance.
UK State Pension
Many Irish residents will have worked in the UK at some time. Everyone with a UK National Insurance number and more than 3 years contributions is entitled to a UK State Pension.
You should check your UK state pension record as you may be entitled to improve your UK State Pensions.
The good news is that it’s possible to receive BOTH a UK State Pension and an Irish State Pension. If you are now living in Ireland, its highly likely that you will not receive the full UK State Pension amount.
It’s also possible to top up the UK State Pension as far back as 2006, but time is running out. The cost of doing this is effectively subsidised by the UK Government which means it can be very good value for money. But this is changing next April 2023 with a cap of 6 years coming into effect, read more here.
Those who have with investment capital outside of pensions in Ireland you should read this article to see how you may be able to improve your Irish state pension.
Planning for Company Directors and Senior Executives with their own occupational pensions became virtually impossible this year as all pension providers in Ireland have suspended One Member Executive Pension arrangement applications.
The reason for the withdrawal of these products is the Pensions Authority’s position in relation to compliance of One Member Arrangements (OMAs) with IORP II.
As recently publicised, the second Institutions for Occupational Retirement Provision Directive (IORP II) was transposed into Irish law in April 2021. Under IORP II, Irish pension schemes are required to comply with a significant number of additional requirements.
The deadline for compliance of all schemes (including one member arrangements put in force since April 2021) was the 1st of July 2022. Over the last year, resources and structures have been put in place industry wide to comply with the new legislation.
However, one week prior to the deadline, the Pensions Authority expressed concerns that OMAs were unlikely to meet the compliance threshold.
As I’m sure you can appreciate, this update so close to the deadline, left no time for pension providers to increase their compliance or establish alternative pension options for clients.
The pension industry as a whole, is working on an alternative option to One Member Executive Pension arrangements but at this time details are sketchy.
The return of high inflation is naturally a source of anxiety for people in retirement. Our Guide to Inflation delves into this subject and puts current inflation into historical context.
With life expectancy increasing, the best defence against a long retirement is an annuity. Advisors often dismiss the idea of an annuity at the point of retirement or fail to give the option any consideration whatsoever. However with an increase in annuity rates offered and taking stock of the overall current financial landscape, annuities should be firmly back on the table. Read more here.
Closely following on the heels of money worries, come concerns about our health. For many, retirement comes at a time when health concerns push to the fore in a way they haven’t previously.
Retirees should develop a close relationship with their GP as a gateway to other health services.
Furthermore, it is important to maintain an active and healthy lifestyle. With more time on your hands, you’ll have more time for exercises such as walking and swimming, and you may even have the inclination to take up a new sport or activity which leads onto our next concern, boredom.
We have a more fulfilling retirement if we retire ‘to’ something rather than ‘from’ something.
Having spent most of our working lives wishing we had more time on our hands, when the time comes, it doesn’t make you happier, healthier, or more connected. It fosters the opportunity to be those things but waiting until you get there to try and start or accomplish them will likely be frustrating.
Think of retirement planning like making a New Year’s resolution!
Taking Care of Heirs
Part of your focus may also be on the legacy that we leave behind us and not just for your direct family. Many retirees will be concerned about making provision for their Spouse or Civil Partner should they pass away, and ultimately the legacy that they might leave to their children and grandchildren, see our Estate Planning Guide.
Having a comprehensive plan to take care of the financial needs of dependents and heirs is an integral part of the retirement planning process.
It is also becoming increasingly clear that we all need to be more conscious about how we live today and how sustainable it is. We should also consider the impact of our own investment decisions and how these will affect future generations through climate change.
Concern About the Unknown
Whilst we can’t prepare for every sling and arrow that life throws at us, we can at least plan for things that are reasonably predicable. So, plan your finances; plan your health care, and plan to lead an active retirement.
But also remember that you don’t have to retire. Age discrimination legislation means that many people are now protected and able to continue working if they wish to do so.
Your Plan for Retirement
The key is to embrace this new stage in your life and to plan for a positive and active future.
The first step is to arm yourself with as much information as possible and our hope is that the guides referenced above will allow you to do this at your own pace.
When you are ready to start to putting your plan in place, we can assist you to deal with the financial aspects.
We Can Help
If this all seems too much to face on your own, please schedule a call to chat through your concerns and begin the process of putting in place a robust plan for dealing with the important (but typically not urgent) planning required in order to have a successful worry-free retirement.
Schedule a Call
Further insights on retirement planning can be found in our latest guides:
Retirement Planning for Gen X, Y (millennials) & Z
If you are 55+ and closer to your retirement date, then our Guide to Approaching Retirement is for you