Question: After nearly 30 years working with the same company, I’m planning to retire in spring 2025 when I turn 65. I’m really looking forward to it and have been planning financially.
Thankfully, I’m a member of my employer’s pension scheme, and I’ll have an estimated pension fund of €263,000 available. I understand that there are different avenues available to me in terms of drawing down but to be honest, I find it all quite confusing.
What are my options and how do I figure out which one is best for me?
Answer: Congratulations on your upcoming retirement. It’s fair to say that when the time comes around, most people find pension drawdown options complicated and a bit overwhelming.
Each option comes with its own pros and cons, so it’s important to understand which fits best with your financial goals. To help you confidently choose the right path for your retirement, here is some practical guidance on different pension drawdown strategies.
Tax-free lump sum: You can take a portion of your pension fund as a tax-free lump sum in one of two ways. The traditional route would give you a lump sum of 1.5 times your final salary, but this route requires you to purchase an annuity with the remaining balance. Alternatively, you could withdraw up to 25% of your fund tax-free, which would equal up to €65,750 in your case, while leaving the rest for an annuity or an Approved Retirement Fund (ARF).
In this case, you choose between the two.
Approved Retirement Fund: After your lump sum (25% option only), you can invest the remaining balance in an ARF, which keeps the funds invested and gives you flexibility to withdraw amounts as you need them. You must draw a minimum of 4% of the fund as income each year until you’re 71, at which point you’ll need to take a minimum of 5%. This option allows for potential growth, but it also involves investment risk.
You’ll want to make sure that your ARF account doesn’t ‘bomb out’. It’s worth noting that when you pass away, any remaining ARF balance can be passed to your spouse or estate.
An annuity converts your fund into a stable, guaranteed income for life. This provides peace of mind as you know you won’t outlive your funds. However, annuity rates fluctuate and may offer less than expected if market conditions are unfavourable.
Options for inflation protection and/or spousal pension are available, but they’ll reduce the initial income. The potential downside to annuities is that your funds die with you and don’t get passed to your spouse or estate. To help alleviate this, you can increase the guaranteed period of payment to 10 years.
Not sure between the two? A mix is possible for those who take a lump sum up to 25%. For example, you could take a partial annuity to cover essential expenses and then invest the remaining funds in an ARF for flexibility and potential growth.
Choosing the best option
When assessing your options, think about stability versus flexibility. An annuity provides stability, which is ideal if your priority is predictable income. An ARF offers flexibility and the potential for growth, which may be better if you’re comfortable managing investments.
Outside of the options themselves, remember to factor in your health and family history. If your family history has shown good life expectancy, or you’re in excellent health, an annuity might be an advantage as it provides guaranteed income regardless of how long you live.
The flip is also true – if there are health concerns or a family history suggesting a shorter life expectancy, an ARF may be preferable, as it allows more control and potential inheritance benefits if you pass away earlier.
Assessing your personal risk profile is another factor. If you’re risk-averse and prefer a stable, predictable income, an annuity is a safer choice. However, if you have a moderate or high-risk tolerance, and you’re comfortable with market fluctuations, an ARF may be suitable as it offers the potential for growth alongside flexibility to adjust withdrawals as needed.
Finally, if you want to leave funds for your heirs, an ARF would be preferable as any remaining balance can be passed on.
Taking all of these factors into account will help you find the best balance between stability, control, and income longevity in retirement. It goes without saying that there’s a lot to consider here, so seeking advice from a financial planner is strongly recommended. I wish you the best of luck in finding the most beneficial solution for you and your family.
Martin Glennon is head of financial planning at ifac which is the professional services firm for farming, food and agri business.
To narrow your pension drawdown options, ask yourself the following:
Do I want stability, flexibility, or a mix? What’s my health status and life expectancy? What’s my risk tolerance? Do I need to leave pension funds for my spouse/estate?
Question: After nearly 30 years working with the same company, I’m planning to retire in spring 2025 when I turn 65. I’m really looking forward to it and have been planning financially.
Thankfully, I’m a member of my employer’s pension scheme, and I’ll have an estimated pension fund of €263,000 available. I understand that there are different avenues available to me in terms of drawing down but to be honest, I find it all quite confusing.
What are my options and how do I figure out which one is best for me?
Answer: Congratulations on your upcoming retirement. It’s fair to say that when the time comes around, most people find pension drawdown options complicated and a bit overwhelming.
Each option comes with its own pros and cons, so it’s important to understand which fits best with your financial goals. To help you confidently choose the right path for your retirement, here is some practical guidance on different pension drawdown strategies.
Tax-free lump sum: You can take a portion of your pension fund as a tax-free lump sum in one of two ways. The traditional route would give you a lump sum of 1.5 times your final salary, but this route requires you to purchase an annuity with the remaining balance. Alternatively, you could withdraw up to 25% of your fund tax-free, which would equal up to €65,750 in your case, while leaving the rest for an annuity or an Approved Retirement Fund (ARF).
In this case, you choose between the two.
Approved Retirement Fund: After your lump sum (25% option only), you can invest the remaining balance in an ARF, which keeps the funds invested and gives you flexibility to withdraw amounts as you need them. You must draw a minimum of 4% of the fund as income each year until you’re 71, at which point you’ll need to take a minimum of 5%. This option allows for potential growth, but it also involves investment risk.
You’ll want to make sure that your ARF account doesn’t ‘bomb out’. It’s worth noting that when you pass away, any remaining ARF balance can be passed to your spouse or estate.
An annuity converts your fund into a stable, guaranteed income for life. This provides peace of mind as you know you won’t outlive your funds. However, annuity rates fluctuate and may offer less than expected if market conditions are unfavourable.
Options for inflation protection and/or spousal pension are available, but they’ll reduce the initial income. The potential downside to annuities is that your funds die with you and don’t get passed to your spouse or estate. To help alleviate this, you can increase the guaranteed period of payment to 10 years.
Not sure between the two? A mix is possible for those who take a lump sum up to 25%. For example, you could take a partial annuity to cover essential expenses and then invest the remaining funds in an ARF for flexibility and potential growth.
Choosing the best option
When assessing your options, think about stability versus flexibility. An annuity provides stability, which is ideal if your priority is predictable income. An ARF offers flexibility and the potential for growth, which may be better if you’re comfortable managing investments.
Outside of the options themselves, remember to factor in your health and family history. If your family history has shown good life expectancy, or you’re in excellent health, an annuity might be an advantage as it provides guaranteed income regardless of how long you live.
The flip is also true – if there are health concerns or a family history suggesting a shorter life expectancy, an ARF may be preferable, as it allows more control and potential inheritance benefits if you pass away earlier.
Assessing your personal risk profile is another factor. If you’re risk-averse and prefer a stable, predictable income, an annuity is a safer choice. However, if you have a moderate or high-risk tolerance, and you’re comfortable with market fluctuations, an ARF may be suitable as it offers the potential for growth alongside flexibility to adjust withdrawals as needed.
Finally, if you want to leave funds for your heirs, an ARF would be preferable as any remaining balance can be passed on.
Taking all of these factors into account will help you find the best balance between stability, control, and income longevity in retirement. It goes without saying that there’s a lot to consider here, so seeking advice from a financial planner is strongly recommended. I wish you the best of luck in finding the most beneficial solution for you and your family.
Martin Glennon is head of financial planning at ifac which is the professional services firm for farming, food and agri business.
To narrow your pension drawdown options, ask yourself the following:
Do I want stability, flexibility, or a mix? What’s my health status and life expectancy? What’s my risk tolerance? Do I need to leave pension funds for my spouse/estate? 
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