For many people, retirement is very much a distant notion that is given very little consideration as they climb the career ladder while building a home, a family and a comfortable lifestyle.
However, with recent headlines detailing the future impact of our increasing life expectancy rate, much of the population has been forced to sit up and pay attention. People at every stage of their career are now being urged to begin planning for this hugely important milestone.
This is most certainly the case for those eager to take early retirement. While the vast majority of us have visions of kick-starting a relaxing retirement lifestyle at the standard age of 65 or older, there are many valid reasons for people opting to retire much earlier than this.
So, what are the motivations for making such a bold move, and what criteria must be met to allow early pension access?
Reasons for early retirement
The driving factors for retiring before the age of 65 are vast and varied. The most common reasons include:
- The type of work you do – Individuals that hold specific occupations, such as the GardaÃ, firefighters, members of the Defence Forces, and certain sportspeople, are entitled to access their pensions earlier than the standard age of retirement. There is also a statutory retirement age applicable to certain occupations.
- A need to reduce or pay off debts – Certain debts built up over a person’s working life may not be paid off by the time retirement comes around. For example, those that upsize their home later in life may have a significant mortgage term left when they reach their 50s or 60s. In such instances, people may be tempted to clear or reduce this debt by dipping into their pension pot to avoid making monthly repayments when they are no longer working.
- Illness – Those with a long-term disability or serious illness may no longer be physically or mentally able to work and will therefore need to avail of early retirement. The terms and conditions of taking early retirement due to illness will be largely determined by the type of pension scheme you are part of.
- Redundancy – Many workers nearing retirement age who have been faced with redundancy, particularly as a result of the COVID-19 crisis, have opted for early retirement. It is hugely important in these circumstances to seek professional advice on how to draw down your redundancy package, to eliminate any serious implications on your pension entitlements.
- You’ve reached your retirement ‘number’ – Those that have been planning for retirement for decades and who have reached their specific ‘number’, or financial target, may decide that the time is now to step down from their professional responsibilities.
- Personal reasons – Others may be emotionally ready to check out of the stress and strain that can come with the 9 to 5 life, perhaps to spend more quality time with family or to jet off on new adventures.
Whatever your reasons, you’ll need to make sure you meet certain conditions that will allow you to access your pension fund earlier than expected.
What you need to know about early pension access
Making the decision to retire before 65 is not an easy task. Aside from weighing up the financial implications, you will need to navigate the ins and outs of your employment contract and pension scheme in order to find out what’s actually possible and when.
While the standard age of retirement as set out by a contract of employment is 65, certain contracts will allow for retirement as early as 55, depending on the specified terms and conditions. These rules may differ if you are the director of a company or a self-employed individual.
This aside, one of the biggest factors that will determine your ability to avail of early retirement is the type of pension scheme you are part of:
Occupational Pension Scheme:
In the case of Occupational Pension Schemes, you will be eligible to retire from the age of 50 onwards, provided you have your employer’s or trustees’ consent and that the rules of the scheme allow for this.
Personal Retirement Savings Account (PRSA):
While the rules stipulate a retirement age of 60 plus for those paying into a PRSA, it may be possible in certain circumstances to take retirement from the age of 50, for example, if you are an employee leaving service.
Personal Pension:
Retirement benefits can be accessed under personal pension schemes by individuals ceasing employment from the age of 60 on.
Personal Retirement Bond/Buy Out Bond:
This can also be cashed in from the age of 50 onwards.
Upon early retirement, an individual will be entitled to take up to 25% of their pension as a lump sum. The initial €200,000 of this is exempt from tax, while the following €300,000 is subject to tax at 20%.
All funds that remain in your pension pot following the deduction of both tax-free and taxable lump sums must either be:
- Invested in an annuity
- Invested into an Approved Retirement Fund (ARF)
It is an easy matter to lay out the basic rules and regulations surrounding early retirement, but there are many additional issues that should influence your decision, such as:
- Whether you are part of a defined contribution or defined benefit scheme
- The tax implications of early retirement
- The impact on social welfare entitlements
Making the right decision for you
With so much to consider and understand in the context of early retirement, it is vital to ensure you are making the right decision that works for you and your financial future. For this reason, it pays to consult the experts.
The team at Symmetry Financial realise that retirement planning looks different for everyone. We will help you to see the ‘big picture’, outlining your retirement goals and assessing your current and future needs, taking your income and assets into account.
If you have your sights set on early retirement, we’ll review and discuss all of the possibilities with you and provide you with a roadmap that aligns with your goals and your financial circumstances.
Schedule an appointment with our team today to discuss early pension access.
