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 Revenue rules allow up to 25% of your to be withdrawn tax-free at retirement (up to a maximum of €200,000).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.
With annuity rates at record lows, many prefer the ARF option these days, at least in the early years of retirement.
The State pension will add some
In addition, the 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 €12,700 in annual income.
What about the ARF?
If you retire at 65 in Ireland in 2018, you can reasonably expect two decades or more of retired life. So the funds in your ARF will need to last for twenty years 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.
Using these numbers, your ARF could pay you a salary of €22,500 per year for around 27 years.
€35,000 a year
Along with the state pension, that amounts to an income of just over €35,000, which would likely be below income tax limits.