- May 4, 2019
- Bob Quinn
The average person does not give retirement enough thought.
The more I think about it, the more I realise how momentous retirement is.
It’s potentially the first opportunity in 30 years to redirect your life. It’s a new beginning that bares little resemblance to what you have spent your life to-date doing out of a sense of obligation to both your family and finances.
In order to make sure you don’t end up being that average Joe, I’m going to you with a seven-part series on the things you need to consider before retiring starting next week.
Remember, retirement isn’t a isolated event; it’s a process that should be planned well in advance.
This week is just an introduction to the series – the pilot episode to the season, to use Netflix parlance.
Here are seven things to consider as you approach retirement:
1. Get your head around it
Your left brain (which tends to dominate in men) is all about the numbers – “What is my fund worth?”, it asks. Good question, but don’t ignore your right brain, which will be taking a wider approach to things. It might be asking: How is this going to affect my relationships? My self-worth? My lifestyle? What is life after retirement going to be like? The critical question in my opinion is not what is the value of your fund, but what you need that fund to do. To answer that question, you’ll need to tune into both sides of that old brain of yours!
2. Slash and burn your insurance policies
Retirement is a good time to review all your insurance policies. Income protection, for one, doesn’t make sense any more. There can be a certain satisfaction in cancelling the various income-protection policies you may have accumulated through a working life fuelled by the fear of leaving your family exposed. Put the money you save towards the best private health insurance you can afford.
3. Stay calm and plan your cash flow
Post-retirement, your income will be lower – that’s a fact for most people – but you may not necessarily need to rush in and break open all the pension piggy banks. As soon as you do that, you’ll start paying income tax and USC on 4% of the value of your ARF (Approved Retirement Fund) every year, whether you withdraw it or not. If you can. leave some (or all) of your pensions as pre-retirement investments and they’ll continue to grow tax free, and you won’t pay income tax on the proceeds of your pension until you actually need to draw on it.
4. Get the details
Inform yourself about your pension(s). In general terms, you’re going to be moving from a pre-retirement investment to a post-retirement one. Find out from HR or your pension trustees what your ‘leaving service options’ are. The pension associated with your current employment will be foremost in your mind, but do you have other pensions? It may take some digging around to find account numbers and to contact the trustees, so give yourself plenty of time.
5. Radically adjust your investment strategy
After a lifetime of wealth accumulation, as a retiree, you should be more concerned with wealth preservation. This change in ethos will have repercussions for your investment portfolio. It’s time to pivot away from higher-risk investments towards more stable ones. This exercise might involve diversifying your portfolio where it may have been overexposed to one particular asset type such as a property.
6. To downsize, rightsize or future proof your home?
If you love where you live, you may want to renovate the house to make it suitable for the ‘third age’. What better way to spend some or all of the 25% of your pension fund value that you can take as a tax-free lump sum? When else might you have this money available to you? If you want to sell, there are other questions to answer, which I’ll get to when we do the in-depth piece on this topic.
7. Don’t miss out on state benefits
While I am always at pains to point out how small the full state pension is, you shouldn’t look a gift horse in the mouth. It would a shame if, though lack of planning or ignorance, you end up not qualifying for the full contributory state pension because you ignored your PRSI contributions. Then there is the GP card and the medical card. We’ll discuss those in more detail when we come to the instalment on state benefits.
Stay with me for the next seven blogs as I share with you my experience in this whole area. If you know somebody you think would benefit from the series, be sure to pass this article on. They can also join my mailing list here.