Few of us spend much time thinking about retirement until it is almost upon us. If we have started saving for a pension relatively early in our careers, we pat ourselves on the back and leave it at that – often without even checking if it is on course to deliver the retirement income we hope for.
But retirement can be a major shock to the system, financially and otherwise, and it is worth taking the time to think about and prepare for it before it looms. The less prepared we are, the more likely there will be issues.
Leaving the pure financials to one side for a minute, stepping away from full-time work suddenly at the age of 65 or 66 – or at any other time – is a huge jolt.
Ask anyone what is the centre of their world and they will likely tell you it is family. Ask the family, and there is a very good chance you will find they have had to battle for your attention against the often-overpowering presence and demands of work.
So much of what many of us measure as success – in cash terms and otherwise – revolves around our jobs.
The Retirement Planning Council of Ireland runs a series of courses aimed at helping people to plan for and make the transition to retirement. It strongly advises that this is a subject people need to engage with between 18 months and two years before they expect to retire.
Top of its list is helping people to deal with change – everything from their usual work routine, their identity (which for so many is tied up with their job) and their relationships, especially with family and close friends.
When we are juggling the endless priorities and deadlines at work, the freedom offered by retirement can seem very appealing at first but, as Retirement Planning Council chief executive Laura Farrell notes, “the novelty of freedom can wear off very quickly”.
That can lead to all sorts of things – boredom, loneliness, anxiety, and even a sense of guilt, she says.
After the first flush of retirement, it can take some thought, structure and organisation to fill in the extensive time now available to you – about 50 hours a week for some, the Retirement Planning Council estimates – previously occupied by work and the related commute.
Social engagement and mental stimulation remain vital to us even in retirement, but the likelihood is that we will have to reassess how we approach both. As the council notes, most adults get their mental stimulation from the job they do. When that is no longer available, we need to look elsewhere.
It pays to take some time to consider new routines, social interactions and mental stimulation that can help you put the structure we all need to some degree on your retirement days.
And, of course, there is nothing to say that retirements should mean no work at all. An increasing number of people are keen to continue working well into what were traditionally seen as retirement years. This can be in their existing jobs, though perhaps not full-time and ideally at a slower pace. But, for many, the interest will lie in taking up a new role – either something we have always wanted to try, something simply to boost retirement income and add some structure to our week, or perhaps a volunteer role, giving back to the community.
There is also the practical side of things – issues such as health and nutrition. In some ways, retirement offers the opportunity to adopt a more healthy lifestyle with time for the exercise that was so often long-fingered by the demands of work.
The key to all of this is to think ahead. Stumbling ill-prepared into retirement can lead to bad habits, lack of direction and terrible feelings of isolation and loneliness – even within a family.
This brings us back to the financial and legal side of things, where planning ahead is also required.
For instance, have you made a will? You’d be shocked at how few people in the State have a will, even though they have family and assets that have built up haphazardly over time. If you haven’t got a will, it would be positively irresponsible to long-finger it any further.
Even if you do have a will, it might date back many years. Your circumstances, those of your family and anyone else you had considered including among beneficiaries – or even as executors – may have changed dramatically.
If you have not yet done so, an enduring power of attorney is also something that should be put in place when getting your affairs in order. This allows you to make decisions now on who you would like to make decisions for you on matters such as your personal care, where you live and management of your finances if you ever reach a position where you no longer have the mental capacity to do so yourself.
We all feel strong and fine until we don’t, and then it can be too late and you may find yourself at the mercy of someone else’s understanding of what is best for you.
The same goes for an advance healthcare directive setting out your preferences. You cannot insist doctors treat you with certain medications or procedures, though you can certainly express a preference – but if you would prefer not to have extreme steps taken to preserve your life – such as resuscitation, then this is where you make those views known.
Both the enduring power of attorney and advance healthcare directive are organised through a newly established Decision Support Service. It is undergoing some teething troubles that are creating issues for people right now, but these are likely to be addressed over time.
You can find them at decisionsupportservice.ie.
When you retire, you will also need to take stock of your financial position. For those of us with occupational pensions, there will be a tax-free lump sum.
Have you outstanding debt? Now might be the time to use your cash windfall to put this in order.
If not, there will be an investment decision to be made for at least some of these funds – possibly after a well-deserved holiday for all concerned.
Then there is the assessment of what you might expect by way of retirement income.
Do you go for the guaranteed income of an annuity? What about ensuring it is inflation-proofed or provides for your spouse or partner should you die before them? How much will all that cost, and what can you expect for your pension pot?
Annuity rates change all the time, so a figure you get 18 months out from retirement could be very different from what is available when you actually retire. At the moment annuity rates are improving, but that may change.
Or do you keep control of your funds by investing in an Approved Retirement Fund – effectively keeping them invested? Are you comfortable with investment decision-making? Or with leaving it to someone else to organise on your behalf? How much risk are you prepared to take to ensure fund growth? Is that reckless in the circumstances?
How will your tax position change in retirement as you adjust to your new income?
These are all big decisions and not something to decide overnight.
You can, of course put some of your fund in either channel. But everything has a cost and takes time to organise. It is never too early to start considering the options or even examining the performance of your pension fund to see if it is on course to match your income expectations.
On top of that, there is the question of the State pension which, if you are entitled to a full pension, will add about €14,500 to your annual income. But are you entitled to it?
Now is the time to check with the Department of Social Protection, which will be able to provide you with a copy of your PRSI record. If you are close to full payment but are likely to find yourself slightly short of contributions, the Government has now put in place an option to delay drawing down your State pension for up to four years to allow you to either meet the social insurance requirements for a full pension, or delay payment for a higher sum down the line, especially if you are continuing to work.
If you are able to draw down full payment, I’m not sure there is any advantage for most people in delaying, but that again is something you need to crunch the figures on and see what suits you. Either way, you will need to notify the Department of Social Protection ahead of time.
Finally, especially for those who have had little or no engagement with social welfare in their adult lives, you should take time to examine what your entitlements might be in retirement or later in life.
When you write it all down, you can see there is plenty to do – and it is not something you do quickly after being cheered from your office on your last day of work.
The Retirement Planning Council offers a range of courses for people coming up to retirement. There’s no real point going there too far out as you will not be able to switch your mind to planning mode, but certainly those within a couple of years of stepping aside from the office fast lane should consider it.
You can contact us at OnTheMoney@irishtimes.com with personal finance questions you would like to see us address. You can read last week’s newsletter on lost luggage and baggage charges here.
