According to a survey carried out by Royal London, 72% of the Irish working population would like to retire at age 60 or earlier. Given the poor coverage of pensions in Ireland, how are almost three quarters of the working Irish population going to be able to afford to retire early. Retiring at 60 is early and most people are not in a position financially to do so. Those that do plan and save over decades.
If we compare retiring at 60 to 65, you have five years less pension contributions being made and five years less compounding. And that is compounding when your fund is at its biggest so compounding has its biggest impact. You will also have five year more spending. So not only will you need more money, but you have less time to save it.
I had a look at how much extra it costs to retire at 60 instead of 65. I based it on a modest retirement income of €30,000 increasing at 2% per annum. The money is invested in an ARF that returns 4% per annum and is worth €0 at the end. I have assumed both live to age 90.
A 60 year old will need a pension pot of €688,845 to fund their €30,000 retirement income while a 65 year old will need €599,997. That is €88,848 more with five years less to fund it.
How much do you need to pay into your pension to fund this level of income? I ran the figures for someone starting their pension at 20, 30, 40 and 50 years of age, earning a return of 6% per annum.
As you can see, the difference in contributions required is significant, even if you started your pension at 20 years of age. And that is using quiet a modest income of €30,000 a year. To be financially independent requires planning and saving over the years. Making a conscious decision to put money into a pension instead of spending it on nights out.
Say all you want about wanting to retire at 60 but if you aren’t doing anything about it, it’s just a pipe dream.
Steven Barrett
24 March 2025