Working with retirees all the time, a question that forms part of their planning process is what to do with their pension lump sum? You can get up to €440,000 net, which is a lot of money. So what should you do it with?
While most people have their mortgages paid off by the time of retirement, not everyone does. And mortgage terms nowadays are much longer than previously, so people stilling having debt at retirement is going to become more common. Carrying debt into retirement is the biggest mistake retirees can make. If you have debt, pay it off in full.
What big purchases do you plan to make in the next three years. This is typically changing the car, work on the house, big holidays that you planned to make once you had the time. Have a good think of the things you want to do over the next few years and get an idea of the cost. If kids are still in education, factor in the cost of them finishing off their education, including them doing a masters.
This money is to be put in cash as it will be spent soon.
This is for two things; any shortfalls in pension income and unplanned expenditures. Most retirees take 4% to 5% from the ARF. We have to have an idea of the cost of life and we can assess if they have enough money. If there is a shortfall, the tax free cash can supplement this. We calculate 3 – 5 years worth of shortfall, inflation linked and a buffer.
We then add additional cash for those expenses that will crop up that can’t be met out of regular cash flow. We don’t know what they are yet. Don’t worry about dipping into this money.
This is money that you don’t need now. This is the money that you should invest. There is no use for it now but there will be in the future. We want it beat inflation and we want it to work for us while we are doing nothing.
There will be a need for it in the future. And it is a great feeling when you need to spend it and realise that half (or more) of the money you need has come from growth of your money!
Steven Barrett
01 June 2026