Pension Investing in Your 60s.

Pension planning is easy to ignore. But when you enter your 60s, time is of the essence, with retirement finally around the corner.

Many people have neglected their pension for decades, and people often wait until they can see retirement on the horizon to take their heads out of the sand and start weighing up their options.

Many others in their 60s have a pension fund and are somewhat savvy already, but may be wondering if they have enough, or need some specific advice on tax, pension funds, inheritance, or lump-sums.

No matter your current situation, this guide will help you learn about the best pension strategies to take as you near retirement.

Below, you can find the latest performance data for 5 popular pension funds for people in their 60s. We also explore topics such as how much you should contribute, tax relief, inheritance, and the core strategies for withdrawing your pension.

But first, let’s start with our 5 key principles for pension investing in your 60s.

Now that we’ve established our 5 key principles, let’s look at the performance of some of the most popular lower risk pension funds for those in their 60s. We’ve chosen one fund from each of the five largest pension providers. All of these funds have ESMA volatility ratings of 3 or lower.

These funds are: Zurich Prisma 2, Zurich Prisma 3, Irish Life MAP 2, Aviva Multi-Asset ESG Active 3, New Ireland iFunds 3 and New Ireland

In your 60s, taking a tax-free lump sum can be a great boost and a well deserved reward after slogging away for decades.

Let’s briefly go over the basics. From the age of 50, many people can take 25% out of their pension completely tax-free – up to a maximum of €200,000. The remaining 75% is then put into an ARF (Approved Retirement Fund) or used to buy an annuity, guaranteeing a set income for life.

There are countless circumstances in which withdrawing this cash as soon as possible makes total sense.

For example, you might decide to withdraw €50,000 tax-free out of your €200,000 pension at age 60 to pay off your mortgage and go on a well-deserved holiday to the Bahamas.

But remember – once you take out that lump sum and choose an ARF, and you cannot make any further contributions. Added to this, you’re likely to choose a less volatile fund, meaning your annual growth will slow significantly.

The reason many people in their 60s invest more in their pension is often not because they are concerned about the size of their pension, but because of the generous tax-relief they receive.

People in their 30s can receive tax relief on 20% of their salary (still lucrative!), whereas if you’re aged between 60 and 69 you can contribute a whopping 40% of your earnings. 

Basically, for every €100 of your salary, you can put €40 to your pension, lowering your taxable income and saving money in taxes.

For example, let’s assume you’re earning €80,000 per year, and you want to contribute 40% of your salary to your pension for 3 years until you retire. 

This means €32,000 would be hitting your pension each year – a significant sum. This is deducted from your salary, so that you have taxable income of €48,000.

So from the €32,000 you put towards your pension, €12,800 of this would have gone to taxes anyway. Essentially, your €32,000 pension boost is actually costing you less than €20,000 per year because of tax relief.

Death is not the most pleasant topic, but if you’re in your 60s, you might be wondering what would happen to your pension savings after you die. 

Pensions can actually be powerful inheritance tools, compared to other forms of inheritance. If you wish to pass on your pension savings, you will usually choose an ARF over an annuity, as most annuities are fixed and stop upon your death.

One of the major benefits of an ARF is that you can leave it to your spouse or children when you die. But bear in mind that different tax rules apply depending on who you leave your retirement savings to.

As you approach retirement, you should review how much risk you really want to take. If you have a huge pension pot and other assets to fall back on, you can generally afford to take more risks (although you also have more to lose). 

But for people who have built up a moderate pension pot over the years, prioritising financial security in retirement over long-term growth is usually their main goal. 

Attitudes towards risk and reward may play a key role in choosing a pension fund in your 30s and 40s, but most people simply don’t want to deal with the stress of watching their pension fund swing up and down in their 60s.

So how can you tell whether your pension fund is high or low risk? Luckily, it’s easy to tell, as each pension fund is rated on a scale of 1 to 7, with 7 being high risk. 

Higher risk funds are typically high equity funds, with holdings in companies in a variety of markets, and a low allocation to bonds or cash. The assets in lower risk funds are more heavily weighted towards bonds and cash.

Property can also make up a large portion or all of a high risk fund’s portfolio. But as you will know well, that bubble can burst at any time.

Your 60s is not the time to gamble, but there may be scenarios where partially de-risking rather than fully moving to a Fund 2 or 3 may be beneficial. 

Let’s look at an example to find out. Joe is 60 years old with a PRSA, and takes 4 different paths.

Joe has been making consistent monthly contributions for 25 years of between €200 and €300 to a high equity fund which we will call “Pension Fund 5”.Joe’s pension investments have been successful. Over the past 25 years, his fund has seen an average annual growth of 8%, despite slumps during economic crises. This has given him a pension pot of around €200,000.

Path 1 – Joe gambles and it pays off

Joe invests in “Pension Fund 5” until he’s 65.

The average growth continues at 8% per annum. At 65, his gamble has paid off for now at least, with his pension pot having grown by €100,000 or more in just 5 years.

Scenario 2 – Joe gambles and the economy crashes

Joe invests in “Pension Fund 5” until he’s 65, maxing contributions along the way.

A financial crisis leaves Joe’s pension pot devastated just before he turns 65, with the stock market crashing by 50% in one year. It will take many years for his pension to recover, and he could be in trouble.

Scenario 3: Joe plays it safe

Joe moves 100% of his savings to a low risk fund when he is 60. He continues to invest until he is 65, maximising his contributions and making the most of tax relief.

Joe is secure that his investments are safe, growing at around 1.5% per year. Even if there is an economic downturn he can rest assured that he will be able to withdraw funds in retirement.

Scenario 4: Joe hedges his bets

Joe moves 80% of his pension pot to a lower risk fund. His original fund continues to grow by 8%, while his new fund grows by 1.5%. He continues to invest in both funds until he is 65, and his gamble has paid off this time. However, 20% of his savings remain in a moderately high risk fund, so he should not become complacent. 

So what’s the bottom line?

If you’re in a situation like Joe as you approach retirement, you have a number of options. In scenarios 1 and 2, the gamble either pays off or it doesn’t – and that is not really worth the risk for most people in their 60s. 

Scenario 3, moving everything to a low-risk fund, is a common approach after taking a tax-free lump sum. It has its pros and cons, but it ensures security and peace of mind. 

Scenario 4, moving some funds to a lower risk while keeping some in a higher risk fund is another option – and especially popular with those with large pension pots. 

If you are lucky to have over 1 million in your pension pot, for example, you can likely afford to move some savings to a less volatile fund, while maintaining a percentage in a higher risk portfolio. This is because those with large pots are safer in the knowledge that they can ride out the highs and lows before they’ll ever need to rely on these funds. 

Pension investing can be complicated, and making the right decision is not always easy. After working for decades, you don’t want to make the wrong call, and pay the price for it.

We hope this guide has been helpful, but it is not a substitute for personal financial advice, as every situation is different. If there is anything specific we can help you with, you can contact us through our website. Will leave you some links for further reading below, as well as some FAQs.

We wish you the best of luck and prosperity in retirement.