Ireland, like many developed, is facing significant population challenges in the both the medium and long term. While we currently have one of the youngest populations in Europe, the number of people aged 65 or over is now the fastest growing demographic in the country.

Increased longevity and better medical care are transforming ‘old-age’ and it is predicted that Ireland could have have over 1.4 million people over the age of 65 by 2046 and by 2046 the 65+
dependency ratio could have doubled from what it was in 2011.This is good news, but it is not without its challenges.

Old age is being transformed; retirement is now seen as bringing a whole new lease of life, an opportunity to kick start new learnings and opportunities. The days of the ‘carriage clock’ retirement already seem outdated.

So how much does life in retirement cost and why should we be planning our pension when we might not be retiring for another 20, 30, or 40 years? Kristen Foran, national sales director of Zurich Life explains: “The theory has always been that we need two thirds of our current pre-retirement income to retire comfortably. The thinking is that costs reduce in retirement as the mortgage should be paid off and the children have fled the nest.

Indeed, Revenue limits on pension funding uses this figure also. However, life has changed dramatically in recent years following the Celtic tiger and the subsequent recession, so this theory may well be defunct.”

A recent Zurich Life Pension Survey found that 20% of those with a mortgage are so heavily indebted they expect to be still paying off the home loan when they cease working, and four out of 10 people expect to never buy and continue to rent.

The Zurich survey shows that this is coupled with the fact that the average age that Irish women are having their first baby at is 32.5 and that the average age at which young Irish people now leave the family home is 26.3 years, with the actual cost of living in retirement may be more demanding than we realise.

“The picture of life in retirement is going to look different for everyone but it’s worth thinking about when planning for spending in retirement,” Foran says. “It’s also important to look at the different phases of retirement when planning for the income needed at that point.”

She identifies four phases in retirement to consider when saving for retirement income. First is the honeymoon phase. “This is probably the most exciting stage of retirement. It’s great to be retired, leaving behind the rat race. People may have access to a lump sum and realise some dreams or ambitions such as travelling the world, going on a cruise, paying off debts, etc. However, this doesn’t last too long as a regular lifestyle begins.”

The second phase Foran talks about is the active stage, which she says sees a new normality start. “People take up hobbies and leisure interests, spend more time with family and perhaps travel more. This lasts up to approximately the age of 75. Most people would hope to be debt free at this point, or before, and the children should certainly have left home.”

The passive phase is usually between the ages of 75-85, according to Foran. At this point spending on hobbies and leisure pursuits may decrease, while spending on health will increase. There may be a focus at this point on downsizing a home and on estate planning.
The last stage is the dependant or supportive phase. “Life may change dramatically at this point,” Foran says.

“Mobility may be restricted and the need for care increases. Medical costs may be at their highest at this point, and although a medical card may be available, many still have private healthcare.

At the current rate of €243.30 per week or €12,651.60 per year, the State pension is designed to cover the basic costs of living in retirement. If you consider your actual financial commitments and phases of retirement or even that the current average earnings in Ireland are under €40k, it’s easy to understand the overwhelming gap between the desired lifestyle in retirement versus the real life situation.

According to Foran, the key to a successful retirement strategy is to start planning it many years before the actual date. “Retirement advice in Ireland is undergoing a change,” she says. “No longer is it advice on a one-off product choice when a person retires; it has become much more complex and involves process planning for the various different stages of a person’s life in retirement.”