The 4% rule for Irish retirees in 2025: what it is, when it works, and how to use it

Retirement costs never sit still, but one simple guideline has survived multiple market cycles. The 4% rule. Used well, it can help Irish retirees spend with confidence without exhausting their savings too soon. Used blindly, it can misfire. Here is how to apply it in Ireland in 2025.

First, a quick reality check

The State Pension Contributory is €289.30 a week at the maximum rate in 2025. It is a valuable floor, not a full retirement for most households. Private pensions, ARFs and other savings usually have to do the heavy lifting. In Ireland you typically access PRSAs and most personal pensions from age 60. Early access around age 50 may be possible under occupational scheme rules when you leave that employment. Drawdown via an Approved Retirement Fund is flexible, but Revenue requires a minimum annual withdrawal once you reach the relevant ages.

What the 4% rule actually says

The rule is a starting point for planning. In year one of retirement, withdraw 4% of your pension pot. In year two, take the same euro amount adjusted for inflation. Repeat each year. The idea is that a diversified mix of assets can support inflation‑linked spending for roughly a 30 year retirement in most historical market scenarios.

A quick example makes it concrete. If you retire with €500,000, a 4% starting withdrawal equals €20,000 in the first year. If inflation runs at 2% that year, your year two withdrawal becomes €20,400. Your State Pension sits alongside this and covers a share of your essential bills.

Why 4% is not a promise

Markets do not deliver neat, linear returns. Bad years at the very start of retirement can dent a portfolio in ways that are hard to recover from if you are withdrawing at the same time. Researchers sometimes recommend a lower starting rate when bond yields are low, equity valuations are stretched or inflation is high. In 2025, several evidence‑based studies suggest a starting point around the high threes to four percent is broadly reasonable for a balanced portfolio, provided you stay flexible.

The twist most people miss

ARFs and vested PRSAs are subject to imputed distributions. In plain English, from the year you turn 61 the State treats 4% of your fund as withdrawn for tax purposes each year. From 71, that minimum rises to 5%. If your ARFs and vested PRSAs together exceed €2 million, the minimum is 6% regardless of age. This is not a recommendation. It is a floor for tax. Your planned spending rate should take this into account. It also means that very low withdrawal strategies can be hard to sustain once you hit those ages.

Tax matters too. Withdrawals from ARFs are taxed as income and are generally subject to USC. PRSI usually does not apply to pension income after State Pension age, but if you turn 66 on or after 1 January 2024 and you defer claiming your State Pension, PRSI can continue on certain drawdowns until you actually start your State Pension or you reach 70. Plan around your age, your mix of income sources and whether you will work part time.

How to make the 4% rule work in Ireland

Start by sizing the gap the rule is meant to fill. Estimate your annual spending in retirement. Subtract your expected State Pension. The remainder is what your private savings must cover. If that remainder is €24,000 a year, a 4% starting rule implies roughly €600,000 of invested assets. If the gap is €12,000 a year, the implied pot is about €300,000. These are signposts, not cliff edges.

Next, combine the rule with sensible guardrails rather than treating 4% as fixed forever. In good years, allow yourself an inflation rise. In poor years, pause the inflation uplift or trim withdrawals by a small, pre‑agreed amount. Recheck annually.

Hold a cash buffer. Keeping 24 to 36 months of planned withdrawals in cash or short‑term deposits lets you fund spending without selling investments after a market fall. This reduces the risk that bad market timing locks in losses.

Invest for the job at hand. A globally diversified mix of equities and high‑quality bonds is the traditional core. Too much cash erodes spending power over time. Too much equity risk can make sequence‑of‑returns shocks unbearable when markets fall. Tilt the mix to your risk tolerance and the stability of your income sources.

Coordinate with your State Pension. From 2024 you can choose to defer claiming up to age 70 in return for a higher weekly rate. Deferral can help some households manage tax and sequence risk, but the arithmetic depends on your health, other income and how long you plan to keep working. Run the numbers before deciding.

A worked illustration

Mary and Eoin are both 66. Together they have €450,000 across PRSAs now moving into ARFs, plus entitlement to the State Pension Contributory. They target €48,000 a year of after tax spending. With two State Pensions providing roughly €30,000 a year before tax, their private savings need to contribute around €18,000. A 4% starting withdrawal on €450,000 is €18,000, which fits their plan. They keep two years of withdrawals in cash, invest the rest in a balanced portfolio and agree to skip inflation rises in any year the portfolio falls. Once Eoin turns 71 they expect the ARF imputed minimum to rise to 5%. Their plan already assumes a withdrawal around that level, so the tax treatment will not force them to take more than they need.

When to start retirement and when to wait

Timing matters, but you cannot predict markets with certainty. If your portfolio has just fallen and you can keep working for another year, waiting can lower risk. Delaying also shortens the number of years your pot must last and allows one more year of contributions. If your health or work situation means you need to retire now, lean on the cash buffer and consider a slightly lower initial withdrawal, then review after the first year.

Common pitfalls to avoid

Always run numbers after Income Tax and USC. Do not set and forget. Revisit your plan at least once a year. Do not keep everything in cash. Inflation, even at moderate levels, steadily reduces purchasing power. Do not assume your spending will be flat. Many households spend more in the early years, a little less in mid retirement and then more again if care is required later.

Bottom line and next step

The 4% rule is a useful anchor, not a guarantee. In Ireland, it sits alongside the State Pension, ARF imputed distribution rules and the tax treatment of withdrawals. Put those pieces together and you can spend with confidence while staying adaptable. If you want a personalised withdrawal plan that blends your State Pension, ARFs, PRSAs and cash buffer, contact F J Hanly & Associates. We will build the numbers around your age, tax band and risk tolerance so you can retire with a clear, flexible plan.

Information only. Not financial advice. Always take regulated advice before acting.