The Why & When of Pensions

08/12/2017 Posted by IAPF

They may not be exciting – but they are important!


The Why?

There are numerous reasons why should have a pension plan – namely you don’t want life to stop at in your 60s! Look at people you know in their 60s and you will realise that these people are still very much in the midst of what life has to offer.

You will want to be too. I don’t know anyone who doesn’t want to enjoy a comfortable leisurely retirement.

But to do this you need to put the financial structures in place early on.

In addition, we are all living longer which is great! Half of all men aged 44 today will live to age 86 and women to age 87. One-third of those men will live to age 91 and women to age 93. That is a long time to ensure you have adequate income.

While it’s true that the State does provide some funding for those in retirement – you should note that the State Pension is designed only to be sufficient to keep you out of poverty.

Could you live on €238.30 a week now? Even without mortgage and other debt that you may hope to have cleared by the time you retire – €238.30 will not get you very far. It is also becoming harder to qualify for the full State Pension and it is now payable from age 66. From 2021 it will be payable from age 67 and age 68 from 2028.

When?

Believing that you are too young to start a pension is a mistake - retirement might seem a long way off but the earlier you save the more you can accumulate over time because of the power of compound interest. If you also start when you begin a job you won’t miss the money from your monthly income.

20s

In your 20s the important thing is getting a pension started. Any savings you make when you are young will have the chance to grow over a long period of time and will benefit hugely from the effect of compounding growth.

It almost always makes sense to join an employer’s scheme – where there is one available. That way, you will benefit from the payments your employer will put into the scheme as well as your own.

If you’re paying tax at the higher rate, then someone else (your employer & the taxman) will contribute about 3 euro for every 1 you put in – by not becoming a member you are essentially passing up this money.

Sure, you can’t access it until your later years, but you’ll definitely appreciate and need it when you do come to retirement. And it will almost certainly have grown substantially over the years.

What many people don’t realise is that the monetary benefits of pension saving in your 20s & early 30s far outweigh the value of 30 years pension saving in your late 30s, 40s & 50s altogether.

If a person only saved for their pension for 10 years from 25 to 35, & then left the fund to grow with no additional contribution to age 65, the benefit would be greater at 65 than if they had saved for 30 years from 35 to 65.

30s and 40s

Hopefully once you’re in your 30s and 40s you have not only started saving for retirement but you have been doing so for some time & you can see those savings growing over time.

Keep an eye on the annual benefit statements you get from your pension provider, as they can give you lots of useful information on what you might expect to receive at retirement and whether you should be saving more.

Many schemes also have on-line tools available that allows you to check your pension status regularly and gives you a good overview as to where you stand. Many employers will pay more into the scheme if you also pay more, so you might want to consider increasing your monthly savings to take advantage of that.

50s

Once people hit 50 they generally tend to take a more active interest in their pension.

You may have the capacity to save more, particularly as children are grown up, maybe your mortgage has been paid off and you may have more cash available.

60s

At this stage you should have a good idea of when you want to retire and how much you will need to sustain the lifestyle you want.

You should consider getting independent financial advice to get a full picture of your financial situation and the steps you might need to take to achieve your financial goals at retirement.

 

https://www.rollercoaster.ie/Article/Wip/The-Why-When-of-Pensions


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