As we live longer, healthier lives than ever before, it is important to plan for the retirement lifestyle you would like to live.
Admittedly, planning long into the future can be tough. However, it will be difficult to enjoy those years in retirement on a shoestring budget.
As studies show, our life expectancies continue to increase. Therefore, you will have 20+ years of retirement to enjoy.
We have put together a guide of why retirement planning is important, how much you will need in retirement, and some tips for saving along the way.
Why is retirement planning important?
Firstly, it is important to understand why retirement planning is important. You have spent most of your life working hard so it should be time to enjoy yourself.
We Are Living longer
As the average life expectancy in Ireland rises, we’ll have longer than ever before to spend in retirement.
While this is great and means you will have time to do the things you always wanted, this may not be possible if you have not planned appropriately.
You cannot work forever
Some of us might love the thought of retiring whilst others dread it. Either way, eventually the time will come.
Whether you do not want to work or your hand is forced due to health circumstances, having a plan in place is never a bad idea.
Retirement gives many the opportunity to do the things they have always wanted. Perhaps your bucket list consists of a cruise around the Bahamas or Route 66.
Alternatively, it may be something less extravagant like a stay-cation and a trip along the west of Ireland. Whichever it is, retirement is the perfect time to pack in some of those dream trips. Appropriately planning for retirement well in advance will allow you to do so.
Circumstances may change
Unfortunately, life likes to throw a curveball every so often. While we cannot plan for every eventuality, we can try to prepare financially.
Taking time to assess your options and plan for any changes that may occur down the line will help reduce any stress. Having a pension and a stable financial plan in place is always recommended. If you are unsure of how to start a pension or would like a current plan reviewed our team would be happy to help.
State Pension liabilities
The increasing liabilities of the State pension have been well documented. However, it is still dramatically increasing each year.
This combined with an aging population is cause for concern. The State pension is currently a modest €248 per week or €35 a day. You will not be living the high life on such a wage alone.
As the scrutiny increases along with the liabilities, having a private pension in place will be more important than ever before.
Peace of mind
More importantly than all over the above, knowing you have a plan in place for retirement will provide peace of mind.
Hopefully, you will have 20-30 years of retirement to enjoy. These should not be spent worrying about financial constraints. Remember, it is never too late to start a pension or plan for retirement.
We have helped countless clients across Ireland with our non-jargon approach to finances.
How much will I need in retirement?
This is a question that is asked by many of our clients. How much will I need or how long will my pension last in retirement?
Our independent study earlier in 2021, showed that on average people would like to have €433,000 in their pension pot at retirement.
However, studies show that the average pension in Ireland is approximately €90,000. This leaves a considerable gap of €343,000.
The only way to appropriately plan for retirement is with a regular pension review. We all have a different set of needs and circumstances. Whether you would like to have €100,000 or €1,000,000 at retirement, planning will be important.
Having a regular review will also allow you to analyse how your pension is being invested. Many of us are aware our pension is invested but sure exactly what in.
In most cases, depending on your appetite for risk, it is probably diversified across different asset classes. The most popular of these will be:
Each of the above will have its own advantages and disadvantages. A regular review with your financial advisor will mean you are aware of exactly where your pension is invested.
How Can I Save for retirement?
Ideally, you would save for retirement through your pension. It is both tax-efficient whilst saving and in most cases, you’ll be entitled to a 25% tax-free sum at withdrawal.
However, if you have your pension sorted and are looking for additional ways to plan for retirement, the below may help.
Create a budget
Creating a budget is an excellent way to get a handle on your incomings and outgoings. A lot of the time smaller things will slip through the cracks.
However, a simple Excel spreadsheet will enable you to keep track of everything. There are also plenty of free templates available online.
Set automatic direct debits
Setting up direct debits which automatically come out of your account is a great way of getting to the habit of savings.
After creating your budget you will have a clearer idea of what you can afford to save each month. Once you know this figure you can arrange for it to be automatically transferred into a savings account.
Use an emergency fund
Having an emergency fund in place is vital no matter what stage we are at in life. Most advise having at least three months’ wages put aside in an emergency fund.
This will also give you peace of mind should your circumstances change. The emergency fund should also be accessible within a couple of days’ notice.
Pay off debts
Paying off any outstanding debts or loans is advisable for various reasons. Not only will it provide peace of mind and additional freedom, it means you will not be paying any further interest.
The sooner you clear those loans the better. That way you will have a clear picture of your overall financial situation and can begin to plan for the future.
To conclude, there is no magic formula when it comes to planning for your retirement. We each have a different set of needs and circumstances.
The one certainty we do know is that our circumstances can change at any point in time. Being financially stable may not solve all your problems but will certainly help alleviate some stress.
Sitting down with your financial advisor and setting some goals is a good place to start. Looking at starting a pension if you do not have one or reviewing a current one if you do.
Fees and charges can also eat into your pension or investments so a regular review is always a good idea.
Hopefully, you will have a long retirement and be able to enjoy some of those bucket list items. If anything is unclear or you would like to chat about any aspects of retirement planning, feel free to contact our team.
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*This blog should be used for information only and not taken as financial advice.