Retirement planning is an essential part of financial planning. This Retirement planning process should involve the identification of your ultimate objective i.e. the size of the fund(s) required to replace earned income at retirement age.
Set out below are 10 ways to prepare for retirement. This is not an exhaustive list but if applied it will help you to set about retirement planning in a constructive manner.
A pension (sometimes called a pension scheme) is a long term savings plan to help you build up a pension fund for when you retire. Many pensions have better tax incentives compared to other types of savings. These incentives are to encourage you to start saving into a pension as early as possible for your retirement.
There are many different types of pensions, some are run by your employer called occupational pensions, others can be set up by you which are called private pensions or, if you are working in the public service you will have a public service pension. These types of pensions in addition to the State Pension, are intended to provide you with an income when you retire.
Financial security in retirement doesn’t just happen. It requires Retirement planning and commitment and, yes, money.
1. Start Saving, Keep Saving, And Stick To The Plan
If you are already saving, whether for retirement or another goal, keep going! You know that saving is a rewarding habit. If you’re not saving, it’s time to get started. Start small if you have to and try to increase the amount you save each month. The sooner you start saving, the more time your money has to grow.
Make retirement planning a priority. Devise a plan, stick to it, and set goals. Remember, it’s never too early or too late to start saving.
2. Know your retirement needs
Retirement is expensive. Experts estimate that you will need 70 to 90 percent of your pre-retirement income to maintain your standard of living when you stop working. Take charge of your financial future. The key to a secure retirement is to plan ahead. Use our Retirement Income calculator to find out how much you need to save.
3. Contribute to your employer’s retirement savings plan
If your employer offers a retirement savings plan, such as a PRSA, sign up and contribute all you can.
Your taxes will be lower, your company may kick in more, and automatic deductions make it easy.
Over time, compound interest and tax deferrals make a big difference in the amount you will accumulate.
4. Learn about your employer’s pension plan
- If your employer has a traditional pension plan, check to see if you are covered by the plan and understand how it works. Ask for an individual benefit statement to see what your benefit is worth.
- Before you change jobs, find out what will happen to your pension benefit.
- Learn what benefits you may have from a previous employer.
- Find out if you will be entitled to benefits from your spouse’s plan.
5. Consider basic investment principles
- How you save can be as important as how much you save. Inflation and the type of investments you make play important roles in how much you’ll have saved at retirement.
- Know how your savings or pension plan is invested.
- Learn about your plan’s investment options and ask questions. Put your savings in different types of investments. By diversifying this way, you are more likely to reduce risk and improve return.
- Your investment mix may change over time depending on a number of factors such as your age, goals, and financial circumstances.
- Financial security and knowledge go hand in hand.
6. Don’t touch your retirement savings
You may have early access to some of your pension. However, If you withdraw your retirement savings now, you’ll lose out on valuable growth and you may lose tax benefits or have to pay withdrawal penalties.
If you change jobs, leave your savings invested in your current retirement plan, or roll them over to your new employer’s plan, a PRSA or a Personal Retirement Bond. If possible leave your funds intact until you retire.
7. Ask your employer to start a plan
If your employer doesn’t offer a retirement plan, suggest that it start one. There are a number of pension plan options available. Your employer may be able to set up a simplified plan, such as a PRSA that can help both you and your employer.
8. take Full advantage of your personal tax relief allowance
The amount of personal tax relief allowed is generous and increase as you get older. For example at age 40 you can claim up to 25% of your net relevant earnings up to €115,000 in any one year. This percentage increases to 35% at age 55 and 40% from age 60 onwards. You can also receive up to €200,000 as a tax-free lump sum.
Company Directors benefit from even higher percentages.
9. Find out how much your State Pension will be
Don't assume that you will get the full rate of State Contributory Pension when you reach the qualifying age. Check your PRSI contribution record on mywelfare.ie to work out what level of guaranteed State Pension you are likely to receive.
10. Get professional advice
Retirement planning is a complicated business and it's all too easy to give up and let inertia set in or worse try to do it yourself and end up making some costly mistakes.
Take professional advice or better still develop a relationship with a Pension Advisor and constantly review you retirement planning portfolios.
How much should I save?
It's one of the most common questions people ask - and the answer depends on your circumstances. Your current age, your salary, and your planned retirement age, along with other factors, will help determine how much you should save each month.
What funds can I invest in?
When you take out a pension your contributions are invested in different funds. You can choose to invest your contributions in less risky funds, with smaller potential returns, or higher risk funds, with greater potential returns. We can help you decide your risk profile, so you can balance potential returns against potential risk.
How do I manage my pension?
Your pension shouldn't get in the way of you enjoying yourself, but it's worth keeping in mind as you make life's big choices. If you're planning a long break or a big move, mention this to your financial advisor. They'll be able to help you keep your pension ticking over as you get on with your life.
How much will I need to live on when I retire?
Retirement brings a big change in lifestyle. Your commuting and electricity bills could fall significantly, but your health expenses may increase. You may eat out less often, but you may wish to travel more frequently. How you wish to spend your retirement years will inform how much you should put into your pension.
What are retirement benefits?
When you retire you may be eligible for certain benefits, such as a tax-free lump sum. The benefits available to you depend on the kind of pension you have taken out and the tax arrangements at the time of your retirement. We will be able to take you through the various options available.
If you withdraw your retirement savings now, you’ll lose principal and interest and you may lose tax benefits or have to pay withdrawal penalties. If you change jobs, leave your savings invested in your current retirement plan, or roll them over to an IRA or your new employer’s plan.