At every point in our lives, there are demands on our finances.
Whether it is a (pre-pandemic) holiday of a lifetime, repairs on your home or car, the dreaded annual rent increase (if you are still renting), or the return to school for those of us with children.
In your thirties, it seems that many of these costs converge at once. For those lucky enough to have established their careers, they are now turning to a list of new challenges such as purchasing a property, planning a wedding, starting a family or perhaps, (in a pre-pandemic world), heading off on the holiday of a lifetime. Even during the current restrictions, many are still looking to get on the property ladder or start a family.
Life cannot stand still for a pandemic, regardless of the national restrictions in place. The same can be said for retirement and it is inevitable for all of us. Some of us may be lucky enough to retire early, others will have to work longer and retire later in life. The fact remains that we will not be able to work forever, so we will need to make sure that we can afford to retire when that time comes.
Saving for retirement may seem like a distant goal for those in their thirties, but the State Pension of the future may look very different to what it looks like now. Fewer taxpayers will be supporting the Scheme; resulting in a potentially lower payment, (it is currently just under €13,000 per annum). The amount paid may be means tested, or paid later in life if the retirement age is increased. We need to be ready for that the future might hold in this instance.
How can you live well in retirement without making too many sacrifices now?
Competing priorities can get in the way of saving for your retirement but even a small amount each month will have a positive impact, especially with the positive effect of compound interest. We are not suggesting that you should stop paying down debt or stop contributing to that much-needed holiday fund, but perhaps look at your retirement as part of your savings strategy.
We recommend you ‘pay yourself first’. This is the cornerstone of advice offered by financial consultants and is proven to work for those with savings goals. Review your finances and spend money on things that matter to you both now and in the future, which will include your retirement.
Start with a budget and really get a handle on your outgoings.
List your savings goals and be sure to include your retirement plans. (Our handy retirement calculator might help you estimate what you might need.)
Speak to an advisor if you think you might benefit from independent financial advice.
If you are a member of an employer sponsored pension arrangement, it is good practice to ensure you are contributing as much as you can afford to. Your own contributions together with the employer contribution and the associated tax relief will see your fund value grow over time.
Are you in the correct fund? Your pension consultant will be able to provide with you with information on the various fund choices available.
Tax relief is rare but it is wonderful if you can get it! We reviewed the available tax relief previously and this does not change from year to year.
Additional Voluntary Contributions (AVCs), are a great way of maximising your contributions as a once off top up or additional monthly amount to your retirement savings, depending on your preference. AVCs deducted via your salary are a great way to receive tax relief at source and help to pay yourself first.
Maximise salary increases: If you are fortunate enough to get an increase in salary, perhaps consider earmarking some of it for your retirement savings if your circumstances allow.
If you receive an annual bonus, you can ask your payroll department to pay a percentage of the amount directly into your pension, while you enjoy the balance of your well-earned bonus today.
Save Early and Often
We often speak to people who feel that they do not have enough disposable income to direct towards their retirement savings at a particular moment in time. We understand that there are conflicting priorities and retirement seems like an age away. However, consider making a small contribution as soon as possible and watch the impact it has. In the example below, you can see the true ‘magic’ of compound interest at work. As the saying goes “if not now, when?”.
|The 40 Year Old
||The 20 Year Old
|Invests €200 per month
||Invests €100 per month
|Starts Age 40
||Starts Age 20
|Ends Age 60
||Ends Age 60
|Total Saved €48,000
||Total Saved €48,000
|Final Value €90,000
||Final Value €190,000
Growth at 6% per annum
As you can see, time is a major factor when saving for your retirement. In summary we would encourage you to start thinking about your pension as early as possible. We think of our golden years as being those years when we retire – in fact. the golden years are the years in your 20’s and 30s. Saving a small, regular amount from an early age can make a big difference to your retirement savings fund.
Get in touch
If you would like to learn more about preparing for your future, please contact our team in CERS We are available via email: firstname.lastname@example.org