Retirement Planning

How’s your pension doing?

Not sure? Then how will you know what your retirement’s going to look like? Keep your future on track with regular pension reviews.Returns

Is there a correct way to save for your retirement?

There are lots of ways you could save for your retirement. But the only one designed specifically with retirement in mind is a private pension. Some people steer clear of pensions because they think that they are to complicated. But in reality, a pension is a type of savings plan, that you invest in regularly. On your selected retirement date, you access this fund to provide you with an income in retirement.

You need to be aware of the type of investment risks you are taking, especially as you approach retirement age.

What Age Are You?

How suitable a particular investment is for you depends in part on how long you have until you retire. For example, someone in their twenties will probably want to achieve maximum capital growth so may invest in more aggressive funds. An investor only a few months from retirement will probably want to take far less risk – or no risk at all.

If you are:

How much should you contribute to your Pension Fund?

That should depend on your age and the number of years you have to fund for your retirement. The Government gives generous tax relief on pension contributions depending on your age as follows:

Income Tax Relief is available based on the following limits (net relevant earnings):

Under 30 yrs 15%
30 – 39 20%
40 – 49 25%
50 – 54 30%
55 – 59 35%
60 + 40%

Example: a high rate tax payer who invests a gross amount of €1,000 in their pension fund avails of tax relief of €410 giving a net cost of €590.  21% relief for a standard rate tax payer.

However, there are some basic investment rules that apply to everyone saving for retirement as follows:

Have a diversified portfolio.Decision

Most financial experts agree that the best way to invest your pension savings is to have a number of different types of asset classes such as equities (also known as stocks and shares), property , government gilts, alternatives and cash deposits. So, if one portion of your fund performs poorly, the remainder is likely to perform better. This is called Asset Allocation.

You also need to think about how long you have to save. The amount you invest in each asset class is affected by the length of time you have to save. For example, someone in their twenties might aim to achieve maximum growth by investing more in equity funds.  On the other hand, an investor with only a few months to go until they start taking their pension benefits might favour less risky investments such as cash.

Are you prepared to take an Investment Risk?

You need to be aware that value of  investments can fall as well as rise, and you may get back less than you invested. Of course, the more risk you are willing to take, the higher chance of potential return, but there is also a greater chance of loss.  Lower risk investments on the other hand offer greater security but lower potential returns. You need to decide how much risk you want to take with your pension savings.

How often should you review your investment?

You should review you investment at least annually, not alone to track the performance of your funds but to ensure your investment strategy suits your changing needs. This helps forward planning and protects  your savings from market falls and takes advantage of growth opportunities.

How much do I need to contribute?

You need to be realistic regarding the investment required to generate adequate income in retirement.  Look closely at your Annual Benefit Cert as included is a Statement of Reasonable Projection.  This will calculate your estimated pension assuming you continue to invest at your current rate to retirement.  Ideally, the calculation should state that your estimated income in retirement will be 2/3rds your current salary!  Unfortunately few people achieve this rate.

If you don’t have a statement to hand, then the simple answer is ‘as much as possible as soon as possible’.  The general rule is to invest an amount equal to half your age.  Yes, half your age!  So if you are 40, then your contribution rate should be 20% of earnings.

To enable to help you calculate your income in retirement requirements log onto www.pensionsboard.ie , the pensions calculator which will give you an outcome based on your age, current value of your fund, contribution rate and will calculate your expected income in retirement.

 For Clear Impartial Pension Advice: Contact Future