How important is planning for early retirement?
Currently, you can take your state pension in Ireland at 66, but the age is going to increase to 67 and then 68 in the not-too-distant future. Not everyone will want to work until that age by choice, and some won’t be able to because their health will not be good enough for them to continue working. Being awarded a full pension depends on you having made sufficient PRSI contributions. If you have not made sufficient contributions, you can apply for State Pension (Non-Contributory) but this is means tested.
The overall picture for state pensioners of the future is not good, and that is not just a problem in Ireland. People are living a lot longer than when these schemes were first introduced meaning there are more pensioners drawing from the state for longer periods. Governments all over the world are facing the same problem of financing state pensions.
Some countries have just stopped new state pensions for anyone that is currently below 45. All employers will have to have a contributory pension scheme and the self-employed have to have a private pension. The alternative is to live on state benefits which only cover the basics of living.
Get the ball rolling when planning for early retirement
If you are in your 20s or 30s you probably haven’t given much thought to your twilight years. However, this is the perfect time to start planning for early retirement. If you do not want to have to work until your late 60s you need to have something else in place to enable you to live comfortably.
You may be lucky enough to be in a job that pays a pension at an earlier age, but the majority of people aren’t this fortunate.
Research has shown that most people in Ireland do not consider retirement planning until their late 30s, but that can mean having to contribute far more money into a pension scheme to get the pension you need to be able to live the lifestyle you want in your twilight years. Another study showed that almost half of Irish workers have no pension provisions in place.
The sooner you start planning for early retirement the less the monthly contributions will need to be, or your pension pot will be a lot smaller. Delaying starting a pension from your 20s till your 30s can make a big difference to the amount of pension you could receive.
Things to consider when planning for early retirement
Not Many people like the idea of working till their late 60s until they can get a state pension. That is assuming that there is still an Irish state pension in the future. If you would like to leave the world of work at a younger age there are things you need to think of and put in place in preparation:
- Consider what lifestyle you want in retirement. This really is a matter of personal choice. Some people want to travel in style, some want to buy a home in the country and others want to stay just where they are and relax. It really is up to you, but whatever you decide, you’ll want the money to be able to achieve it.
- Are you in a job that has a pension attached to it? If you are employed by one of the larger corporations in Ireland there is a good chance that they contribute to your pension as well, but not all companies can afford to do this. You need to get the right advice about how well your pension is likely to do and then decide if that will be enough for you to live off. There is no reason why you cannot have a personal pension as well and you will get tax relief for certain limits depending on your age. You can pay as much as you want into a scheme, it is only the tax relief that is restricted and this varies between 15% and 40% of your earnings according to your age.
- If you are self-employed a private pension is vital, or you will have no choice about working until you are older.
Getting the help you need when planning for early retirement
Not just anyone can assist you when you are planning for early retirement. You can chat to friends and family and they will no doubt tell you about their experience, but everyone’s circumstances are different, and you need the best advice for you.
In Ireland, financial advisors have to be qualified. They will either be a Chartered Financial Planner (CFP) or a Qualified Financial Advisor (QFA). They work hard to get their qualifications and are generally quite proud of them. Never be afraid to ask for proof of their qualifications and do not deal with anyone who does not want you to see them.
Some of the financial advisors are tied to one company or financial institution such as a bank. They could be very good at their job but when they are tied, they are limited to the products they can recommend. The best way forward is to find independent financial advisors.
At Mason Wealth Management, our advisors not only have all the relevant qualifications, they have a great deal of experience too. In fact, with more than 50 years’ experience between us, we are able to give impartial guidance and advice to ensure that you invest in the best products for you.
It is said that at the present rate of the state pension your income will drop by up to 70% if that is the only money you have coming in. Whether you decide you want to retire early or wait till you get your state pension, that is not going to lead to much spare money, if any at all. Don’t let yourself end up in that position, get the help and advice you need now.