How we are going to live when we retire doesn’t become a major concern for many people until later in life. However, our quality of life and the money we have available to us once we stop working can be far greater if we start planning sooner. Every extra year you’re paying into a pension counts, so the sooner you start the better.
A private pension is essentially a savings plan with important tax benefits. However, your contributions earn you money for the life of the pension and must stay in the pension fund until you reach a predetermined retirement age. The money you receive from a private pension can help to supplement your state pension and be the difference between a frugal existence or the retirement you hoped for.
Do you know what you want your retirement to look like?
Most people continue through their life without giving too much thought to retirement. We may have some cliched responses about what we’d like to do when we retire, such as travel more or spend more time with our family, but very few of us give it careful consideration, let alone attempt to calculate the cost of how we want to live.
Knowing how you want to spend your retirement is essential, as it’s what allows you to calculate how much you’ll need access to on a monthly basis. This gives us a starting point so we can look at the various options available to you that will achieve your goals.
Why you shouldn’t rely on the state pension
There are several reasons you shouldn’t leave your retirement in the hands of the government. The age you must reach in order to claim your pension is increasing. The Social Welfare and Pensions Act 2011. The current age of 66 is rising to 67 in 2021 and 68 in 2028. Many people want to stop full time employment before they reach this age. A private pension (depending on the individual product) can be taken from an earlier age, allowing you to retire earlier or cut your work to part time.
There is also the drop in money. Many people aren’t prepared for the reduction from a full-time wage to a state pension. Making plans now can mean you don’t have to spend your retirement counting the pennies. The state pension can cover the cost of living for those that live frugally. However, if you want to travel, spend money on family, or take up hobbies you didn’t have time for when you were working, it’s unlikely to be enough on its own.
How a state pension works
You must have paid a sufficient amount of social insurance contributions in order to qualify for a state pension. There are pro-rata payments for some people that had a break in their contributions. Social insurance contributions must have been started before a certain age, there must be a certain number of contributions paid. Most people that have lived in Ireland and have been in full-time employment for most of their lives will be entitled to a state pension. There is a new Total Contributions Approach, so don’t despair if you think you might not meet the criteria.
Providing you meet all the requirements; you’ll be paid the prevailing rate every month. The current rate is 238.30 euros per week, which is approximately 12,400 euros per year. How much less this is than your current income will depend on your circumstances, but for many people it simply isn’t enough to live the way they want.
How a private pension works
You can start paying into a private pension as soon as you want. The earlier you start the longer your money will be making more money. This has a cumulative effect that can greatly increase the overall pot. The age you can start receiving your pension depends on how you set it up. Some pensions can start as early as 50 or 55. The amount a private pension pays you each month will depend on how much you’ve paid in and over how long a period.
Ways to maximise a private pension
The single best way to maximise a private pension is to start it as early as possible. The amount you contribute will also have an impact, as will ensuring you’re consistently making contributions. It’s also important to make sure you have the best plan for your circumstances. Different plans can be better suited to different individuals. This can be because of their employment status, such as being self-employed, or whether their level of income is consistent or variable. Getting advice from independent experts is critical when selecting the best private pension for you.
Why you should always use an IFA
An independent financial advisor is a qualified professional that will help select the best products for your circumstances. We are not tied to a single company or range of products, so can always base our decisions on what will provide the best results for our clients. The minimum qualification they should hold is a Professional Diploma in Financial Advice, which allows them to use the letters QFA (Qualified Financial Advisor). They may also have gained other qualifications, such as SIA (Specialist Investment Advisor) or CFP (Certified Financial Planner).
Why use Masons Wealth Management?
The team at Mason Wealth Management have decades of experience helping the people of Ireland maximise their money, whether for retirement or growth. The strength of our practice is built upon the personal relationships we build with our clients, providing the highest levels of service and tailored solutions for each person. Whether it’s some informal advice or a full investment plan including a private pension, we can help.
Our team are experienced enough to help you, regardless of your situation, but we are particularly experienced at helping the self-employed. We even hold business clinics to ensure business owners are getting the most from their money.