You can retire well with 50% of your gross income
When it comes to planning for retirement, people take different approaches: Some do nothing at all, leaving their fate to chance. Others pay diligent attention, plan young, while saving early and often. The rest hides somewhere in between.
Despite all their differences, the supporters of each of these approaches have at least one thing in common: everyone would benefit, or at least be reassured, by doing a financial health check with a retirement savings expert.
On the choices people have for funding any shortfalls that may arise in retirement, Ian Kennedy, co-founder of the Pensions Support Line, says: “There are many options, such as rental income from investment property or savings in a bank. or post office.
“Most aim to make up for this shortfall by contributing to a pension throughout their working lives because of the generous tax breaks available. The sooner you can start contributing to a pension, the better. Even if it means you can only save a small amount each month. This is because the longer you leave it on, the more expensive it becomes.
Ian Kennedy advises aiming for a retirement income of around 50% of your gross pre-retirement income. This is a good rule of thumb for income to aim for in retirement.
Kennedy says, “If you’re making $47,000 a year on your retirement day, $23,500 would be an appropriate number to aim for. Now, if you received a full state pension of €12,900 per year [figure correct pre Budget 23 announcement] this would leave a shortfall of €10,600 per year.
For someone who wants to build a pension fund of around €260,000, which would yield a pension of around €10,600 a year, Kennedy gives clear advice. He says the attached chart shows what a person would need to save each month to reach their retirement savings goal, at age 68.
While the cost of living crisis is doing us a disservice on a daily basis, it is also banishing savings plans from many. According to a Pension Awareness Week survey conducted by Behavior & Attitudes (B&A) and published in September this year, this is the reason given for Irish people without a pension either delaying the start of a pension , or postpone the date of their chosen retirement. .
Anyone thinking of postponing should perhaps skip to the next paragraph now. Not everyone will want to know that early retirement can be a mortality risk factor. That’s the sobering conclusion of a study published in the Journal of Epidemiology and Community Health. It found that working just one extra year past retirement age reduced the risk of death (over the 18-year study period) by 9-11%, regardless of health status.
That we really need to talk about pensions is clear from the findings of the B&A study, in which almost two-thirds of 25-49 year olds surveyed admitted they find the subject of pensions “too complicated to understand “. Among those aged 35 to 49 surveyed, the prospect of saving for retirement was low, with 72% saying they were financially wiped out after essential bills were paid.
Hope did not feature prominently in the study, in which 38% of respondents said they “already know” that they will not have enough savings as they approach retirement.
This figure was echoed in a study published by the Competition and Consumer Protection Commission (CCPC) in recent weeks, where 38% of respondents said they did not have a pension in place.
The reasons given were myriad: 20% said they were “too young” and a similar percentage said they “couldn’t afford it”. 32% said they had “not yet managed to get started”. Unfortunately, the study also highlights the great distance that can elapse between the intention to get started and its actual realization: among the 55 to 64-year-olds questioned as part of the CCPC survey, 23% said they had no pension in place. Some thought the state would deliver, with 77% expecting to be entitled to a contributory pension from this source on retirement. Tellingly, only 32% of respondents knew how much the state pension amounted to per week.
Retirement means different things to different people. For some, this may mean working methodically or even sporadically through a to-do list. For others, it may mean the dream of pursuing new hobbies or spending more time doing what you love.
For Fonz Scanlan, financial planner and wealth manager at Money Smart, a “good retirement” does not necessarily mean being young and wealthy when you retire: “It means you have the ability to step back when it suits you. . , into a life that continues to be enjoyable and meaningful,” he says.
Then emphasizing that “having a large nest egg gives you the opportunity to choose the type of retirement you want”, he continues: “The only way to build up this nest egg is to spend less than what you earn and to invest the difference, throughout your professional life if possible.
“While excess income should go to a pension from a tax efficiency standpoint, life is for living and the central goal of good financial planning is to strike the right balance between saving and spending. throughout life.
“That’s why we should all try to imagine how we’re going to spend our retirement years and, long before retirement, plan a lifestyle that we can realistically support financially.” On the subject of the number of us who consider retiring with state pensions alone, Fonz Scanlan says: “In January this year, the CSO reported that a third of the working population has no retirement coverage apart from the state pension.
Advising that this is very worrying because it is extremely difficult to live solely on the full state pension, he continues: “And you may not be entitled to the full amount. Also, you could be 67 or 68 by the time you get it, which could take several years after you want or can work.
“Although this figure is decreasing with self-enrolment, there remains the problem of those with some form of private pension and savings not close enough for a comfortable retirement.
“It’s not just because a lot of people just can’t afford the big savings. It’s also because many of us underestimate how long we’ll live and how much we’ll want to spend in retirement.
“Health and well-being often improve with early retirement, not to mention free time. With all of this comes the desire to see new places and try new things – which means spending more.
“Then later in retirement, when travel expenses come down, there may be escalating medical and care bills that may not be covered by your health insurance. There is only one way to prepare for retirement and that is to save.
“Take a little pain now — cutting spending to create a surplus — to avoid a lot more pain in retirement.”