05 Oct Starting A Pension Fund: What You Need To Know
How do you picture your life post retirement? Not thought that far ahead? Well, personally, I would like to be able to live comfortably but still be able to have some fun in my old age. This requires money from an adequate pension fund.
Think about it; how much freedom can you have without sufficient funds? This is why creating a pension is so important. Your future lifestyle depends on the financial decisions you make today.
Putting it off?
Look, it’s not as difficult as it seems to set up a pension fund. Many are flexible and allow you to pick the most suitable way to invest your money. You can also get a certain amount of tax relief from your pension plan.
Now Let’s Look At Some Chilling Facts.
A survey by Deloitte found that more than half of Irish working adults have no pension fund.
Now this is where you might want to cover the screen. Right now, there are about 6 working people for each retiree, but by 2050, there will only be 2 working people for every retiree.
What does this matter, you say? Well, that means that there will be less working people to contribute taxes. You know the taxes that will pay for many benefits and entitlements such as state pensions.
Right, So What Can You Do?
Well without a private pension fund, you will only get the State pension of €230.30 per week. This is also something you may not even qualify for. Taking in what I said above, it is probably in your best interest to create a private pension fund.
How Much Will This Cost?
According to the National Pension Policy Initiative, an adequate gross retirement income of 50% of gross pre-retirement income should be sufficient.
Whoa. What? Okay, so if you earn €80,000 on the day you retire, you need a pension income of €40,000. This means that if €12,000 comes from the State, you need €28,000. To reach this you’ll need a fund of between €700,000 and €930,000.
Wow, that’s A Lot!
So the sooner you start a pension fund, the better. Standard Life estimates that if you
- Start at 25, you’ll need to put €238 per month,
- At 35 you’d have to put away €432 per month and
- Starting at 45 you’ll need to be putting a whopping €864 away per month.
What About These Tax Breaks?
Pension tax relief is at your standard tax rate (20% or 40%) and is one of the best tax breaks available. What the taxman gives in tax relief reduces the cost of what you have to pay into your pension fund. It’s almost like free money this way. What’s not to love?
Should I Join my Company’s Scheme?
If they have one, yes. A good employer will pay between 5%-10% of your annual salary into a pension scheme. You should definitely find out what your employer offers in their pension scheme.
Can I Do This Alone?
You could, but that would be like giving a dog a typewriter. It can press the keys, but it’s not going to produce a critically acclaimed play. Definitely get a professional to give you advice. After all, this is one of the most important financial decisions you will ever make!
*All information was correct at the time of writing