Key tips to ensure you have enough for a decent retirement
PENSIONS are a minefield, with the very mention of the word causing most people's eyes to glaze over. But it is hugely important to have enough money for a decent retirement. Here are some tips to ensure you get on top of the pensions issue.
Do not procrastinate
Time is of the essence when it comes to pensions, according to Jerry Moriarty, chief executive of the Irish Association of Pension Funds.
"While it's never too late to start, it's so much more beneficial to begin saving in your early years if at all possible."
Mr Moriarty, whose association represents trustees of schemes, said the monetary benefits of pension saving in your 20s and early 30s far outweigh the value of waiting until you are in your 40s and 50s.
This is the case even if you save for 30 years, having started later in life.
Don't depend on the Government
It is a really risky strategy to think that if all else fails you will have the old-age pension to rely on in retirement, according to Ciaran Phelan, of the Irish Brokers Association.
"The reality is that this country is facing a pension crisis, which means that when those who are now in their 30s and 40s reach retirement age they may well find the State will not be able to support them financially," he said.
There are currently 460,000 people over the age of 65, but this will shoot up to 1.4 million over 65-year-olds by 2050.
But there will be roughly the same number in the workforce. This means that fewer workers will be supporting more older people.
Have good eggs in safe baskets
Pension funds will go up and down in value through the course of their life.
While it is often advisable to leave the investment strategy to the experts, so too is it advisable to take an active interest in how your pension is performing, according to independent adviser at Goldcore in Dublin, Mark O'Byrne.
The majority of private sector workers now have defined contribution fund pensions. This means the pension you get depends on how much you put in, the length of time it is invested and the investment return.
"You need to ensure that you are on track and that your pension fund manager has your pension in well-diversified funds with a range of assets that will protect against the vagaries of the market and the economic cycle," Mr O'Byrne said.
Interest rates and inflation will mean that pension saving is not an absolute science -- you may need to make adjustments along the way to ensure you are on the right track to achieving your retirement goal.
Don't forget the stay-at-homers
Just because someone doesn't work outside the home through some or all of their adult life doesn't mean that they don't need to plan financially for retirement, according to Aidan McLoughlin of the Independent Trustee Company.
Couples should look at pensions as a joint effort, regardless of whether or not the husband or wife does not work, he said.
The end result is the same -- they will both want or need to maintain a comfortable life once they hit a certain age.
"Women, in particular, fall foul of periods of time out of the workforce and often don't put the financial structure in place for their retirement," Mr McLoughlin said.
Pension versus savings
It's not a case of "either or". A household budget should include provisions for both, according to Mark O'Byrne of Goldcore in Dublin.
Savings are for relatively short-term financial needs while a pension is a longer-term financial strategy.
The amounts you will be able to contribute to savings and pension funds will vary over the course of your life, and they should reflect where you are in your life stage, he said.
Ideally, throughout your entire working life you should be building up a pension as well as have immediate access to a rainy day fund.
For efficient financial planning, consider the amount you have to invest in your pension first to avail of contributions from your employer, and whether you can afford to set this money aside on a monthly basis to build up a sufficient pension fund for retirement. Then consider the amount you have left available to pay into the short-term savings plan.
Plan for a nice retirement, but be realistic
We would all like to think of our retirement as being the golden years filled with cruises, golf outings, and fine dining.
But for the majority of us, a comfortable retirement would mean being able to maintain the lifestyle you had while you were at work.
A rule of thumb is that the standard pension fund should give people roughly half, to two-thirds, of the salary they had before they retired, according to Jerry Moriarty, of the Irish Association of Pension Funds.