You’ve just been made permanent in your job, you’re happy with your living situation and your lifestyle in general. Would you be surprised if someone told you this is the perfect time to be thinking about your retirement?
Retirement isn’t just something for older people to worry about, it’s something for people at different stages in their career to think about so they can plan and save now, to provide for their post-work years.
Why a pension and not a regular savings account?
One of the most common misconceptions of a pension, is that it’s the same as a savings account. One might ask: “Surely if I’m saving for my future, I can just save in a savings account?” You could of course, but you would be missing out on all the benefits that those with a pension are afforded.
You can get tax relief on payments that you make into your pension. Also, any investment growth that occurs on your pension is tax-free. When you retire you can (in accordance with terms and conditions) take a lump sum, some of which may be tax-free.
What if I change jobs?
Although some people do have pensions that are tied to their current places of employment, there are pension products that are extremely flexible and cater to a variety of different circumstances.
A PRSA (Personal Retirement Savings Account) is one of these. A PRSA is a personally owned pension that lets you save for retirement on your own terms. You can contribute to it whenever you want and stop making contributions at any time.
The reason it’s known as a ‘portable’ account is because if you move jobs, or even take a career break, you can take your PRSA with you.
Are pensions for employees only?
A PRSA is open to anyone over 18, regardless of employment status. You can take out a PRSA if you run your own business or are working for a company.
How much should I put away?
The answer to this question differs from person to person, but the best way to get an idea is to look at your monthly income now and see how much of it you would need to live comfortably in the future. You would have to think about your accommodation requirements, living expenses etc. and then make a decision. Pension calculators are a handy visual aid to help inform you of the pension plan you should be aiming for.
There is no perfect age to start a pension as everyone will have a different amount they can afford to invest every month and others will be able to start with a lump sum. Simply put everyone is different.
A rule of thumb for some, is that you should have a pension in place by the age of 30. This idea is bound to be voiced a lot more in the coming years in conjunction with discussions of the “Irish pension crisis”.
In the decades to come, it is expected that there will be many more people in retirement than there will be in the workforce meaning that the State pension will be unsustainable for such a large demographic. So one solution that is being suggested is mandatory pensions. This could mean that everyone in employment in Ireland will be required to take out a pension to help ensure that in the future, everyone has some form of income to rely on.
This looming crisis is just one of the reasons why now is the time to start considering a pension on your own terms, before the decision is partially taken out of our hands.