How much do I need for my Retirement?
This is a key question for everyone and one where your financial adviser can help. There is no right answer, it is different for everyone and is subject to change.
A good place to start is to look at your savings as a % of your net income, or how much of your income do you live on.
If you are spending all of your income, you will never be ready to retire, unless you have an alternative income stream expected (inheritance). At the other extreme if you are saving all off your income and spending nothing and can continue to spend nothing (somehow!), you can retire right now!
Use your tax bill to build your retirement fund.
While these are not real life, what was identified in the NUIG / FairTax research “Pensions in Ireland: The Perspective of Irish Citizens” (2020) was that “The majority were not however aware that they could receive favourable tax treatment on any pension contributions they had made”
Can you enjoy your retirement on 50% of current salary?
For example, a 55-year-old with a salary of €50,000 and a pension fund already built of €120,000 would need to save 33% of their salary from now to retirement at age 68 to reach a target income in retirement of 50% current salary, €25,000 (Pension Authority Calculator, Mar 2021). This is based on the present value of money.
Revenue do allow tax relief on these contributions at the person’s marginal rate of tax. So if you pay tax at 40%, the net cost is significantly reduced to 60% which really helps with the affordability.
The more you save, the more options you have to retire early and enjoy a larger tax free lump sum.
Any ‘gap’ in your pension planning is what your financial adviser can help identify and close.
This page content reflects Irish Revenue pension rules and tax rates pertaining to 2021.