Learn to Live on a Pension

Making adequate savings in order to be able to secure a comfortable retirement can, at times, seem overwhelming with many issues arising such as knowing how much to save. This may seem like a fairly bizarre consideration, after all, you have no way of knowing what your life circumstances will be in the future, and this is particularly true if retirement is still a long-way off. However, it is possible to make reasonable assumptions relating to this issue. For example, you may know already whether you will have paid a mortgage off by the point of retirement.

In this article we cover some of the major questions that you should be asking yourself in terms of your required income at retirement. Once you have a rough idea of the amount of capital you need for a financially stable retirement the whole process becomes somewhat easier to deal with, with fewer stresses to worry about.

What kind of lifestyle are you hoping for in retirement? Are you hoping for an improvement to your current lifestyle by the time that you enter your retirement? Or do you hope to continue as you are, or even take a step down? It could be that you are considering the option of early retirement; can you still fund the lifestyle you want if you choose this option?

Clearly, these questions are a matter of individual preference, and the answers will vary from person to person. Nonetheless, understanding what your preferences are in relation to these questions will help you to arrive at the estimated retirement income that you will need, from which you will be able to deduce the appropriate savings you should be making.

What is you annual salary at present? You need to know how much you are currently earning in order to establish the amount that you should be contributing to a pension plan in Ireland. If, above, you answered that you wanted to have a similar lifestyle to the one you currently have once you reach the age of retirement, then you will need to estimate how much of a net income you will require to match your current salary. Here you must also bear in mind that several factors may have changed by the time you come to draw your pension, for example, if you have paid off a mortgage on your house, you will no longer need to budget your rent into your required income.

How much are you likely to receive from the government once you reach pensionable age? If you have made the appropriate PRSI contributions, then you will be eligible to draw the State Pension and this regular payment can contribute substantially to your standard of living once you enter retirement. In order to find out whether you have met the requirements and how much you can expect to receive, contact the Department of Social and Family Affairs.

At what age are you planning to retire? There are many considerations to take account of if you opt to retire early. Firstly you will need to remember that because you will be spending more time in retirement you will need to have more of a nest-egg than you otherwise would have. Additionally, if you retire early you may not be able to draw the State Pension until several years later, and when you do you may not have made enough PRSI contributions to be entitled to the full amount.

If, on the other hand, you opt to stay employed until after the statutory age of retirement, you may need less of a nest-egg to fund it, as you will have fewer years in retirement. Therefore, consideration of the age you wish to retire is fundamental to ensuring that you manage to save an appropriate amount of money.

How near are you to the age of retirement? And have you managed to make any savings towards it? Depending on how far away you are from the age of retirement, and how much you have managed to save thus far, will mean that you will need to save more or less money. Make sure that you have a well-formulated retirement savings plan, and remember that the earlier you begin making pension contributions, the better the rate of return on your money. So if you have not yet done so, we recommend that you start a pension plan as soon as you can.

The information in this article is meant as a guide to anyone concerned about their retirement, the advice given is general and as such more research will need to be undertaken by the individual. A good point of contact for further advice is either an independent financial adviser or a pension provider as they will be able to talk to you about your particular circumstances and offer sound advice on the best way to proceed with your retirement plans.

This article is based on the author’s own observations and research and is not associated with any 3rd party organizations.