Saving for Retirement - 3 Important Lessons

Some people may discover as they move towards retirement age, that they may need to work for a few years longer than they had originally anticipated. The likelihood is that these people do not have sufficient capital to support them through early to late retirement. The majority of individuals in this situation would have ‘committed’ the same errors. So rather than repeating these mistakes, you should learn from them and learn how to avoid these common retirement pitfalls.

Lesson one in saving for retirement: Lesson one in saving for retirement: this is probably the most important lesson - it is never too early to begin contributing to a personal pension, and the earlier that you begin making contributions, the more your money will make in the long-run. There are quite a few people who think that it is reasonable to start pension plans later, although they may be financially able to do so, it is not a truly efficient way of managing money. Pensions have compound interest and any interest that is added to a fund can itself earn interest, so the earlier contributions are started, the greater will be the compound interest, plus the contributions will not be so high because the person will be able to spread out their payments over a longer period of time. So if you have yet to start an Irish pension, there is no better time than today.

Lesson two in saving for retirement: the highest priority should be given to pension contributions and other forms of retirement investment. Whenever you are constructing a household budget, retirement must be factored into your outgoings to the same extent as other expenses such as mortgages and utility bills - a pension is not a necessity but a luxury. It is easy to oversee retirement as a day-to-day expense, especially when it appears to be so far away in the distance. Failure to factor retirement into the everyday cost of living will cost dearly in the long run.

Lesson three in saving for retirement: considering the alternative options to retirement. Life can be unpredictable, and sometimes it throws us a curve ball. If something has come in the way of retirement saving, then there are several options still open to you.

Late retirement: we have all heard of early retirement, people usually take this when they have saved enough money to retire before the standard age of 65. However, the reverse is also an option, late retirement can be undertaken if you have failed to make adequate provisions - or you simply want to add to your capital. Continuing to make pension contributions is a sure way of improving your situation. There will be the additional years of compound interest, you will not be dipping into your fund during your extra years in work and you will still be getting the benefits of fantastic tax relief.

Cut back on luxuries: The majority of people who find themselves struggling to make adequate contributions to a pension plan will find that they are able to make cuts to their everyday expenses in one way or another. This could involve downsizing your property, shopping at alternative supermarket or opting for own brands, reducing the heating by one or two degrees, and so on - the savings soon add up.

Retire in stages: Although it is the most common form of retiring, it is not necessary to abruptly halt employment; rather a gradual reduction in the number of hours worked can be a way forward. The benefits here are two fold, not only will you be earning money, you will also be acclimatising yourself to the experience of being without employment, which for some people can be quite a shock to the system.

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