Pension Planning; Why?

The following article appears as written by Pat Leahy, Infinity Financial Planning Ltd, in the Irish Examiner on 16.10.2015. For further information email Pat Leahy: pat.leahy@infinityfinancial.ie

So, the aim is clear, you want to build a savings account to fund your lifestyle in retirement. The AIM is to spend your later years enjoying the things that give you most pleasure in life.

Building Your Plan

What is the PROCESS required? How am I going to BUILD A PLAN? The amounts required are scary, and the NEED is just so far away. Being thoughtful, and discussing your options, helps remove some personal blind spots, increase’s your awareness, and will help you be better prepared.

Sources of Income in Retirement

Old Age Contributory Pension 

There are potentially four sources of income in retirement. Firstly, the Old Age Contributory Pension will give you €230p.w, presently. The goalposts are moving out to 67 years old by 2020 and 68 years old by 2028 before you become entitled to that benefit. Even if this amount does hold its present value, relative to inflation over time, your AIM is for a better lifestyle in retirement than this €230p.w could provide.

Part Time Work

Secondly, you may choose to or need to work part-time for financial reasons in retirement. This option may not leave you the freedom you aim for, to prioritise the things in life you enjoy the most. More often than not this applies where there was NO PLAN for retirement.

Private Savings and Investments

The third option is to use private savings and investments accumulated while working. The fourth option is called a pension. What is a pension? “A savings account that has been designated to fund your lifestyle in retirement which has been accumulated through a combination of personal contributions, tax relief and investment growth”. This – pension – option can be in the format of either personal pension funds or company pension funds or a combination of both.

The most important thing you can do when making money decisions is to get clear WHY you are doing it. These four options should leave you in no doubt that the total responsibility, and risk, for saving and investing (and withdrawing post retirement) lie completely with you the individual, the investor, the future retiree. Therefore, the PROCESS involved in making the decision to contribute, is as important as the outcome. The WHY has now been identified as, the NEED for income in retirement in excess of the OACP.

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