How much do I need to save for retirement?
Getting a handle on this is really important.
Saving for retirement may not seem like something you need to think about when you’re young, but it is a good idea to start preparing as early as possible.
Why do I need to save for retirement?
The fact is that, on average, we’re all living longer, which means more time after retirement with no steady income.
Obviously, if you qualify, you can claim the State Pension, which currently amounts to €238.30 per week. However, this comes to around €12,400 per year, which could be quite a lot less income than you are used to from your job.
If you have your mortgage paid off by the time you retire, that’s one big expense that is gone, but running a house - including everything from insurance, to gas and electricity, broadband and phone, the cost of running your car, and groceries - is an expensive business.
Ensuring you have an adequate income is really important, so you can pay all your expenses, and - most importantly - enjoy your well-earned retirement!
Do I need to save into a pension?
You don’t have to save into a pension in order to provide for retirement - you could choose a savings account and then, when it’s built up a bit, you could transfer your savings to a lump-sum savings account. Or you could look into investing your savings if this is something you’re comfortable with.
However, pensions are by far that most tax-efficient way to save for retirement because your pension contributions are deducted before your tax is worked out.
This means that if you contribute €300 a month, your take-home pay will only go down by €180 if you pay tax at 40% and by €240 if you pay tax at 20% - but the full €300 will be invested into your pension plan.
How much do I need to pay into my pension each month?
The earlier you start saving into your pension, the less pressure you’ll be under as the years go on.
According to Irish Life if you want a pension of 50% of your salary when you retire at 65, you’ll need to put away:
- 27% of your salary each year if you start saving at 25;
- 37% of your salary each year if you start saving at 35; and
- 58% of your salary each year if you start saving at 45.
The difference is stark - so the sooner you start contributing into a pension, the better.
How do I decide what pension to go with?
Pensions can be a complicated business. If you are thinking of signing up for one, it might be a good idea to talk to a broker first.
They will do a risk assessment, and will ask for information on your age, income and expenses and the percentage of your salary you’d like to retire on.
Using this information, the broker will then be able to advise on the amount you should put away each month, and what kind of portfolio you should go with.
If you haven’t already, start saving for retirement
If you haven’t started saving for retirement yet, it would be a good idea to start as soon as you can.
Many pension providers give you access to monitor your pension plan online, so you’ll be able to watch your nest egg growing, too.