As a salaried person, it’s very important to build your pension pot. What you save or build for retirement depends completely on what kind of lifestyle you want to live post-retirement. However, One of the biggest challenges faced by people these days is that they don’t know how much money they’d need to generate a decent retirement income. In order to live a comfortable retirement, you’d need a pension pot of £260,000. But building that kind of pension pot might not be easy given today’s low savings rates.
In an effort to persuade people to increase their savings for a better post-retirement life, Government of Ireland plans to introduce a new scheme where if your earnings are more than €20000 a year, you automatically get enrolled into the pension scheme (in addition to the state pension scheme).
Salaried people can look at having a personal (pension) plan that is nothing but a long-term investment which will help save money that can be used to support the lifestyle post-retirement.
How much should people be saving to build a good pension pot?
It’s completely up to the individual and depends on a lot of their personal factors. On average, every salaried person should aim at saving an average of €1000 a month to manage their living standards post-retirement. You can use a Pension Calculator which will help you to decide how much money you must contribute to your pension. You’ll also know how much tax relief you may be eligible for your contributions. Say, if you are 33 years old and you want to retire at the age of 65 and receive €3000 every month as a pension, all you need to save is €1759 every month. If you are eligible for tax relief (say, 40%), your contribution can be as less as €1055. However, it’s important to remember that “the earlier you start to save money, the better the saving and returns after retirement”.
What are the benefits of building the pension pot?
The key benefit is that post-retirement you will have the pension fund available from which you can take 25% of the amount as a lump sum (tax free). This guarantees a regular monthly income for the remaining of your life. The actual pension amount you receive will depend on the pooled amount, your age of retirement, and the then annuity rates provided by the pension provider. Say, if you have pooled €360000 and the annuity rate offered is 4.5%, you will get €16200 per year or €1350 per month.
In addition to saving for retirement, saving through pension schemes will also help you to receive support from the Government in terms of tax relief. Every contribution to the pension scheme receives a tax relief of either 20% or 40% based on the income tax rates that you pay.
Therefore, if you are keen to start planning for your retirement or pension plans, it is advisable to get in touch with an expert tax advisor who can offer investment advice customized to meet your specific needs.