What will you use as income when you retire? The Government currently (from 3rd January 2007) pays a State pension as per the table below, but to sustain the lifestyle you were accustomed to during your working life, you need private funding.
If you are an average wage earner, you could suffer a drop in income of up to 2/3rds if the State pension is your only source of income in retirement. This drop in earnings will be greater if your earnings are higher. The Government acknowledges that the State pension is not sufficient and provides generous tax relief on private pension funding.
As people’s life expectancy is continuing to increase, due to better lifestyle and healthcare, you need to retire later or build up a bigger retirement fund. Currently, the life expectancy for a person aged 65, is currently 82 for a man and 86 for a woman and is being upwardly revised on a yearly basis.
When Should I Start Saving for Retirement?
In short, it is never too early to start. Starting five years from now reduces the income at retirement by 35% or more. Income Tax Relief Most contributions into a pension fund are subject to full income tax relief at the marginal rate of tax that you pay. The table below shows how contributing €200 into your pension policy can cost you only €116 net of the income tax relief.
Per month Gross Contribution €200 Minus Income tax Relief @ 41% (€82) Net Contribution €118* For a person whose marginal tax rate is 20%, the income tax relief would be €40 per month (tax rates applicable from 6th April 2007). When contributions are deducted at source from your salary, there is also full PRSI relief, So a top rate earner will receive relief on €200 of 46% = €92, so a net cost of €108 for every €200 invested.
What Income Should I be Aiming for in Retirement?
Most people should set a minimum target of two-thirds of final income. It is often suggested that your need for regular income will reduce on retirement. This argument is based on the following: Your mortgage should be paid off. Your children should have left home. You will not face commuting or similar traveling expenses. On the other hand, there will still be bills to pay. You should not be forced into a lower standard of life just because you are no longer working. Retirement means you have all the time in the world: why not enjoy it!
State Pension Could You Survive On It?
Talk to us today to ensure you are not reliant/depending on the State pension alone to fund YOUR retirement.
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