Let’s face it, we’ve all had the ‘what would you do if you won the lotto’ conversation? Tales of sunny islands, spectacular parties and substantial sharing of funds among friends and family normally spring to the top of that wistful and dreamy list. Without comparing winning the lotto to your retirement years, after 40 – 50 years of hard work, one should be able to frequent a couple of sunlit destinations each year and be there to lend a financial hand to kids during that ‘free’ time in your life.
Sound and trustworthy financial advice
Your golden ticket to that ‘post-working’ paradise however is to talk to a financial advisor. The next few paragraphs will explain some of the steps that should be considered at this stage of your life but the principal message to understand is this – find an financial advisor that you trust. Find an advisor who will look out for you and your best interests on the run up to your retirement. Find an advisor who will focus on the planning and not the product. Find an advisor who actually cares about what happens to you, your family and your business during and after this stage of your life. This conversation will be a financial investment in your life, in a retirement life that could last up to 30 years.
Fabulous at 50
For many, this is often a time when you are in receipt of your highest income. Debts are, hopefully, coming to an end and some of your kids might be flying the nest. Although echos of ‘as if!’ murmur the other half of you who are just getting settled in for another 10 years with your beloved offspring! Whether there are debts, kids, high incomes or not – this is a time in your life when you need to sit down and focus on developing your wealth – irrespective of how big or small that fortune may be!
Get your goals in order
Ask yourself, “what does my retirement look like”? What would that answer entail? A good advisor will work through this with you but it’s no harm to have an idea of the kind of lifestyle you aspire to have in retirement. Don’t underestimate the importance of this step on the financial ladder, when thinking about how to best lay the foundations for your long term financial planning.
What is a pension?
Pension planning will be a core element of the conversation you end up having with your advisor. Making provisions for pension funding is more essential than anything – and it’s never too late to start! We are all living longer so the pension age increase (66 years) makes this retirement planning even more essential. You may be in a profession that allows you to work well past the pre-determined retirement age, it’s often been said that farmers never actually retire, but the financial benefits of paying into a pension fund are there for absolutely everyone.
The 3 T’s
-Tax relief on premiums paid – for a higher earner, every €100 put into a pension will only cost €60
-Tax free growth – your pension grows tax-free – no DIRT or Exit Tax paid
-Tax free lump sum at retirement*
Maximise pension contributions
As you get older the amount of tax relief you can receive, increases. Increasing your contributions at this stage in your life, while those tax bonuses exist, would be an extremely effective and tax efficient use of your money.
If you are one of the fortunate people in receipt of a bonus – what are you doing with that money? The net effect of receiving a bonus is that more than half gets taken in tax, if you are on the higher tax band. What about paying some/all into your pension in order to reap the hugely rewarding tax benefits?
3. Make an investment in your savings
It is recommended that throughout your life, a ‘rainy-day’ fund of 3 – 6 times your salary is set aside in an account that is easily accessible for the unknown events that may occur.
How low ‘risk’ can you go?
In relation to your existing investments/pensions, this is also an opportune time to risk assess those saving vehicles and advise on the best pension investment for you, aswell as where to invest money now. Depending on when you retire or when you need access to certain savings pots, the risk classification of some/all of your money may need to be adjusted accordingly.
In some cases it may be a good money investment to pay a lump off your mortgage, if you have excess cash, especially if your savings are sitting in an abysmally low interest rate bank account. However, financial advice should be sought before making that decision as each individual set of circumstances need to be considered.
- Future protection
Life Cover, Serious Illness Cover, Income Protection – these kind of insurance policies can you give you extreme financial peace of mind in both the former and latter years of your life.
During a time when your income is at its highest, it can have a huge impact on long term savings / financial goals, if that income suddenly stopped or was significantly reduced for a prolonged period. Insuring against this kind of uncertainty could be one of the most proactive things you do, in order to safeguard your family & business finances for the future.
- Succession Planning
Benjamin Franklin wisely coined the phrase ‘In this world nothing can be said to be certain, except death and taxes.” How right he was!
If you have been blessed with kids and you’re hoping to leave them a monetary token when you pass away, there is a forgotten child to be considered in the form of the taxman/woman! For people who have gained substantial wealth throughout their lifetime, this is imperatively important to consider. Policies exist that will help reduce the amount of inheritance tax that has to be paid on death. Your estate therefore will not need to be broken up and sold off in parts, in order to satisfy the tax bill that comes with your passing.
*All pension figures are based on current legislation and may be subject to change in future budgets.