Am I too young to think about a pension?

The simple answer is you are never too young to think about retirement. I know, I know, we would say that wouldn’t we!

But it really is the case – here are a few points to consider.

The demographics and trends are not going in the right direction

Ireland has an ageing population that due to the magic of modern medicine is likely to live longer than earlier generations. This has an impact for everyone when it comes to getting the State Pension, which is paid for out of current tax revenues. Today there are 5 people working and paying taxes for every pensioner who is drawing their state pension from central funds. By 2050 (under 30 years away!), this ratio will be 2 workers for every pensioner ¹. Less money going in and more coming out.

This will be unsustainable and will likely result in some / all of lower state pensions, possibly means tested pensions and certainly state pensions starting at a later age. You need to plan and take control yourself.

Avail of any employer contributions that are available to you

If you are fortunate enough to have a benevolent employer who agrees to pay into a pension scheme for you, bite their hand off! This is often done on the basis of the employer “matching” your own commitment, up to a certain limit. Always avail of this opportunity to the maximum that you are able, as it is usually offered on a “use it or lose it” basis – if you don’t avail of your employer’s matching contribution in a given year, you can’t come back looking for it later.

In a few years’ time, we are likely to see the introduction of pensions auto-enrolment, where employers will be obliged to pay into a pension scheme on your behalf. Both the employer and you will pay into this scheme. Again, take every opportunity to participate fully – you’ll need to in order to build up the lifestyle you’ll eventually want in retirement.

Compound interest has a huge impact

Albert Einstein called compound interest “the eighth wonder of the world”, and for good reason… Given time, compound interest (effectively “growth on growth”) has a huge effect on pension saving. Time is a critical factor, so the earlier you start saving the longer you have for compound interest to weave its magic.

Save half your age

This is a very rough rule of thumb, but we are often asked how much you should save for retirement. Of course the correct answer depends on your specific circumstances and goals, and we would be delighted to look at your specific situation for you. But a rule of thumb is to save a percentage of salary that is half your age.

So, if you start at age 34, you should look to save 17% of salary.

Don’t waste windfalls

Windfalls such as pay bonuses are an opportunity to dial up your enjoyment of life today (after all you’ve earned it), while also improving your future. Set yourself a personal commitment to save x% of any windfalls you get for your long-term future, while enjoying the balance of that bonus today. And with a pension, Revenue give you back your tax to save.