3 Things You Need to Do to Hit Your Retirement Goals
How many years from now do you plan on retiring? How much money do you hope to have accumulated in your pension fund by then? While consistently putting money into your pension pot every month is great, it still might not be enough to get you to where you want to be when you reach retirement age. You can only hit your retirement goals if you have a solid plan in place and you know exactly what it is that you’re working towards.
So let’s say that you’ve worked out exactly what your retirement goals are – here are three things that you should be doing in order to reach them.
1. Increase your pension contributions as your salary goes up
If you have a personal pension, it’s highly likely that when you set it up you plucked a figure out of the air (possibly the minimum amount that you could get away with contributing) and that’s what’s been quietly clinking into your pension pot every month.
But chances are that your salary has increased since then. Multiple times, even. So it’s important to ensure that any voluntary contributions are relative to your current salary, not to the income that you were earning when you first became a member of a scheme.
If you’re part of a company scheme, on the other hand, you’ll be contributing a percentage of your salary to your pension, so any pay rises will be factored in automatically. However, you could still be missing out on an opportunity to be accumulating a bigger fund if you aren’t taking full advantage of the upper percentage limit that your employer can potentially contribute to your pension. You can and should also consider increasing any additional voluntary contributions or lump sum top-ups as your income increase, to not only boost your pension fund significantly but also to avail of any tax relief that you’re eligible for.
2. Bring all of your old pensions under one roof
In theory, there’s nothing wrong with having multiple pension pots from previous employers to cash out of when you reach your retirement. However, by consolidating all of your old pensions into a Personal Retirement Bond (PRB), you could stand to gain a much higher return over time.
If you’re a deferred member of an occupational pension scheme, you lose the key benefits of that plan (e.g. employer contributions). As you’re no longer contributing to the scheme, the pension will rise and fall according to how it’s invested – and that’s something you no longer have a say in.
With a PRB, or ‘Buy-Out Bond’, you determine where and how your pension pot is being invested. To put this in context, Ireland’s largest pension fund, where tens of thousands of Irish workers have their pensions invested had an annualised 10-year investment return of 3.4% (December 2020). This is compared to the industry benchmark (S&P) at 11.57%. It’s clear to see how much of a difference this type of investment return could make to your retirement income.
3. Stay involved
When it comes to pensions, you’ll only get out of it what you put into it. And that goes beyond the amount of money that you contribute every month and year. The more actively involved in the status of your pension you are, the better chance you have of staying on track as you work towards your retirement.
Think of a mortgage, for example. Every year, you should know how much you’ve paid off, what the balance is, and if you could stand to save any money – perhaps by switching providers, changing your interest rate type, you get the idea. You should apply the exact same logic to your pension. Every year should be an opportunity to review your existing pension pot, see if any tweaks need to be made, and determine whether or not you’re on course to hit your retirement goals.
We always recommend working with a qualified financial advisor to ensure that you’re getting the most out of your pension, while not putting yourself under too much financial pressure or setting unrealistic retirement goals. Pension planning is a two-way street that requires you to provide as much information about your personal circumstances and your attitude towards risk and make informed decisions with the help of professionals. Simply put, a pension is ultimately a financial destination – one that you’re far more likely to reach as a driver, not a passenger.
The information above is purely for educational purposes and does not constitute advice on any particular pension or investment strategy. Please seek 1:1 advice on your individual pension scheme and options.