When it comes to securing your financial future, few decisions are as important as the decision to start a pension. For many, the thought of retirement feels distant, but the reality is that the sooner you begin planning for your retirement, the better positioned you’ll be to enjoy a comfortable, stress-free life when the time comes. Here are the reasons why starting a pension is one of the most important financial steps you can take.
Why Start a Pension?
1. State Pension
Currently the State Pension is €277.30 per week. This equates to c. €14,500 a year which for many is a big drop in income compared to their working salary. So, unless you have an additional income when you retire, you may not have enough money for your retirement needs. This alone is the single most important reason to start a pension.
2. Tax Benefits
Another reason to start a pension to save for your retirement is the tax advantages it offers. You can deduct any contributions to your pension from your taxable income, effectively lowering your income tax bill. The amount of tax relief you receive is based on your marginal tax rate. This relief is based on your income and age and is subject to a maximum.
3. Your payments can grow tax-free
In addition to the tax relief on contributions, the money in your pension plan can currently grow tax-free – so it should have the potential to grow faster than in other types of savings plans that are subject to tax.
4. The Power of Compound Interest
One of the greatest advantages of starting a pension early is the benefit of compound interest. Compound interest is the process by which the interest you earn on your savings or investments generates even more interest. Over time, this creates a snowball effect, where your pension pot can grow exponentially. The earlier you start saving, the more time your money has to grow.
5. Company Pensions
Many employers offer pension schemes that include contributions matching or even exceeding what you put into your pension. Contributions made by your employer are not considered taxable income for you, meaning they do not increase your income tax bill
6. Increasing Longevity
People are living longer these days, thanks to healthier lifestyles and advances in medical treatments. If you retire at 60, you could still have another 25 – 30 years of retirement to enjoy. So, to make sure your money doesn’t run out, you’ll need to build a bigger pension fund.
7. You can draw a tax-free cash sum at retirement
When you retire, you can currently take part of your pension fund as a tax-free lump sum (subject to a lifetime limit of €200,000). This can enable you to perhaps pay off outstanding debts, take your dream holiday or simply do those things you’ve always promised yourself.
8. Financial Security and Peace of Mind
Ultimately, the goal of starting a pension is to secure your financial future. A well planned and funded pension provides peace of mind, knowing that you have a reliable income stream to support your lifestyle in retirement. Starting a pension is not just about money; it’s about creating security and freedom for your future.
Next Steps
Saving for retirement is extremely important. Starting a pension is one of the most important financial decisions you can make. How you fund your retirement is a big decision and it is important to get advice on the different options and how they work. Just get in touch with us at Quintas Wealth Management if you’d like help in starting to consider your retirement options.
20 August 2024