The first thing we would say is: start. Don’t procrastinate any longer. Procrastination has already gotten you to this point. It’s never too late to start a pension. but the key is starting.
Why do people start from a young age?
Everyone talks about the value of starting your pension planning from an early age. The logic behind this is that if you start earlier, the money you invest in your pension will have more time to grow and potentially benefit from compounding interest.
Starting from a young age can be great, but what if that ship has already sailed? If you’re no longer in your 20s or 30s, that’s okay: no need to panic. Start now.
What if starting early is no longer an option
The first thing to consider is how long do you have left in your working life. This time will be your last opportunity to save on tax. So, even if in 10 years you only save €100,000 in tax or €250,000 in tax, it’s still money in your name and not the taxman’s. We all know, with certainty, that there will come a time when we will need that income to supplement our lifestyle. So start now and build it up so you can avoid making lifestyle changes down the line.
The first step is simply to talk to a financial advisor, at Rockwell we can give you the advice to get you into the rhythm of pension payments. One of the first things we will say to you is, “how much can the business afford to start putting aside each month?”
Another big tip from our team: don’t make the mistake of waiting till the year-end.
Our strategy is to set a target amount. You will have a finishing line in sight and know how much you are trying to get in your fund before retiring. Working back from your end figure, we’ll decipher how much money we need to put in every year so that you end up with that figure.
We meet too many business owners who approach their accountant at the end of the year, having to wait to see what the yearly profit will be, then take a portion of that money and invest it. Afterwards, however, we then see some business owners start slowly withdrawing from that end-of-year profit.
For example, some might decide to take out cash for a car. Then suddenly, there is no longer a portion available to allocate to their pension.
Many business owners believe that they will only know what they can afford to put into their pension once that end-of-year figure is confirmed (although they usually have a rough idea). Our advice? Try to put in ⅔ of your yearly retirement savings goal by making monthly deposits.
For example, if your yearly savings goal is €50,000, we will aim to have put in €33,000 over the 12 months. So by end-of-year, you only have €17,000 left before reaching your target. So, when it comes time to sit down with your accountant if there is a €60,000 profit left that you can use to get up to your target figure, well happy days. However, if there was an issue and the business wasn’t as profitable as it usually would be, then it’s unlikely you’ll add the €17,000. But, at least you now have the €33,000 in your pension that you aren’t scrambling to find.
So remember, ⅔ via regular monthly payments and then ⅓ via a lump sum at the end of the year.
Don’t wait till the end of the year to get things moving. Put the money in now and reassess at the end of the financial year. If the exact-in-the-pot amount is available at the end of the year, that’s amazing! But, if there isn’t, there’s no harm done because you now have some money into the fund. Maybe next year, you can look at making up that shortfall.
So, Don’t Panic
We promise you that the amount you can fund, even starting in your mid 50’s, is far greater than you can imagine. It’s never too late. Get started today.
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