When you picture your retirement, do you see yourself still enjoying your favourite pastimes while also ticking new experiences off your list? Do you see yourself living comfortably, your pension plan unaltered by a changing world? In short, do your current pension plans align with your future lifestyle goals?
If yes, fantastic, you’ve got it all figured out. But if you’re unsure that you can extend your current lifestyle into the retirement lifestyle you want, it might be time to assess your pension pot size. To help you do that, we have the following advice to offer:
Planning for the Lifestyle You Deserve
It goes without saying that you’ve fought hard to achieve your current lifestyle. Or maybe your compromising today for a better tomorrow. Or maybe you are worried that you are living too much for today. From your studies to career planning, you may have taken careful, considered steps to get where you are.
However you are doing, you want tomorrow to be better or at least as good as today.
The best thing you can do is full financial and cash flow modelling.
To sustain the standard of living you want when you retire, you need to consider pension planning as well as savings. This type of planning needs to account for the likes of your income, expenses, investments and existing pension contributions. While seeking expert pension planning advice can be the difference, many steps of a plan can be done on your own. For instance, you can try to assess and understand your current and future expenses and budget accordingly. You can build an emergency fund to co-exist with your pension pot, if you begin to take benefits from age 60, once you take a tax free lump sum, there is a minimum 4% withdrawal rule whereby you withdraw 4% of your retirement pot, or portfolio, annually – this can in turn give you a figure to plan around from your pension savings.
This is via an Approved Retirement Fund (ARF). This is a pension fund that keeps your money invested while also allowing you to make withdrawals when needed. An ARF gives you a balance of continued growth (tax free) and financial cover. While highly flexible, you still need to ensure that your withdrawals keep pace with inflation and market shifts. This is important, too, if you aim to retire early. For instance, if you would like to retire at, say, 55, it’s essential that you’ve planned accordingly and that you have the maximum pension pot available. But what is a good pension pot at 55? Well, the truth is there’s no exact figure. Some say it could be five or six times your salary, but the best way to plan for retirement at 55 is to speak with a financial advisor, and do some financial modelling This will allow you to put a proper plan in place that can help you achieve your goal of early retirement.
Another way of assessing how much you could save by 55 is to use a pension calculator.
A Pension Calculator – More Than a Savings Too
You want to continue to live your current lifestyle into your retirement, but how much do you need in your pension pot?
Well, GSB’s Pension Calculator is the ideal simple modelling tool when assessing retirement scenarios. It allows you to input your current age, planned retirement age, monthly contributions and any existing pension pot you have to calculate just how your savings could grow. The calculator also accounts for your state pension entitlement, tax rate and whether you plan to take a lump sum. The calculator uses realistic predictions, such as inflation, fees and annual compounding, giving you an insight into your potential pension pot.
Pension Scenarios
At GSB Capital Ireland, we understand that our clients’ situations and retirement plans differ. We also know that tax efficiency, lifestyle maintenance and legacy planning are important, and to help you get a better idea of what your retirement could look like, we’ve prepared four potential scenarios.
Scenario A: Retiring at 55 vs 65
Retiring at 55 instead of 65 will impact your pension savings, investment opportunities and income. Ending employment at 55, but wanting to maintain your required lifestyle into retirement, will require greater contributions to have a healthy pension pot. Of course, if you’ve been saving for a long time, you’re well positioned to enjoy the retirement you dream of. Still, speaking with a financial advisor now means you can assess the feasibility of an early retirement also devise a plan that sees you retire when you want.
Scenario B: Maximising Tax Relief
Maximising tax relief is an excellent way of building your retirement fund, and strategic Additional Voluntary Contributions (AVC) Pension contributions can significantly increase your pension pot without overpaying taxes. With an AVC, you can get up to 40% back in tax relief on every euro you contribute, depending on your age. So, if you’re in the higher tax bracket and you contribute €200 a month, the actual cost to you would only be €120.
You have full control over how much you invest (within Revenue limits), and you can pause or adjust contributions if needed. And, when you retire, you can choose a tax-free lump sum, purchase an annuity or transfer the fund to an Approved Retirement Fund (ARF). All in all, an AVC pension is an excellent option when hoping to retire early.
Scenario C: Inflation and ARF Drawdowns
Over the course of your working life, you and your money will have experienced the likes of inflation among other financial hits, and it’s likely that similar situations will occur during your retirement. Under these circumstances, the benefits of a well-planned Approved Retirement Fund (ARF) come into play.
An ARF keeps your pension invested while also allowing you to withdraw tax free lump sums when needed. You have complete control over where your pension is invested, and all growth is tax free. That said, it’s important to consider if your pension income will sustain your retirement lifestyle, which is why we encourage you to talk with a financial advisor. Doing so will help you better plan exactly how much income you need when you retire.
Scenario D: Cross-Border Pension Transfer
If you’ve moved from the UK to Ireland, or are planning to, you’ve probably heard of a Qualified Recognised Pension Scheme (QROPS). A QROPS facilitates the transfer of a private or occupational UK pension to Ireland once the fund meets certain criteria set out by Her Majesty’s Revenue and Customs. Transferring your fund from the UK to your country of residence, such as Ireland, consolidates your pensions and makes managing investments and planning your inheritance much easier. Pensions that can be transferred are Defined Benefit Pensions, Defined Contribution Pensions, Self-invested Personal Pensions (SIPP) and Self-administered Pensions (SSAS). There’s no tax hit when you transfer with a QROPS, either, so if you’re on the move, consider speaking with an experienced pension advisor.
What High-Income Clients Should Consider for Their Pension Pot
When asking yourself, “How much do I need in my pension pot” or “What is a good pension pot at 60”, remember that it’s not just about pension fund size, but also about lifestyle sustainability. Try to remind yourself of the lifestyle you want to live in your retirement and plan for it accordingly, especially if you want to retire early or secure your financial legacy.
Of course, you will also need to factor in inflation, tax relief caps and market risks. To ensure you get these critical points right, we encourage you to speak with an experienced financial advisor today.
Ready to Grow Your Pension Pot for the Perfect Retirement Lifestyle?
Planning your pension doesn’t need to be a complicated process, especially if you know what kind of retirement lifestyle you would like to live. If you’re a high earner who wants to retire early and keep enjoying your favourite things, you understand and appreciate the value of good planning.
Of course, a little insight into what could be goes a long way, and the GSB Pension Calculator is a great way of seeing what your financial future can look like. When you’ve checked how much your pension might be worth, be sure to book a one-to-one consultation with GSB Capital Ireland so we can turn those numbers into a tailored retirement strategy using cash flow and financial modelling to plan and calculate what you can spend and when in your later years. We are only here once and maximisation is key.