When you’re embracing the carefree world of your 20s, retirement feels like a lifetime away. For many with intentions of settling down a little later in life, this period is all about fun and adventure, rather than making investments towards your golden years.
But there are numerous benefits to planning your pension at this young age before bills mount up and years of potential savings have passed you by in the blink of an eye.
Why is it important to plan your pension in your 20s?
Arguably, the most important reason to begin planning your pension at this point in your life is the opportunity it creates. From tax relief on investments to the increased saving potential that extra time allows, it makes complete financial sense to get a head start. Furthermore, building a substantial pension pot over the course of forty years will allow you to maintain the quality of life you’ve become accustomed to. You can sit back and enjoy your newfound freedom, without having to deal with financial concerns.
Unfortunately, the forecast is not bright for Ireland’s future retirees. While there is currently an estimated five workers per retiree paying tax and PRSI, it is expected to reduce to two workers per retired individual in 30 years. Add to this the fact that babies born in Ireland in 2021 have an average life expectancy of 93.6 years, that is a lot of retirement years to begin saving for!
Needless to say, there is no time like the present to take matters – and your financial destiny – into your own hands.
What are the key benefits to getting a head start with pension planning?
1. Compound interest
This is the interest generated through interest already earned and is a huge pro to consider. The longer you are investing into your pension fund, the more compound interest is earned and the more sizeable your pension pot becomes.
2. More time equals more savings
It affords you more time to build a significant nest egg if saving starts early – particularly before other expenses created by home and family life come into play.
3. Tax benefits
There are many tax benefits to getting started in your 20s. When you are under 30, you can avail of tax relief on 15% of your earnings. This increases over time in increments of 5%, so the earlier you start the quicker you start to build it up.
4. Financial security
After decades of hard work, the last thing you want to do during your retirement years is worry about money. The State Pension (Contributory) is currently valued at €12,912 per year. For many, this is just enough to get by on, let alone maintain the lifestyle you are used to. Putting a pension plan in place at the earliest possible opportunity will set you up for an enjoyable, comfortable retirement. Your future self will thank you for it.
5. Pension schemes come with hidden perks
As an employee, a pension scheme may feel like a vacuum sucking up more of your hard-earned cash. However, it’s important to realise that this minor deduction from your salary will eventually be going back into your pocket – with a lot more to boot. While some employers take it upon themselves to provide a pension scheme for their staff, all employers are bound by law to give their employees access to a Personal Retirement Savings Account (PRSA). Not only are your contributions to this account eligible for tax relief, but oftentimes employers will match your contributions, further bulking up your growing fund.
How to start planning for your pension
All of the benefits associated with planning your pension in your 20s certainly pose a promising argument, but the ins and outs of PRSAs and the technicalities involved with pension schemes can be daunting.
In fact, a recent study found that one in five Irish workers simply didn’t know how to go about starting a pension. This is where a skilled and experienced financial advisor comes into play. By recruiting the help of an advisor in your 20s, you can discuss your goals and ideas for retirement. As far off as that may seem right now, it will allow you to create a plan for the remainder of your working years, which can be adjusted as time goes on and as your financial circumstances change.
Symmetry Financial provides a highly personalised and straight-talking service that takes the stress out of planning for a comfortable retirement. You will have different decisions to make depending on how far or close you are to retirement and the Symmetry Financial team will help and guide you every step of the way.
Contact us today to find out more or to book a consultation.
