Let’s face it, we’ve all had the ‘what would you do if you won the lotto’ conversation! Tales of sunny islands, spectacular parties and substantial sharing of funds among friends and family normally spring to the top of that wistful and dreamy list! Not to compare winning the lotto with your retirement years but in that stage of your life, after 40 – 50 years of hard work, you should be able to frequent one or two sunlit destinations and be there to lend a financial hand to kids and grandkids during that ‘free’ time in your life.
Fabulous at 50
For many, this is often a time when you are in receipt of your highest income. Debts are, hopefully, coming to an end and some of your kids might be flying the nest. Whether there are debts, kids, high incomes or not – this is a time in your life when you need to sit down and focus on developing your wealth – irrespective of how big or small that fortune may be!
We have identified the key areas for you to address so you can get your financial plan in shape for retirement:
- Sound and trustworthy financial advice
Your golden ticket to that ‘post-working’ paradise is to talk to a trustworthy financial advisor. Find an advisor who will look out for you and your best interests in the run up to your retirement, someone who will focus on the planning and not the product.
- Get your goals in order
What does retirement look like to you? A good advisor will work through this with you but it’s no harm to have an idea as to the kind of lifestyle you aspire to have in retirement. Don’t underestimate the importance of this step on the financial ladder, when thinking about how to best lay the foundations for your long term financial planning.
- Consider your pension, savings & investments
Pension planning will be at the core element of the conversation and it’s never too late to start! We are all living longer and the age at which we will receive a state pension is increasing so it makes this retirement planning even more essential. What are the pension tax bonuses available to you?
Tax Bonuses – The 3 T’s
-Tax relief on premiums paid – for a higher earner, every €100 put into a pension will only cost €60
-Tax free growth – your pension grows tax-free – no DIRT or tax on investments inside the pension
-Tax free lump sum at retirement*
Maximise pension contributions
As you get older the amount of tax relief you can receive, increases. Increasing your contributions at this stage in your life, while those tax bonuses exist, would be an extremely tax efficient use of your money. If you are one of the fortunate people in receipt of a bonus – why not pay it into your pension in order to stop more than half of it going to the taxman/woman?!
It is recommended that throughout your life, a ‘rainy-day’ fund of 3 – 6 times your salary is set aside in an account that is easily accessible for the unknown events that may occur. But wouldn’t it be nice if any additional savings you may have were working to help generate a bigger retirement pot?
When saving regularly, it can hugely benefit your overall financial portfolio as you benefit from buying cheaper units during bad times and turning them into a more fruitful savings fund in the good times.
How low ‘risk’ can you go?
In relation to your existing investments or pensions, this is also an opportune time to review the investments in those saving vehicles. Depending on when you retire or when you need access to certain savings pots, the risk level of some or all of your money may need to be adjusted accordingly.
In some cases it may be a beneficial move to pay a lump off your mortgage, if you have excess cash – especially if that money is sitting in an abysmally low interest rate bank account. However, financial advice should be sought before making that decision as each individual set of circumstances need to be considered.
- Future protection
Life Cover, Serious Illness Cover, Income Protection – these kind of insurance policies can give you financial peace of mind especially during a time when your income is at its highest. It can have a huge impact on long term financial goals if that income suddenly stopped or was significantly reduced. Insuring against this kind of uncertainty could be one of the most proactive things you do, in order to safeguard your family and business finances for the future.
- Succession Planning
Benjamin Franklin wisely coined the phrase ‘In this world nothing can be said to be certain, except death and taxes.” If you have been blessed with kids and you’re hoping to leave them a monetary token when you pass away, there is a forgotten child to be considered in the form of the taxman/woman! For people who have gained substantial wealth throughout their lifetime, this is important to consider, so that your estate does not need to be broken up and sold off in parts, in order to satisfy the inheritance tax bill that comes with your passing.
Author: Jo Ryan, Senior Financial Advisor, Trust Matters Financial Planning. To find out more go to www.trustmatters.ie
*All pension figures are based on current legislation and may be subject to change in future budgets.