023 8820748     financial@mcgfinancial.ie

Category : News

Why Are You Just Giving Your Money to the Bank?

We really sat up and took note of some analysis carried out by the stockbroker Davy into the Irish banks that was carried out a few months ago. The analysis found that there is €50bn (yes €50 billion!) sitting in current accounts in Ireland. Yes current accounts, not deposit accounts! And how much do the banks pay you for this money that they in turn lend out at meaty enough interest rates? Absolutely nothing…

Why is this money just sitting there? Well the main reason is that traditionally people may have moved spare cash to deposit accounts where they then earn interest on it. However with interest rates pretty much at zero today, people just aren’t bothering. Savers are being offered on average only 0.31% p.a. in deposit accounts and don’t see it as worth the hassle of filling out the forms, getting copies of this, that and the other in order to move your money on to deposit… So what should you do?

You may like the feeling of security of having money in the bank, where at least the actual value of it is not going to fall. But really this is not a good strategy, as any inflation at all means you are losing money in real terms. The good news is that there are alternatives out there that are worth considering, and different strategies that you can use to further minimise any risk.

We really believe that it’s in situations such as these that we can really earn our corn, when faced with a challenge of helping cautious investors find a slightly riskier strategy, and ensuring you are still able to enjoy a good night’s sleep…

 

Be clear about your objectives

Why are you actually saving money? Is it for a big holiday next summer or is it for your children’s education in 10 years time? Or indeed are you thinking about your retirement? Your goals and objectives will sit at the heart of our advice, as they determine the strategy. And maybe they will determine that putting your money on deposit is in fact the right thing to do.

 

Be clear about risk

Once we’re clear on your objectives, we need to get clear about your attitude to risk. If you are a very cautious investor, this requires a different approach than that followed by more aggressive investors.

Your appetite for risk (how much you like to take) and your capacity for risk (how much you can afford to take) need to be carefully determined, as these will fundamentally change the required investment or savings vehicle needed and the type of assets that you might invest in.

If you are a very cautious investor who leaves money sitting in your current account, we’ll run through some alternative ways of saving your money. While they might mean slightly more risk, we’ll give you some proper perspective on this – when it is explained fully to you, you might decide that the alternatives are definitely better than your current approach.

 

We won’t try and time the markets

None of us have a crystal ball and if we knew when markets are about to fall, well we probably would have retired long ago! Nobody can time the markets. And as a result, this introduces risk if you are going to put money into the markets. Of course you are worried that you might invest, and then markets might start to slide, resulting in you losing money.

If this is a concern, we might recommend that you drip-feed your money into the markets over a period of time. As a result, if markets fall, you are buying into the market at a lower price with some of your money. This is a great way of smoothing out some of the highs and lows of the market, if you have concerns that markets are a bit high. This strategy known as “pound cost averaging” means that you actually buy less of the market if prices are high and more of the market when prices are low.

At the end of the day, leaving money sitting in your current account makes little sense. There are alternatives out there for everyone. We would welcome the opportunity to chat through these alternatives with you, and find the right one to meet your specific objectives and your attitude to risk. And no matter what happens, we’ll do our best to make sure your sleep is not disturbed!

Your older self would tell your younger self, “Start your pension planning early!”

The eyes of young people often glaze over when the subject of pensions is raised. After all, pensions are for old people, aren’t they? Well yes, the payment of pensions only happens when you retire. However to get to that point, you need to build up a pension fund. And that certainly is not a task for old people, in fact it is very much a young person’s game! Starting your pension early in life has numerous benefits.

Tax relief

None of us enjoy paying tax. Yes, we understand it is a necessary evil if we want our country to function, but we all want to legitimately reduce our own tax burden, and funding for a pension is probably the most effective way of doing so. If you are currently a 41% tax payer and decide to put €1,000 into a pension, the government are effectively contributing €410 to your pension as a result of the income tax avoided. So you want to start benefiting from this important tax break as soon as you possibly can.

Tax free growth

In addition, pension investments are not subject to DIRT tax. If you save in a bank, any interest earned is immediately taxed at 41%, significantly reducing the growth of your money. However pension funds are not subject to DIRT tax, so your investment builds up free of taxes. So again, availing of this important tax advantage as early as possible will deliver significant long-term benefits.

You can achieve more with less…

Well it’s probably quite obvious but the longer that you pay into a pension fund, the more you can expect to receive when you retire and the more likely you are to achieve your financial goals. Be realistic about how much it will take to achieve your goals. As a rough rule of thumb, you should aim to save “half your age”. So if you’re 30 years old, you should aim to save 15% of your income each year from now until retirement to build up a decent fund. If you wait until you are aged 50 to start, you should then aim to save 25% of your income each year. Of course, this is only a rough calculation. We will help you develop a far more tailored picture for you, taking account of any existing benefits that you’ve already built up and will help you to implement a plan that is right for your particular circumstances.

You can probably take on more risk

A contribution made to a pension plan in your 20’s or 30’s has the benefit of time on its side to grow very significantly from the time it is made, to your retirement age. And because you have this time on your side, you will probably be more willing to take some risk with your funds, with the aim of achieving higher growth rates.

These higher growth rates may be achieved through investing in the likes of equity (stock market) funds. If you had invested in the S&P 500 Index of shares from 1st January 1985 to 31st December 2014, your investment would have achieved a Compound Annual Growth Rate (annualised return) of 11.40 per annum over the 30 year period! Now of course previous returns are not necessarily a guide to future performance, but they give a sense of what can be achieved over a long timeframe. And on top of this, you then have the impact of compound interest…

Compound interest has a huge effect

The “Rule of 72” is a simple maths equation to determine how long an investment will take to double, given a fixed annual rate of interest. All that you have to do is divide 72 by the expected rate of return. The answer is the number of years it will take for the amount of money to double.

  • If you are young, aiming for a return of (say) 8% p.a., it will take 9 years for your investment to double (72/8% = 9 years)
  • However if you are older and rightly more cautious, you may only be aiming for a return of (say) 3% p.a. In this case it will take 24 years for your investment to double (72/3% = 24 years).

So starting early, having the opportunity to take on a bit more risk in the hope of achieving higher returns and then having the benefit of time can have a seriously positive impact on your pension fund. It really is a case of starting sooner rather than later! And then hopefully when retirement comes around, you’ll be able to put the feet up and enjoy your wisdom of youth!

It’s not all about Financial Products you know!!

Many of our clients approach us with pretty regular queries in relation to personal financial planning. You seek out our help in developing a financial plan, building a risk appropriate investment portfolio, planning for your retirement and protecting yourself, your family and your business against unforeseen events.

But sometimes our clients approach us about other financial challenges they might have, or indeed simply want to bounce ideas off us! We’re delighted to help and give you an opinion if we can. And if we can’t help you directly ourselves, we often know someone who can actually help you.

Here are some of the areas we’ve been asked about.

Tax Advice for Individuals

Business owners and professionals will usually have an accountant. Most PAYE workers don’t. That doesn’t mean that you can’t benefit from tax advice; some of you may want help in completing your tax returns, others may want general tax advice. We’ve been asked many tax questions over the years. With some of these, we may be able to give you the answer. However if we can’t help you ourselves, we have relationships with some accountancy and tax firms that will provide you with the services you need.

Advice about Bank Accounts

We came across a situation recently with a client where neither their bank manager nor their accountant had spoken to them about the importance of having multiple signatories on their bank accounts, both personal and business accounts. We believe that this is simple, practical advice in most situations, but of course each situation should be looked at on it’s own merits. Unfortunately in this particular case the client died and his wife ended up in an awful situation of being unable to access his / their money without jumping through all types of legal hoops… This is an area you should consider – would a death or incapacity of one of you be made worse by being unable to access cash in bank accounts?

Enduring Power of Attorney

This is a legal document that can be set up by a person during their life when in good mental health. It allows another specially appointed person to take actions on their behalf should they become incapacitated through illness in the future. This prevents assets being frozen and going under the control of the courts and allows the person acting on your behalf to make a range of personal care decisions on your behalf.

Anyone who has been through this situation, needing to access the assets of a relative who has lost their mental capacity (e.g. to pay for their care) will know the value of having an enduring power of attorney in place. It can be incredibly frustrating being unable to carry out simple actions on the person’s behalf without it.

At the same time, many people also draw up a “Living Will” which captures their preferences in relation to areas such as end of life care, their preferences in terms of resuscitation etc. when very ill or close to death.

We suggest that you give this some thought and if it is something you want to progress; the best place to start is with your solicitor. They will talk you through the process and then draw up the papers that are needed to put the enduring power of attorney in place.

A Will

Yes we still come across clients from time to time who don’t have a will in place. We always strongly suggest that you get this in place. It is a relatively simple process, usually carried out with the help of a solicitor. However the benefits are significant. It enables you to ensure your assets are distributed as you intend on your death and that this process is carried out as painlessly as possible.

These are just some of the areas that we’ve been asked about. While our primary role is to help you build a robust financial plan and then put in place financial solutions to achieve your financial objectives, we’ve a pretty broad perspective of a range of related areas. So don’t be afraid to ask! As we said earlier, if we can’t help you, we probably know someone who can.

Are pensions only good for tax breaks?

I think it’s true to say at this stage that most people are aware at some level of the significant tax benefits of pension planning. However, apart from obviously securing your lifestyle in retirement, are the tax benefits the only reason that pensions are good for you, or are there other reasons to start or continue your pension planning?

Quick recap of the tax benefits

The tax benefits of pension planning are significant and except for high earners, have been left relatively untouched. The main benefits (within certain limits) are;

  • Full tax relief available at your marginal rate on contributions
  • Your fund grows free of tax (no DIRT, CGT etc.)
  • A portion of your fund can be taken tax free at retirement
  • A structure can be put in place at retirement (Approved Retirement Fund – ARF), which enables tax efficient wealth transfer to your estate on death with any remaining fund.

However there are many other factors that make pension planning very attractive. Here are a few factors that increase the need for pensions, followed by an opportunity that is available to many self-employed individuals and company directors that passes some people by.

Life expectancy

Life expectancy has been increasing steadily in Ireland and is now 78 years for males and 82 for females. While this is undoubtedly good news, unfortunately it means that we will all need a bigger nest egg to see us through our golden years. More and more people will now be retired for 25-30 years. What size pension fund would you need to maintain your lifestyle for that period? Many people seriously under-estimate the size of their required fund to maintain a chosen lifestyle over such a long period of time.

State pension rates not increasing

Unfortunately long gone are the days when the annual budget heralded a small increase in the state contributory pension in line with inflation. In fact there hasn’t been an increase since 2009, with it currently stubbornly stuck at €230 per week and little prospect of an increase coming any time soon… Indeed in recent budgets, we saw a further whittling away of benefits enjoyed by pensioners, with more restricted access to medical cards and the removal of the phone allowance etc. This basically devalues the pension every year, making it even more important for people to carry out their own retirement planning.

Waiting longer for the State pension

One of the cutbacks in recent years, which received little attention, was the pushing out of the State pension age from 65 to 68, in instalments. The first cut happened in January 2014 – since then individuals have to be aged at least 66 to qualify for the Pension. From now on it increases in instalments to 68, depending on when you were born. The bottom line is that if you were born after 1960, the changes in comparison to pre-2014 mean that you have lost out on 3 years State Pension (say about €36,000 in today’s terms) or 2 years (say about €24,000) if you’re self employed. So if you are still planning on retiring at age 65 or before, you will have to fund for this lack of state benefits for these years yourself. A pension plan is probably the most appropriate and tax efficient way to do so.

And now for that opportunity!

Employing your spouse and gaining valuable tax and pension benefits

If you work for yourself but your spouse currently doesn’t work in the business, it may make financial sense for him or her to get involved in the business. There are a number of tax and pension planning advantages in your spouse working in your business in return for a taxable income:

  • As a married couple with two incomes, up to €67,600 of taxable income is subject to standard rate tax, but the limit for a married couple with one income is just €42,800. This means more of your total income is taxed at a lower rate if you are both working.
  • If you’re in a partnership or your business is a company, your spouse’s employment by your business may be insurable for PRSI purposes, which means he or she may qualify for a State Pension, or for a higher pension, in their own right in respect to these additional PRSI contributions.
  • The business may be able to set up an employer pension arrangement for him or her, and any contributions the business pays into it will be tax deductible as a business expense, within certain limits, without causing a Benefit in Kind for your spouse. Some or all of this retirement fund could be taken tax free by your spouse when he or she retires, subject to certain restrictions.

The Need for Advice

These are just a few thoughts on the value of pensions, over and above the much heralded tax benefits. Pensions are a very complex area, unnecessarily so in our opinion! As a result, it is our job as an adviser to clarify and find the right solution for clients. Please give us a call to help us find the right pension solution for you.

The language of Investments made simple

Spending all of our time advising clients in relation to their investments and pensions, researching markets and investment propositions, and meeting fund managers and investments specialists comes with a significant occupational hazard: the use of jargon!

So first of all, our apologies if you have been on the receiving end of jargon from us. We’re now going to put that right by explaining some of the main terms that we commonly use in relation to investment markets, to ensure we all have the same understanding of them.

Asset Classes

This is a term that is used to describe the different types of underlying investment funds that make up a typical investment portfolio. The most popular asset classes include the following;

  • Shares or Equity: Equity funds buy a fraction of the ownership of a range of companies. These shares (to denote a ‘share’ in the ownership) are typically traded on a stock exchange.
  • Bonds: Companies or governments issue these, where they effectively borrow money from investors in return for an agreed rate of return over an agreed period of time.
  • Cash: In a cash fund, the manager places money on deposit with a bank, across a range of varying maturity dates. This was seen as an absolutely secure means of investing, for which the returns gained are generally quite low. However as we’ve seen in Greece recently and their banking challenges, nothing is 100% secure…
  • Property: This is where an investment fund (usually) buys a number of properties and the performance of the fund is dependant on the rise or fall of the value of these properties and the income they produce from rent.
  • Currency: In a currency fund, the investment is based on the performance of a number of currencies in relation to each other. A specialist manager identifies opportunities based on his/her knowledge and expectation of currency movements.
  • High Yield funds: This is another type of equity fund that is made up solely of shares in companies that have a common characteristic – a history of having paid and/or an expectation of higher than normal levels of dividends in the future.
  • Absolute Return funds: These are funds that use complex investment instruments to invest in a range of asset classes. By using these instruments and investment methods, they can produce positive investment returns in both rising and falling stock markets. This approach is utilised widely by hedge funds.

Most investors don’t want to “bet the house” on the performance of a single asset class or worse still, the performance of a single share price. As a result, we would usually recommend a diversified portfolio to investors. Rather than having all your eggs in one basket, this approach spreads the investment amount over a number of asset classes, and within each asset class over a number of underlying investments. The aim is that if one company / sector / region / asset class underperforms; the whole investment is not significantly affected. People in Ireland who had a significant amount of their investments tied up in property in 2007 / 2008 probably rue not having a more diversified portfolio.

Portfolio Management Strategies

Active management is where a fund manager makes investment decisions in relation to investment assets with a view to outperforming an investment benchmark or peer group. In this strategy, they use their knowledge and expertise in relation to stock picking and market timing with the aim of beating their competitors.

Passive management on the other hand removes this need to get timing and stock picking right. Instead the investment fund simply mirrors the investment make-up of the benchmark to produce similar performance to the benchmark and achieve average returns. This reduces the risk of outperformance or underperformance against the benchmark. This investment strategy has gained in popularity, as seen through the growth of a range of index-tracking funds.

Investment Styles

The two most popular investment styles are value investing and growth investing.

Value Investing is where the fund manager seeks to buy shares or other securities that appear to be under-priced or “cheap” when they examine the shares using their investment analysis tools.  Warren Buffett has long been a proponent of this investment style.

Growth investing on the other hand is where fund managers invest in companies where they expect significant growth in the share price, even where the share price may look expensive using their investment analysis tools. This investment style fell out of favour somewhat after the dot-com bubble burst, where the expected growth of companies never materialised.

These are just a snapshot of some of the most often used terms / jargon used by us in discussing investments with clients. There are of course many more, and please never be afraid to ask us to slow down and explain them fully to you!

However it is of course one thing understanding the terms, another altogether knowing which is the right approach for you. But that is where our expertise comes in, understanding your specific investment objectives, determining your appetite and attitude in relation to taking risk and then guiding you towards the best investment solutions to fit your own requirements. You just can’t beat good, independent advice!

If there are any other terms that you would like explained, please just ask!

Is Independent Advice all it is cracked up to be?

You hear a lot in the media when they discuss personal finance issues, about the importance of getting independent financial advice. Is it so important that the advice you get is independent? We believe it is…

To give you a sense of why it is so important, it’s probably useful to briefly cover what we mean by independent advice. This is advice that is given to a client on the basis that any product recommendations that may emerge, will deliver the very best product available in the market for the client. Independent advice is delivered by professionals, with access to products right across the market. These are usually financial advisers such as ourselves!

Non-independent advice is typically delivered by banks and direct sales forces from life assurance companies who only sell the products of a single company, irrespective of whether that is the best product in the market or not.

So why is your relationship with your independent financial adviser so important?

We’re here for the long haul

This is what we do; we provide independent financial advice. Our expertise is helping you manage your finances, grow your wealth, plan for your retirement and provide financial security for your family. We want to build up a professional, trusted relationship with you now and for many years to come, helping you achieve your financial goals. If we can help you do that, we’ll be successful too!

We don’t lend money, we don’t give out credit cards and we don’t hold your money on deposit. Banks are (supposed to be) good at that, as that is their role in your financial affairs. However are you going to build up the same trusted relationship with them as the provider of financial advice to you, where the person you deal with potentially changes from one meeting to the next?

Our advice is based on you

The critical requirement of financial advice is that it is based on your specific needs. Your current financial situation, your financial objectives, your attitude to risk. We spend a lot of time at the outset building up our understanding of you, as the time invested here reaps rewards as we progress. You see understanding your needs is the cornerstone of any recommendations we might make. Once we clarify these needs, then we can go out to the market to find the very best product for your specific circumstances, giving you the best chance of achieving your financial objectives.
The product provider is secondary

Of course the provider of your financial product is important, maybe that is a life assurance policy, a pension plan or an investment fund. But where you are getting independent advice, the provider is secondary. Because we ultimately have access to products across the market, we don’t have to start with a particular product and try to “force fit” your circumstances to make them suitable for the product. We’re not biased towards one provider, instead our product choice process starts with you. We identify your particular need and identify the right product in the market for you.

Of course underpinning this is the due diligence that we carry out on the products in the market, ensuring that they are all that they are supposed to be. As a result we recommend products based on a wide range of factors including;

  • Provider security
  • Price and charges
  • Product features
  • Investment range and methodology
  • Investment performance
  • Claims payment record
  • Customer service levels

And similar to everything else in the world, this landscape constantly changes. So we are constantly updating our knowledge of providers and their products and refining our recommendations as a result.

We do the legwork

Managing your financial affairs properly is a complex business. Gathering all your personal information and keeping this up to date, making sense of your assets & liabilities and your income & expenditure, getting all the information in relation to any existing financial products and turning all of this into a financial plan takes time. And then you need to stay on top of this, and keep it updated every year to ensure that your plan stays on track and that your financial objectives remain within reach.

You can try to do this yourself, however in our humble opinion we are probably more skilled and quicker at doing this for you, as this is what we do, day in and day out. We are qualified professionals who have trained for many years to provide this advice to our clients. All carried out with the aim of finding the right solutions for you.

We are your trusted adviser

At the end of the day, you want to ensure that you have an adviser with your best interests at heart, free from any bias. When you’re sick, you go to the doctor, if you need legal advice, you go to a solicitor. When you need financial advice, you should visit an expert financial professional. That person is your independent financial adviser.

Life Cover – “Surely that’s only for older people?”

Experience in the life assurance industry shows that most life assurance policies are taken out by people in their 30’s, 40’s and to a lesser extent in their 50’s. There is a very low uptake of life assurance by people in their 20’s who think; “I don’t need it now, I’ll buy it when I need it.”

We believe that it’s time to look again at all the possible things that can go wrong with this line of logic, and ask you to consider these points for yourself (if you’re fortunate enough to still be in your 20’s!) or indeed to advise your children to think about.

You are fit and healthy now

Typically when you are in your 20’s, you’re in the prime of your life!
You’re fit and healthy, and when it comes to life assurance, you have the choice of benefits, all of which can be purchased at ordinary rates, without loadings or exclusions.

Being overweight is a very common reason for additional loadings being applied to life assurance premiums. When you are young, your Body Mass Index (BMI) is less likely to incur additional loadings than in the future as some of us spread out a little bit!

You also must remember that your ongoing good health is not guaranteed. Many illnesses don’t raise their ugly head until later in life. Once you are diagnosed with an illness, it may affect your access to life assurance in the future, either altogether or possibly at normal premium rates.

So taking out life assurance while you are young gives you the best chance of getting cover at rates that are not loaded because of any health issues that you might have.

Your relatives are (more likely to be) fit and healthy

In a similar theme to the above point, the health of your immediate family is an important factor in determining your premium rates. When you are younger, your parents and siblings are of course also younger and as a result, you are less likely to suffer a premium loading based on family history at this stage.

Common Family History issues that can complicate an application for cover include cancers, heart disease, a stroke, haemochromatosis, multiple sclerosis and a range of other serious conditions.

You have not yet have taken up a hazardous activity.

There are a range of activities that can impact your access to and price of life cover if you carry them out, or are planning to carry them out at the time you take out the cover. These would include the likes of;

  • Working in a High Risk Area (eg: Libya, Chad, Nigeria, Colombia etc.)
  • Scuba Diving
  • Private Aviation

These types of activities can result in premium loadings, exclusion of cover if your death is related to these activities, or in some cases complete declinature of cover. It is quite possible that in your 20’s, you don’t carry out or plan to carry out any of these activities so you will be able to get cover at the most competitive rates.

You have not yet undertaken advanced diagnostic screening

As we all get a bit older, we begin to recognise our own mortality and most people start to pay more attention to their health. Many people as a result go for health checks. This is a great idea as they can pick up any potential issues that you have and enable you to deal with them as early as possible. However advanced screenings can also pick up incidental findings that can affect future life assurance applications.

So while undergoing the likes of ECG’s, MRI’s or Echocardiograms can be crucial to your ongoing health, you need to recognise that they may result in findings that can impact your access to life assurance. At the end of the day, you are less likely to be getting these diagnostic tests done in your 20’s.

Protect yourself against policy changes

Events happen in the life assurance industry that can impact the price of cover too! For example, the 1990’s HIV scare resulted in an approx. 15% increase in premiums overnight. So getting cover in place early can protect you against such sudden premium increases.

And of course cover is cheaper

I purposely left this point until last as the earlier points are equally important! But yes, cover is cheaper at these earlier ages, so getting the cover in place early secures these lower premiums.

“But I don’t need it now”

We hope that the above points have given you some food for thought as to why it might be a good idea to get cover in place now. Also, we’re here to find the most appropriate cover for you. So for example, if you are in your 20’s, we might consider cover with Life Events Options that allow you increase your cover (within limits) without further medical evidence at that time when buying a new home, when getting married or having a baby.

At the end of the day, that’s what we’re here for – to find you the right cover, at the right time, to suit your specific circumstances and needs.

Ballybunion Golf Club Junior Scratch Cup

MCG Financial was delighted to be a sponsor for the Ballybunion Golf Club Junior Scratch Cup, which was held on May 24th. Over 200 players took part in the event and a great day was had by all!

This is the second year that MCG Financial have sponsored this event, and we are delighted to say that we have committed to sponsoring the same event again next year!

Here are a few photos from the event:

DSC_1953 DSC_1957

Pensions – Keeping The Dark Clouds Away From Your Later Years

The economy is recovering, incomes are starting to creep up again and hopefully you have some spare money that you are considering how to make the most of. Maybe your pension planning took a bit of a back seat during the last few years and it’s time to start thinking of planning for your later years again.

The tax benefits of pensions are well heralded. Tax relief at your marginal income tax rate (either 20% or 40%) continues to apply to your pension contributions, one of very few areas that continue to qualify for such attractive reliefs. Also the dreaded pensions levy which was effectively a tax on all our savings for the last few years finishes at the end of 2015. So from a value point of view, it’s hard to argue against pension plans.

But still when it comes to the subject of pensions, the questions we’re asked most regularly are;

  • Do I really need a pension?      and
  • Are pension plans the best way to plan for my old age?

We firmly believe the answers are YES and YES! Structured pension planning is far and away the most effective way to keep the storm clouds away from your later years.

Do you need a pension?

Well unfortunately none of us are getting any younger and even though retirement may seem like a distant event, steps that you take now will determine your lifestyle in your later years. At the end of the day, it’s really all about building up a war chest for when you stop working. The bigger this pot is, the better your lifestyle will be when your income stops.

Some good (and bad!) news is that we’re all now living longer than before.  Men are now living on average to age 78 and women to age 82. We can thank our healthier lifestyles, better diets and medical science for this! While this is certainly good news, it also comes with a price. If you live longer, you need a bigger nest egg to see you through these years.

Will the government look after you?

Unfortunately you can’t rely on the state if you want any more than a subsistence lifestyle.  The state (contributory) pension is currently €230.80 per week for a single person and €436.60 per week for a couple and these amounts haven’t changed in years. Not a lot of money if you fancy going on the odd holiday! Also the state has already started pushing out retirement dates – for anyone born in 1961 or later, they won’t get their state pension until age 68.

On top of this, the government actually hasn’t saved any money for future pensions. So as the numbers of those working reduces in relation to the numbers of pensioners receiving benefits (as our demographics show they will), there will be less money for the government to pay out. So what can they do? Well first of all, they can increase PRSI to bring more money in to pay out in benefits. Or else they can reduce the benefits or indeed introduce means testing of state pensions. The likelihood is, it will be a combination of these sort of remedies.

The reality is that it’s up to us to look after our own retirement needs if we want a nice lifestyle to enjoy.

Are Pensions the right way?

We know that pensions are a complex area and this puts a lot of people off. However working with a good independent financial adviser will help you cut through this complexity. We can help you identify the right pension structure for you to ensure that a pension plan meets your needs in later life. Pension plans today can be extremely versatile and tailored to you to ensure you maximise the benefits by;

  • Investing in assets that meet your risk appetite.
  • Investing in a wide diversity of assets to minimise any investment “shocks”.
  • Gaining tax relief (still at the marginal rate!) on your contributions.
  • Seeing your pension fund grow, free of any taxes.
  • Availing of a tax-free lump sum of part of your fund at retirement.

What do you do next?

Well it’s probably quite obvious but the longer that you pay into a pension fund, the more you can expect to receive when you retire and the more likely you are to achieve your financial goals. So don’t delay.

Also, be realistic about how much it will take to achieve your goals. As a rough rule of thumb, you should aim to save “half your age”. So if you’re 38 like me 😉 you should aim to save 19% of your income to build up a decent fund. Of course, this is only a rough calculation. We will help you develop a far more tailored picture for you, taking account of any existing benefits that you’ve already built up and will help you to implement a plan that is right for your particular circumstances.

And really this last point is the key to it all. Helping people to develop tailored solutions to address your retirement needs is meat and drink to independent financial advisers such as us. Talking to someone who is independent is crucial. Independent financial advisers devise solutions and recommend products that best meet your needs, as we have access to all the products in the market. Unlike a bank or a direct seller, we are not forced down the route of recommending a particular product of one institution.

So in summary, you’re hopefully going to be retired for a very long time. How well you can enjoy this is up to you, as you can’t rely on the state. Remember all the benefits of pension plans. Oh, and make sure you get independent advice.
(Photo courtesy of Flickr user brainware3000)