How Much to Save - Irish Pension Plan

Saving for retirement can appear daunting, after all, how do you know whether you are saving enough when you do not have much of an idea of how much you will need? Asking yourself how much money you need in retirement can seem synonymous to the question; how long is a piece of string? It is not always easy to establish the answers, but a reasonable estimate can be obtained if you ask yourself the right questions.

The following article is designed to help you to arrive at a ball-park figure with regards to the amount of capital you will need to retire with financial stability. There are various pertinent questions that you need to consider, evaluate and then act upon. They are as follows:

1. How do you imagine your retirement to be?
Is the retirement you are hoping for basically the same as the lifestyle you currently have? Or are you hoping that you will be able to improve your lot slightly? Possibly, you are hoping to retire early, are you willing to do this even if you need to off-set early retirement with a lower standard of living? There are no specific answers to these questions, they are personal and vary between individuals. However, understanding a little about your anticipated lifestyle once you retire is a critical consideration when trying to establish the amount of capital you will need to fund that lifestyle - and by answering the above questions you are one step closer.

2. What is your current annual income?

Consideration of your current annual income is a fundamental step when calculating your Irish pension plan contributions. If you want to maintain the same lifestyle in retirement, then you will need to know how much to save so that you receive the equivalent net salary. But bear in mind that by retirement you will probably see a reduction in outgoings, for example, you may have paid off a mortgage by then, in which case you will not need to match exactly your net income, but a certain percentage of it.

3. Are you eligible for the State Pension and how much are you likely to receive?

The monthly instalment from a State Pension can help you fairly substantially once you have reached pensionable age. You can contact the government in order to find out if you are currently eligible and how much you can expect to receive, although if you are many years away from retirement the figures may not be available.

4. At what age do you wish to retire?

If you retire earlier than normal retirement age then you should take into account, when establishing the amount of capital that you need, the fact that you are likely to have a longer retirement than most. In other words, you will need to have saved more to cover the additional years out of employment. If however, you retire later, then you will not need to save as much, plus you will have a longer period of time in which to save.

5. In what manner will you choose to invest?

You can make high risk, aggressive, investments in the hope of receiving a greater return on your money, although such investments are less financially secure they will mean, if they pay off, that you will have to make fewer contributions than individuals who opt for safer types of investment.

6. How far away from retirement are you? And, how much have do you already have by way of savings?

If you are relatively far from the age of retirement and you have already saved a fair amount of capital, then you will need to save less in the future than you would have had you left retirement planning until later. Plus, if you are placing your savings in a pension plan, because pensions have compound interest, meaning that any interest made is re-invested, the pension will make more money the longer it remains in place, so again, the earlier you start the better.

The advice set out here is not set in stone, everybody has different requirements and retirement is a matter of personal preference, still, you should make use of this information when planning for your future.

This article is based on the author's own observations and research and is not associated with any 3rd party organisations.

Rochelle Martinez, Freelance Web Content Article Writer for three years. Some of her articles are about money management, pensions and investments.