To Save or Not to Save? Why is that a Question?

Top 3 Reasons to Save for Retirement Now

There are plenty of reasons (excuses?) for not saving for retirement, and most have some merit!

On the other hand, there are plenty of good reasons not to put it off any longer! Here are three to consider:

1. You don’t want to rely on the State Pension.
2. You have access to a tax-deferred retirement account that will reduce the taxes you pay.
3. The compound effect of investing in a pension account over time can give you a more comfortable and happier retirement.

Sound good? Let’s consider those three factors in more detail.

1. Younger workers should no longer assume that the State Pension will be available when they retire.  The Irish Fiscal Advisory Council have advised that it would cost the State an additional €370 million a year to provide for new state and public sector pensions between 2021 and 2025. Our ageing population, longer life expectancies and more people in retirement than in the workforce means there is less people paying PRSI to fund the State Pension. As the State Pension is paid from current PRSI receipts, if these trends continue it may not be sustainable in it’s current form in the decades ahead. It is now more important than ever to start thinking about how you will fund your own retirement.
2. The number of investment opportunities out there is infinite, but when it comes to saving for your retirement, your initial focus should be on maximising the tax reliefs available so that you can invest as much as possible from gross income. A pension scheme will:
   1. Reduce the amount of income tax on pay on your earnings.  
   2. Allow your investments to grow tax free.
   3. Allow you to take a portion of the fund as a tax free lump sum at retirement (potentially up to €200,000).

If you work for a company, you may have access to a pension scheme where your employer matches a portion of your contribution.

If you are a company director you may use the pension to transfer profits tax efficiently in to your own name.

3. The compound effect of investing in a pension account over time can give you a more comfortable and happier retirement.

• In a personal investment you could be paying exit tax at 41% or Capital Gains Tax at 33% on investment growth – there is no tax on investment growth within a pension so you are reinvesting more money..  
• The longer the money is invested, the more investment returns are reinvested.

Benjamin Franklin gave a very simple explanation of compound interest: “Money makes money. And the money that money makes, makes money”. So if you are going to have to save for your future, why not do it as soon and as tax efficiently as possible.

If you have any queries in relation to the above, please contact Harvest on 01 2375500 or justask@harvestfinancial.ie.

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