Planning for retirement is one of the most important financial goals in life. Starting a pension is one of the smartest decisions you can make. It could help ensure a brighter, better future to look forward to. But knowing if your pension is on track is also crucial to ensuring a comfortable and secure future.
Many people put off thinking about their pension, only to find themselves scrambling to catch up as retirement looms. The earlier you start assessing your pension’s progress, the more flexibility and time you will have to adjust and secure your investment.
Here are a few key steps to help you understand if your pension is on track.
1. Set Clear Retirement Goals
The first step in knowing if your pension is on track is understanding what you want your retirement to look like. You may have thought about this when you started your pension but ask yourself again:
- At what age do I plan to retire?
- What will my lifestyle be like in retirement?
- How much income will I need to maintain that lifestyle?
It’s important to set realistic expectations so you can tailor your pension contributions accordingly. You might start by estimating that you’ll need around 70-80% of your pre-retirement income to maintain your standard of living, although this varies depending on personal circumstances.
2. Calculate Your Expected Retirement Income
Once you know your goals, you need to determine how much income your pension will provide. Your retirement income may come from several different sources:
State Pension This is the basic income provided by the government. The maximum current state pension (October 2024) is €14,400 per annum.
Occupational Pension If you’re part of an employer’s pension scheme, review your pension statements regularly. These statements usually provide projections of how much income your pension pot is expected to generate.
Personal Pension You may have a personal pension or PRSA so check how much these are estimated to provide.
Other You may also have property, savings or other investments that you wish to use as part of your income in retirement and you need to assess what role these will play.
There are several online retirement calculators that you can use to get an estimate of how much these income streams will provide, based on your current contributions, expected growth, and retirement age. These allow you to project different scenarios based on various retirement dates or contribution levels.
3. Review Your Current Pension Contributions
It’s important to regularly review how much you’re currently contributing to your pension plan. This will vary depending on when you started your plan and how long you have until your retirement. If your pension contributions aren’t aligned with your retirement goals, there’s time to increase them. You can also look at maximising any employer matching that is available to you if you need to.
4. Monitor Investment Growth
Pensions involve long-term investments, and the growth of these is critical to ensuring your pension stays on track. Regularly reviewing how your pension is performing is essential. Are the funds you’ve chosen growing at a rate that’s consistent with your retirement goals? If not, it may be time to reevaluate your investment strategy.
5. Factor in Inflation
As with any savings and investments, inflation can significantly erode the value of your pension over time. Even modest inflation can reduce your purchasing power in retirement. When calculating your retirement needs, be sure to factor in inflation. Most pension projections will include inflation, but it’s important to check this so that your pension pot doesn’t fall short when you don’t expect it.
6. Revisit Your Pension Plan Regularly
You should revisit your pension plan regularly to ensure it’s still aligned with your goals. Life events like a change in salary, marriage, the birth of a child, or paying off a mortgage can all impact your retirement planning and financial situation. Make it a habit to review your pension plan annually or after major life events to ensure it’s still on track.
It’s great if you have a pension plan set up and are making regular contributions. But remember that’s not a retirement strategy. It’s important to regularly check in on your pension investment to ensure it is on track. This allows you to make any adjustments necessary in good time. For help with any aspect of your retirement planning just get in touch with our team, we’re here to guide you towards a secure and prosperous retirement.
