BY JOHN ELLIS, FINANCIAL ADVISOR
According to recent statistics and surveys we are, as a nation living longer. While Ireland is often spoken about as a country of young people, the over-65 population has grown by 35% in the last decade, more than three time the rate of growth in the overall population and faster than elsewhere in Europe.
The average life expectancy in Ireland is almost 83 years, a 2.5% increase over the last 10 years. Specifically, women in Ireland typically live longer than men, with an average life expectancy of 85 years, while men have an average of 81 years thus having significant implications for our pension system; we spend more years in retirement, requiring larger pension pots to maintain our standard of living throughout these extended periods.
What does this mean for your personal pension pot? What are the risks that need careful management to ensure financial security in your retirement?
The primary risk is you might outlive your pension savings. With retirement potentially spanning several decades, a larger pension pot is necessary to sustain the same lifestyle over a longer period.
Additionally, inflation can significantly erode the purchasing power of your savings, making it a challenge to cover living expenses, especially healthcare costs, which tend to rise with age.
Investment risk is a concern, as longer time horizons expose your pension pot to “more market cycles, including potential downturns”. Individuals need to balance the savings they make over the course of their working life with the cash flows they require throughout their retirement.
Here are three measures you can take to retire comfortably.
Save more
To overcome the risks associated with a longer life expectancy and to ensure that your pension pot lasts throughout retirement, increasing your contributions over time to your pension plan is crucial. Consider increasing your contributions when receiving a salary increase or a bonus. And with the generous tax allowances available this approach allows you to save more without feeling a significant impact on your take-home pay.
Manage investment risk
Most pension savers have no idea where their money is invested but usually its invested in their employers pension’s “default investment strategy” This strategy as you near retirement gradually moves your savings into lower-risk funds thereby reducing exposure to high-volatility assets over time and with at least five years to retirement will have the majority of your money in lower-risk assets such as bonds and cash, preserving your capital and reducing potential losses close to retirement.
Diversification
If you do take an interest where your money is invested there should be an option to spread your money over various asset classes which level out returns and provides more stable growth. This approach reduces exposure to market downturns and is crucial for maintaining savings over a longer retirement period as life expectancy increases.
All the above will provides piece of mind ensuring that you can focus on enjoying an extended retirement. Get in touch if you would like your pension reviewed.
086 8362633
