A = (rp x m) x ((1 + r/n)^(n × t) – 1)/(r/n))+ p × (1 + r/n)^(n × t).
This is the convoluted formula that determines the lifestyle you have in retirement via an Irish pension fund.
There are several components to it and each one needs managing so that you reach this stage of your life in the best possible shape.
Compounding growth i.e.compound interest,refers to the mathematical concept of interest earned.
Specifically, the interest being reinvested on top of the accumulating principal over and over and over for a defined term.
It’s the interest earned on the interest earned, which accelerates growth.
Its usefulness lies in its ability to project outcomes based on expected returns, which is a fundamental principle of investing and financial planning.
Seeing The Future
Some might argue that compound interest is simplistic.
Maybe it is, but it gives you a great indication to what’s possible when you maintain a consistent level of contributions and let your advisors manage the rest.
Theoretical or not, it’s important to note that compounding is always affecting your life whether or notyou’re harnessing it.
It’s a powerful force that can either grow the size of your pension or grow the size of your problem.
Tax Free Pension Growth
You can take full advantage of this investment principle through an Irish pension fund because everything invested gets to grow tax free for the entire term.
This allows compound interest to work to its fullest, unlike every other investment type in Ireland.
Other investment vehicles get hit with either Exit Tax at 41% every 8 years or Capital Gains Tax at 33% on disposal.
The reason you need it to work is becausea significant percentage of your final fund will need to come from investment growth.
That’s the whole point of investing it.
Your pension may have to last you 30 years so you need as much compounded growth as you can get to maximise the value of what you have.
A pension fund is the only vehicle in Ireland that grants you this potential in full so take full advantage while you can.
Making it Work
However, whilst powerful, the one thing that compound interest needs to work is time.
Lots and lots of time.
That’s why there is such an incredible advantage to starting your pension as early as possible.
The earlier you start, the more you can invest.
The more you invest, and the more compounded growth you get, the better this will be for your financial future.
See the potential benefits of compound interest in your situation here.
If you want to talk about it, then call me on 01 4423929 or email me at kevin@thepensionstore.ie
Pensions Are Complicated. We’ve Made Them Simple.