Goals have the power to transform your life if you have something you’d like to achieve.
But in order to set an effective goal it needs to be purposely designed so that;
– There is a strong emotional reason for attainment,
– It has a clearly defined outcome,
– A specific deadline for achievement,
– A clear understanding of what’s required to make it happen,
– The cost of failure is known and is the motivation to keep going.
Ok, so how does this relate to pensions?
Goal Based Retirement Planning
Everyone wants a comfortable lifestyle in retirement but most people don’t have a financial plan to achieve it.
This is a problem since vague plans don’t work which is reflected in the fact that the average Irish pension matures at €107,000.
And the problem is that it’s easy to change this so if you don’t have a particular goal in mind, then start with this…
The €400k Goal
Why €400,000 you might ask?
Well, that’s the magic number for a tax-free pension income.
You see, when you reach the age of 66 in Ireland, with a financially dependant spouse, two things change;
1) You can earn up to €36,000 a year tax free
2) You can receive up to €24,000 a year if you qualify for the full adult dependant state pension.
These two together mean that, in the absence of any other income, you have the scope to earn an additional €12,000 a year tax-free.
And, as it so happens, this is where a €400,000 fund neatly plugs the gap.
That’s because, using a standard 4% annuity rate, your €400k fund could be distributed as follows;
1) The first €100,000 can be taken as a tax free lump sum, and
2) The remaining €300,000 can be used to provide you with a guaranteed annual income of (€300,000 x 4%) = €12,000 each year for the rest of your life.
That’s a €1,000 a month of guaranteed, tax-free income each and every month until you die.
This is a great goal to have because, apart from the fact that you can look forward to a net €3k a month lifestyle, you will also have made the most of the tax system because you will be getting;
– Up to 40% tax relief on your contributions all the way along.
– A BIK exemption on company contributions for directors.
– Tax free investment growth for the entire term.
– €100,000 tax free lump sum at retirement.
– €12,000 tax free income each year for life.
…that’s how you make tax work for you for a change.
The Canadian Psychologist, Dr. Jordan Peterson, has a powerful life exercise where he gets people to vividly illustrate their dream future and nightmare future on a single piece of paper.
The dream future being the one where you achieve all of your goals and your nightmare future being the one where you don’t.
It’s purpose is to blend two powerful, internal motivations so that you maintain consistent forward motion.
One pulling you towards the outcome you want and the other reminding you of the consequences of not making progress.
Having a financial plan for your future is very important but it’s also very easy to ignore because it lacks the urgency of today’s priorities.
That said, the ongoing decisions you make will ultimately determine whether you retire with a bountiful asset or not.
Click here to see 5 versions of your dream future in 30 seconds.
Sacrifice or Regret?
When I talk to my clients I usually recite this famous Jim Rohn quote.
“We must all choose between one of two pains in life – the pain of sacrifice or the pain of regret. The difference is that sacrifice weighs ounces while regret weighs tons”
We all want to make sure that we have something to show for our career when it’s finished but starting new goals can be very difficult.
But, to start changing your financial future, all you need to do is fill out this short form.
Nothing might come of it but at least you’ll have made some forward progress!