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Your Simple 3 Point Retirement Plan.

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Jan 16

Most people won’t have the financial freedom they would like for retirement because they don’t have a plan in place to achieve it.

If you want a comfortable retirement then you need to have a clear financial goal to aim for.

If you don’t have one, like the vast majority of investors, then the following 3 questions can help you put a structure on your future requirements.

Ultimately, your retirement decision will arrive at the acceptable point of intersection between these three variables;

  1. When Do I Want to Retire?

This is the one variable over which you will have the most control. Not total control mind, because some retirements happen sooner than expected.

That aside, the starting point for any retirement plan is in deciding when you want to retire.

For most people, this tends to be a balancing act between the desired retirement age and the one that’s most realistic.

Don’t feel too bad if there’s a big gap here because, for most people, there’s normally a considerable distance between the two.

Circumstances will ultimately dictate your decision but if you fancy the idea of going at 60 then you will need to have a fund that’s sufficiently large to support you for those extra 8 years before you the state pension kicks in.

It’s also important because the earlier you retire, the less time and resources you will have to accumulate a fund. And, the longer you’re retired, the longer your fund would need to last.

So, the longer you can postpone it the more the numbers will start to work in your favour.

  1. How Much Income Will I Need?

“How much do I need in a pension fund?” -This is the most common question that people ask.

Since the right answer is subjective the best response to that is -“it depends on how much of an income you want out of it”

That might seem a little vague so here’s a way to get some perspective. 

If you qualify for the full state pension – currently €1,100 a month – then each additional €1,000 you want on top will require about €300,000 in a pension fund to provide it.

So, the answer to that question will be determined by your answer. Once you know how much extra you want, then simply multiply that figure by 300.

300/1 is a good ballpark ratio since it equates to the current annuity rate of 4%.

And while 4% might be historically low for annuity rates, it is, nevertheless, the most widely accepted rate for sustainable withdrawals from a post retirement investment fund or Approved Retirement Funds (ARF’s) as they’re known in Ireland. 

Withdrawal rates in excess of 4% tend to accelerate the depletion of these investments…but that’s a topic for another day.

But, for now, this 300/1 is a good way to focus your mind towards the size of fund you should be aiming for.

  1. What Will My Assets be Worth?

This is the important one since 100% of your options at the point of retirement will be determined by the value of the assets you arrive with. 

Therefore, the aim of your plan is to get here with as much as possible.

The current fund limit – called the standard fund threshold (SFT) – is set at €2 million meaning that anything in excess of that gets taxed at the highest rate.

A nice ‘problem’ to have, obviously. Now, while you might not reach that lofty figure, it should be apparent that the more you have in your fund the better.

For example, if you stop working at 65 and live to 90 then your fund would need the capacity to sustain 300 monthly withdrawals.

The more cash you have at your disposal the longer it should last.

And the more cash you have the more you will be able to enjoy this time in your life.

If you’re unclear about what’s possible then simply click here to use our free online advisor to see your options in 30 seconds.

Check your situation here and give me a call on 01 4423929 or email me at kevin@thepensionstore.ie if you want to have a chat about it.

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