With complicated structures and tax treatments, pension planning can seem
daunting, however the trick to getting the most benefit from these tax free savings/investment plans is to follow these rules:
Contribute often – The most powerful thing you can do to build a sizeable pension pot is to contribute to it regularly. Sounds simple, it is, but this is the single most important thing you can do.
Contribute heavily – By contributing as much as you are allowed or failing that as much as you can afford from now to retirement, not only will you gain maximum advantage from the generous tax relief available but more importantly you will end up with a considerably larger final fund.
Contribute early– the sooner you start investing the longer the term you will have to retirement. So why does this matter? Firstly, a longer term will smooth investment returns. Secondly, your returns will have the opportunity to compound and hence become larger. Yes it would have been good to start at 25 but if you didn’t so be it. Start now. The longer your time horizon to retirement the better.
Invest in a diversified portfolio optimised for long term gains – Your pension is likely to be the single largest and longest term investment you will hold in your life time. Historical data suggests that long term returns will be quite predictable so the importance of having a considered investment strategy cannot be understated.
Accept that you need to take investment risk – There cannot be return without risk, the two are inextricably linked. If you are investing for the long term you need to accept some level of investment risk to at a minimum keep the spending power of your money the same but preferably to increase it.
Minimise costs – After investment return, costs will have the single greatest impact on your long term returns. They must be kept to a minimum. Structural optimisation can lead to enormous savings over the term of your investment. Likewise, charging on ostensibly similar pension products can vary greatly.
Ignore commonly held fallacies – Your house is not your pension. Your business is not your pension. An investment property and shares in a handful of Irish companies is not a diversified portfolio. Fund managers are not there to lose money for you. You do not have a greater insight into investment then investment professionals. I could go on.
Take advice - You will be richer for it. Yes, of course I would say this but the research is clear; those who take advice end up wealthier.
Outcomes from implementing the above principles:
An enhanced standard of living in retirement
Increased final wealth
Huge cost savings
A more predictable investment journey
If you are interested in optimising your pension we would be pleased to talk to you. Our clients are generally business owners, professionals and wealthy individuals and families. If you have considerable pension assets or feel your pension planning lacks cohesion we can assist, just get in touch.