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Planning for retirement is a crucial step in ensuring financial security for the future. However, many people avoid investing in pension plans due to popular myths.
In an ever-evolving environment and with information overload, misconceptions can easily cause you to lose direction. Debunking these myths is essential for making informed decisions about your retirement.
In this blog, we’re busting some of the biggest myths about pensions and providing you with the accurate information you need to confidently plan for a secure and comfortable future.
Myth: I’m too young to worry about pensions.
Truth: The Earlier You Start, the Better
A common myth is that pensions are only for older individuals. In reality, the earlier you start planning for your retirement, the better.
Starting a pension plan early allows your investments to grow over time, leveraging the power of compound interest. Even if you’re in your 20s or in your 30s, it’s never too early to think about your future financial security.
Even small contributions made early in your career can grow significantly over time.
Myth: I’ll Lose My Pension if I Change Jobs
Truth: Pensions Are Often Portable
When leaving your employer or changing careers, you might have several options regarding your pension. The best choice often depends on how long you’ve been a member of the company’s pension plan, as the benefits and implications can vary significantly depending on how long you have been a member.
If you have more than two years of pensionable service, you can choose to leave your pension in your former employer’s scheme, transfer it to a Personal Retirement Bond (PRB), or move it to your new employer’s Occupational Pension Scheme.
If you have less than two years of service, your options include keeping your funds in the former employer’s scheme as a Deferred Member, potentially retaining full entitlements from both your and your employer’s contributions, opting for a refund of your contributions (subject to tax), or transferring your contributions to your new employer’s scheme or a PRB, depending on the scheme rules.
Understand each option in detail by reading our article, “What Happens To Your Pension After Leaving Your Job?“
Myth: The State Pension will provide all the pension I need
Truth: State Pensions Are Only a Basic Safety Net
Relying solely on state pensions is risky, as they are designed to provide a basic standard of living rather than full financial security.
State pensions can form part of your retirement income, but they should be supplemented with personal or employer-provided pension plans to ensure a comfortable retirement.
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Myth: I’m too old to start a pension
Truth: It’s Never Too Late to Begin
Many people think that it’s too late to start a pension if they haven’t begun by a certain age. However, it’s never too late to start planning for retirement.
While starting early is ideal, even beginning to save for retirement later in life can still make a significant difference.
Many pension plans offer options for catch-up contributions, such as Additional Voluntary Contributions (AVCs) and tailored advice to help you maximise your savings, regardless of when you start.
Talk to one of our financial advisors at True Wealth to build a retirement plan that suits your needs and expectations.
Myth: Pensions Are Too Complicated
Truth: Pensions Can Be Simple and Straightforward
Contrary to the belief that pensions are too complicated, they actually come with straightforward benefits and flexible options.
When you contribute to your private pension, the government provides tax relief, which means your contributions are deducted from your taxable income. This reduces the amount of income subject to taxation, making it easier to save more for retirement.
For instance, if you’re in a higher tax bracket and contribute €1,000 to your pension, you could receive €400 in tax relief, effectively lowering your contribution cost to €600.
Additionally, private pensions offer you control over your retirement savings. You can choose how your contributions are invested, aligning your pension plan with your financial goals and risk tolerance. This flexibility and the potential for tax relief can significantly boost your retirement savings over time, making pensions a practical and beneficial option.
We can guide you through the world of pensions and help you create a retirement plan tailored to your needs and expectations. Our team is here to simplify the process, providing clear and concise information to help you understand your options.
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Myth: My pension dies with me
Truth: Pensions Can Provide for Your Loved Ones
The outcome of your pension plan depends on whether you die before or after retiring and the type of pension you have.
Understanding these details helps you make informed decisions for your and your loved ones’ future, ensuring that you are prepared for all eventualities and can maximise the benefits for your beneficiaries.
For more information on what happens to your pension when you die and how inheritance tax applies, read our detailed article on the topic.
Myth: Your money is tied up until you are too old to enjoy it
Truth: You Can Access Your Pension Sooner Than You Think
There’s some confusion about when you can access your pension. You can draw a private pension much earlier than the state pension, which is currently available from the age of 66.
In some situations, it may be possible to start receiving benefits as early as age 50, depending on the specific plan you have.
Additionally, you can take 25% of your pension tax-free at this point. This flexibility allows you to enjoy the benefits of your savings earlier than many people realise, providing opportunities to use your retirement funds when you need them.
Myth: You don’t need any help with your pension
Truth: Professional Advice Can Optimise Your Pension
Some people believe they can manage their pensions without any professional help. However, a financial advisor can be invaluable in navigating the complexities of pension plans.
They can help you determine the best type of pension for your needs, advise on how much to contribute, and assess the level of risk that suits your financial goals.
Professional guidance ensures that you make the most informed decisions, maximise your retirement savings and secure your financial future.
The ultimate Retirement Planning Guide.
Planning for retirement is a significant life milestone. Whether you’re just starting to think about retirement or are already well into your retirement journey, this guide aims to empower you to make informed decisions and create a retirement plan that aligns with your unique financial goals and expectations.
After you download your guide, one of our expert mortgage advisors will be in touch shortly to provide you with guidance and further relevant information including typical repayments, qualification amounts and mortgage requirements.
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Believing in myths about pensions can lead to inadequate preparation for retirement. By understanding the facts and seeking professional advice, you can make informed decisions that ensure your financial security in the years to come.
With our expertise, you can navigate the complexities of retirement planning in Ireland, make informed financial decisions, and secure a comfortable retirement that aligns with your dreams and expectations.
We are also experts in personal and business protection, savings and investments, pension tracing, personal and business financial planning, mortgages, and wealth extraction.
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All our content has been written or overseen by a qualified financial advisor. However, you should always seek individual financial advice for your unique circumstances.
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