If you're a 20 year old woman today, your life expectancy is about 90. Great news, right?
Just think, that chateau in Tuscany could be yours to enjoy for 25 years after you retire. Or you could relocate to New York and party like its 2020 all week long. Or travel the world by rail... OK, I'm getting a little carried away with (my own) retirement fantasies.
But here's the thing - and I hate to be a killjoy - but have you thought about how you're going to afford to live out your carefree, footloose and fancy free senior days?
For years we have been warned of looming state pension crisis. Recently, talk of how to handle this crisis - brought on by an ageing population and fewer new entrants to the workforce - has ramped up and the subject of how we are going to fund our post-working lives has taken centre stage.
"People have to accept that they have to readjust their lifestyles," says Jill Kirby, a personal finance correspondent, speaking to the Today programme on RTÉ Radio 1 earlier. "That hasn't happened. We live on credit now. That's got to end if you actually want to have a 20 year income without working for it from, say, the age of 70 to 90."
Very sensible advice from Jill. But what if you're 23-years-old and you don't even have money to set aside for next weekend, never mind when you're 90!
The Money Doctor has this advice to help RTÉ Lifestyle readers keep an eye on future finances, no matter what your income is at the moment.
- Do an annual budget to work out what you CAN afford to contribute to a pension. You are never too young to start a pension.
- Add all the annual costs you know you are going to spend (family birthdays, Christmas presents, holiday, festival tickets, etc.). Total that amount and divide by 12; that's the amount you should aim to save every month - preferably in a Regular Saver Account).
- The buzz word is prioritisation - you spend according to the importance of the product or service you buy. Although it's not always possible, try to prioritise your future as often as is feasible.
- Don't put off until tomorrow what you can do today: start that pension now, no matter how small. At the end of the year you could make a 'single premium' contribution to maximise your tax relief. Again, if you can afford it.
- Don't just file away your annual pension report each year. Meet with the adviser and ask those pertinent questions: How much has the pension fund made this year? Can anything be done to maximise its growth?
- Planning for the future is not necessarily confined to a pension fund. Your biggest investment is not your home, but the mortgage to fund it. Ensure you have the best rate available - even if it means switching now. If you are starting a family, and you can afford it, invest the €140 child benefit into a managed fund for the 17 years. You fund the 18th year yourself and at a 5% growth each year, you would accumulate €42,000 which is the precise amount it will cost to fund ONE child through their 3rd level education... and that's without fees!
- Even children with pocket money should be encouraged to put some of it by to foster good saving habits. For their parents' birthday presents, that favourite band download, their own pocket money when on holidays, etc.
- Save either 20% of your monthly income or between three and six months net annual income into a Rainy Day Fund (RDF) for three reasons: emergencies, sudden loss of income or that unexpected investment opportunity. Regular Saver Accounts allow savings of between €100 and €1000 per month for up to 12 months at much better interest rates.
John Lowe is a Fellow of the Institute of Bankers, founder and managing director of Providence Finance Services Limited trading as Money Doctor and regulated by the Central Bank of Ireland, plus author of the best-selling Money Doctor 2016: 100 Way to Save Cash For consultations and corporate seminars, T: (01) 278 5555 or e: jlowe@moneydoctor.ie FollowJohn online here, on Twitter (@themoneydoc). Linkedin, Pinterest, Google+ & Facebook.
