Everything you need to know about your pension once you hit 50

In the latest Construction Magazine, Susan O’Mara, Business Development Manager at CPAS writes. As the CIF celebrates the top 50 leading contractors, I wondered if I could find 50 reasons to save for a pension.  It was a stretch passed 10! However, it occurred to me that it is around age 50 when people really begin to consider what their finances will look like when they retire – and so I bring you, what you need to know about your pension at 50!

Whether 50 is considered young or old very much depends on your perspective, how near or far you are from it in either direction. From a health perspective, people are living healthier, physically fitter lives.  In previous generations 50 may have seemed “old” but today, 50 is the new 40 is a common theme.  From a career perspective, at 50 you are often hitting your peak earning years.  It is a common time for people to feel empowered to take care of themselves financially. It is the perfect time to assess where you stand and to consider what steps you need to take for a comfortable future.

Do you have a pension and if so, where is it at?

At this stage of life, you most likely know whether you have been saving for retirement, however, most of us couldn’t say what the current value is, the likely future value and the level of income it will translate to in retirement.  You might also have multiple pension funds, from previous employments over your career.  The first step you should take is to gather this information.  If you have multiple pension funds, you should make list of them, where they are invested and what are their values.  Pensions from previous employers can be left where they are or brought with you to your next provider in many cases.  Keeping them separate may allow you to phase your retirement drawdown, while combining them will reduce the administrative burden.

Once you know the total value of your pension funds, and their estimated future value, you can estimate the income available for your retirement.   In the table below, I have outlined what this might look like.

Projected value in example cannot be guaranteed and assumes growth of 3.09% p.a., salary growth of 2.50% p.a., discount for inflation of 2.50% p.a.

Are you on course for a meaningful income?

Once you have established what your current income in retirement might be based what you currently contribute, you need to decide if you are on course for the sort of income you want.  If not, you may need to consider what steps you can take to enhance your pension fund.

Increase contributions through Additional Voluntary Contributions

At age 50, you can contribute up to 30% of your net relevant earnings to your pension with tax relief.  This increases to 35% of net relevant earnings from 55-59 and from 60, it increases to 40% of net relevant earnings.  While it may not be financially viable to contribute 30% of your earnings to your pension, an additional €100 per month, based on the above scenario and assumptions could add an extra €23,700 to the fund at 65, while €200 per month would add €47,400 at retirement.  And don’t forget, you get tax relief on contributions so your €100 or €200 per month would only cost you €60 or €120 per month net if you pay tax at 40%.  Your pension provider should provide you with a calculator to allow you to see what impact additional contributions can make.

Consider your investment strategy

A good investment strategy will have an impact on the value of your fund at retirement and therefore your income in retirement. Are your pension funds aligned with your time horizon and risk appetite? You should begin to think about de-risking gradually as you get closer to retirement.

Many providers add a lifestyle investment strategy or investment glidepath, which will automatically reduce exposure to the riskier asset allocations in the run up to normal retirement age.  However, you may need to opt into the appropriate strategy for you.

Final thought

At 50, you have a powerful combination of earning capacity, experience, and the ability to plan wisely for retirement. With around 15 years to act, small changes now can make a big difference later.

Here to help you navigate your way.

The CPAS team are qualified Pension Consultants. We specialise in helping professionals in the construction sector and related industries. Our team can work with you to review your pension plans and ensure you are retirement ready.

CPAS provides the administration support for the construction sector’s dedicated pension schemes and is registered to provide the core administration services to the Trustees of the Construction Workers Pension Scheme (CWPS) the Construction Executive Retirement Savings (CERS), and provides additional financial support services through Milestone Advisory DAC.

For more information, contact Susan O’Mara (susan@cpas.ie) or click here.