Manifest your Dream Future and Set Financial Security Goals

Setting goals is the first step to achieving financial security. But did you know a marshmallow can help?

The Stanford Marshmallow Experiment in the 1970s investigated self-control in children and introduced them to the idea of delayed gratification. The kids were seated at a table with a huge, fluffy marshmallow placed in front of them and they were given two choices – wolf down the marshmallow right away or be patient. If they didn't touch the marshmallow for 15 minutes, then they would be rewarded with two.

Start working towards your financial goals

While you will have to wait a little bit longer than 15 minutes to see your patience pay off, the reward can be much higher. Setting financial goals early can help you to retire comfortably (and eat as many marshmallows as you want)!

The principles of the marshmallow experiment can be applied to all types of savings whether you’re transferring weekly payments into a long-term savings account, putting more into your pension pot, helping your children get on the property ladder, or saving for their college education.

We all have big dreams from holidaying on an island in paradise, spending our pension pot, or buying a new car. But not all of us have set financial goals to help realise these dreams.

Saving the money that you usually spend on coffee is a perfect example of how financial planning can work for you.

Instead of spending €3.50 on a coffee 14 times a month, put that money into your pension and it works out to be an extra €49 a month. With equal employer contributions and tax reliefs over 35 years, this could be as high as €63,665, assuming a net annual growth rate of 3.1%. No flat white is worth that.

The projected amount represents an estimated retirement fund value, gross of tax, based on certain assumptions (outlined below). The drawing of your pension depends on your personal circumstances and your pension product rules.

This assumes a single 25-year-old contributes net €49 per month for the next 35 years into a company pension product from Irish Life Assurance taken out through their employer, invested into a medium risk fund, earning an estimated net annual return of 3.1%. Their employer also contributes net €49 per month. Annual Management Charges are set at 0.75% with 4 bullet payments of 7.5%. This assumes that income tax is paid at the marginal rate of 20%. (December 2021, Irish Life Assurance).

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Best ways to save money for retirement

Maximise your employer's contributions

Take advantage of your employer's contributions. Some employers match your pension contributions, up to a certain amount, so if you can, capitalise on this.

Know what tax reliefs are available

Having more money in your pension means you can take advantage of tax reliefs on your contributions up to €115,000. If you are aged 35, you can contribute 20% of your salary into your pension and get the tax benefit. However, you get further tax benefits as you grow older. If you are 60 years or over, you could benefit from tax relief on up to 40% of your taxable earnings.

Income tax relief is not guaranteed. To be eligible to claim income tax relief, your income must be taxable either Schedule E or Schedule D (case I or II).

How to save money better

So now that you know what to do to hit your financial goals, here are some common things that you’ll want to avoid.

Poor financial planning

We can all remember our teachers in school warning us before exams “Fail to prepare, prepare to fail”, and that advice applies to your finances too. Thankfully, financial planning is nowhere near as stressful as studying for your Leaving Cert. A quick call to a financial advisor is an easy way to start planning your finances and working towards financial security.

Leaving it too late

Leaving it too late to start thinking about your financial goals and planning your pension will ultimately affect how much money you have when you retire. Retirement may seem like a long time away, so a lot of us don’t think about it too often, but a little bit of planning now will pay off in your golden years.

Underestimating how long you will be retired for

Keep in mind that nowadays people are, on average, living longer than the generations before us, so we need to factor that into our retirement plan. If you plan to retire early, you may spend more of your life retired than you did working.

How small changes to your financial habits make a big difference

Making small changes to your approach to saving can lead to a much more comfortable life once you retire. The following pension example shows how you could grow €18,666 to reach €52,601 over time, based on certain assumptions. Take someone with an average salary of €40,000 with 28 years of pension contributions of €400 per year.

If their employer matches the pension contribution resulting in a whopping €11,200 in tax reliefs, €28,106 is added to the pot assuming a net annual growth rate of 4.5%, not bad! So, your €400 per year could grow to be €52,601.

The projected amount represents an estimated retirement fund value, gross of tax, based on certain assumptions. This assumes a married 32-year-old contributes net €400 per year for the next 28 years into a company pension product from Irish Life Assurance taken out through their employer, invested into a medium-high risk fund earning an estimated net annual return of 4.5%. Their employer also contributes net €400 per year. Annual Management Charges are set at 0.75% with 4 bullet payments of 7.5%. This assumes income tax is paid at the marginal rate of 40% (December 2021, Irish Life Assurance).

Watch your pension fund grow

Saving for your future doesn’t have to delay the satisfaction of saving. Instant gratification, like devouring the marshmallow in front of you, is human nature.

It’s all about setting goals and sticking to them. While you might be tempted to dip into your funds, just like a child wants to eat that delicious marshmallow, ultimately the reward is worth the wait.

Your journey to a comfortable retirement starts with one small step. Fill out the form below and a financial advisor from Irish Life Financial Services will be in touch to discuss your options.