How young is too young for a pension
Are You Too Young for A Pension?
Starting out in your first job can be pretty daunting. Your salary sounded like a sweet deal when you signed up, but now each month you’re left feeling as though you’re scraping for change as your income disappears on tax, rent, bills, credit card repayments… And that’s before you add in all those extras, like that gym membership you keep promising yourself you’ll use and the smashed avocado on toast you ordered for brunch last Saturday, washed down with two skinny lattes.
With a bank statement already flooded with direct debits, the idea of losing even more money each month to the vague and far-off concept of a pension can seem particularly unappealing at this early stage of your career. Why worry about something that’s decades away? Surely it’s an unnecessary cost compared with your more immediate plans, such as taking a trip around the world, or buying a property, or getting married, to suggest but a few.
It’s saving not spending
But contributing to your pension is not just another way to burn through your paycheque every month. In fact, by paying into a pension, you’re saving your money to use at a later date. And, if you’re paying into your workplace pension scheme, your employer will also usually add in some money, which is in addition to your salary. Money kept in a pension scheme is invested with the aim of helping it to grow over the years to fund your retirement. So, for most people, joining a pension scheme is a great idea. But…
Are you too young?
There is simply no such thing as being too young to contribute to your pension – it’s a case of the sooner, the better. The longer you spend contributing to your pension, the more money you will have saved by the time you have retired. If you start saving at a younger age, you can also contribute a steady amount each month and avoid desperately scrabbling around for as much money as possible in your forties, when you realise your retirement is looming. Of course, when you first start out on the career ladder you may not be able to afford to contribute much to your pension – but a little each month will go a long way, and you can build up your contributions as your career progresses. There are plenty of helpful pension calculators available online that can help you decide how much money you should tuck away each month, so that you can live comfortably when you retire.
As an example, if you pay €150 towards your pension each month from age 25 to 65, and your pension money grows at around 5% per year, you’ll retire with a pension pot of €223,285. Start paying in €150 per month at age 40, however, and at 5% a year growth, you’ll be left with €88,218 by the age of 65. That’s a big difference. This example does not take into account any charges or taxes that apply to pensions, and the actual growth rate can be lower or higher.
More time to take risks
If you start to make pension contributions while you’re young, you can take advantage of the lengthy time frame by choosing riskier investments, such as shares, as they will have more time to ride out stock market highs and lows, and could potentially make you more money in the long run. As you approach your retirement, you can switch to safer investments, such as government bonds, and continue saving at a steady pace. Some pension schemes will even do this for you automatically. A financial adviser can explain different pension schemes and different investments to you.
If you are lucky enough to receive money from any relatives (for example, a savings account set up by your grandparents), you should consider the idea of putting all or some of this money towards a pension fund. You will reap the benefits, and the money will be stored away until your retirement (guaranteeing you aren’t tempted to delve into it from time to time). This might not seem like the most creative and fun way to use this money, but if you don’t need it for anything in particular at the moment, then your retirement is an excellent investment.
How to get started
If you want to find out more about pensions, a financial adviser can give you information about your options.
As soon as you can afford it, it could be a very positive move to start contributing to your pension. Just consider it as another small cost you need to budget for each month. Even swapping your daily barista-made cappuccino for a home-brewed blend could give you enough of a budget to start. After all, €3 a day is €21 a week, or €84 a month. And contributing just €84 a month to your pension fund early in your working life could set you up for a more secure future.