Consumer Corner: How can I set myself up to retire early?

For many, early retirement could be a pipe dream, but there are ways you can plan to retire somewhat earlier than you may have expected

An option to set yourself up for early retirement would be to consider overpaying on your mortgage

There’s nothing like a bit of sun to start the ball rolling in your head about dreams of early retirement. This is often something discussed at length in the summer when the call of the beach urges people away from their laptops. Oh the joy to have the freedom from work everyday.

As lovely as early retirement sounds, it is all very well until the end of the month rolls in and goes by without wages coming in. For many, early retirement could be a pipedream but according to the experts there are ways you can plan to ensure that you retire somewhat earlier than you expected.

Glenn Gaughran, head of business development with the Independent Trustee Company, says firstly start with your annual pension statement. He says that if you are a member of a company pension scheme, this document will allow you to find out the pension you will be entitled to in retirement based on your contributions so far and what you’re currently paying into your pension.

He says that for anyone in a defined contribution pension scheme through work, they will have the advantage of a matching contribution from their boss and they should make the most of this.

“For example, if your employer would pay matching contributions up to 10% of your salary, you should seriously consider paying 10% of your salary into your pension so that you can get your employer’s 10% contribution as well. This would bring the total value of the contributions going into your pension to 20%, which would make it much easier for you to build up a reasonable pension pot by the time you retire.

“You could even pay more than your employer’s maximum contribution while still getting the benefit of it. Be sure, however, not to pay more into your pension than you can get tax relief on.”

Mark Reilly, Pensions Proposition Lead with Royal London Ireland, says that people often underestimate the amount of money they will need in retirement, adding that the money in your pension pot may have to last 20 or more years.

“Understand what you will need to finance your regular or discretionary expenses, as well as possible healthcare costs when you may no longer be receiving a regular income. It is recommended you aim to have an annual income equivalent to between 50% and 66% of your final salary on retirement, but you may need more or less than this, depending on your own financial circumstances,” he says.

There are tools available to allow you to estimate the contributions you need to pay into your pension to reach your target and the Pensions Authority has a useful calculator on its website.

Mr Reilly says workers should take advantage of tax relief on pension contributions and any company pension scheme available to them.

“With some defined contribution work pension schemes, the more you pay into your pension, the more your employer will pay. Saving extra money into your pension through Additional Voluntary Contributions can also boost your pension,” he adds.

Jonathan Roche-Kelly, director with Financial Services for Gallagher in Ireland, says it is vital that self-employed workers plan for retirement as they don’t have the advantage of an employer-sponsored pension scheme. Also self-employed individuals don’t have an employer paying contributions into a pension scheme on their behalf.

“It can sometimes be difficult for the self-employed to commit to pension savings, particularly if they need to pour a lot of their money into getting their business off the ground or if their self-employed income is inconsistent. However, saving a small amount regularly and from early on in your career will help boost your pension,” he says.

Paul Murray, director of Quest Retirement Solutions, says that if you are dissatisfied with the performance of your pension fund, you might consider switching to another one.

“It is crucial to evaluate your pension fund’s performance with a long-term perspective rather than based on its performance over a year or two,” he says. “Your pension provider can supply historical data on the investment performance of your fund. Generally, if the fund is performing well, your pension savings should grow over time.”

Mr Murray says that generally, the further away from retirement you are, the more scope you have with your pension investments in terms of risk.

Another option to set yourself up for early retirement would be to consider overpaying on your mortgage.

Trevor Grant, chairperson of the Association of Irish Mortgage Advisors (AIMA), says that while it may seem counterintuitive to part with more money than your monthly mortgage payment requires, this prudent financial move can save you thousands or even tens of thousands in the long run.

“As you make extra payments, you reduce the outstanding balance more quickly, which means you’ll own your home outright sooner. This not only reduces your financial obligations in retirement but also offers peace of mind knowing that you won’t have a mortgage hanging over your head during your golden years.”