In your 30s and thinking of retirement - are you mad?
Well the short answer is no, you’re not mad to be thinking about retirement in your 30’s. Of course it is not going to be foremost in your mind as there are lots of competing priorities – a house to be bought, maybe a wedding to be celebrated or a family to be started. And these also don’t take into account the holidays, cars and social life that are there to be enjoyed!
So planning for retirement is probably well down the list…
But it’s a problem that won’t go away, instead the challenge gets significantly greater as time marches on for a couple of reasons. First of all any savings made in your 30’s have more years to benefit from the magic of compound interest and will have a much bigger impact on your retirement outcomes than money saved in later years. Secondly, the state old age pension scheme is under enormous pressure due to Ireland’s ageing population. By the time people who are in their 30’s today actually get to retirement, state benefits will look very different; will they be paid later, paid at a lower level or means tested? Maybe people will face a combination of all of these…
So what can you do to positively impact your own retirement outcomes?
Adopt a savings mind-set
This is an important starting point – to recognise the importance of saving for different timeframes, including retirement. We’re not suggesting that you stop spending, as life is definitely for living! But we are suggesting that you take a balanced approach to your finances; spend money on things that matter to you, avoid frittering money away and take a strategic approach to your financial future rather than simply hoping everything will turn out ok! Saving money is a key pillar of a strategic approach to your finances.
Pay yourself first
We sometimes find with clients who are in or around their 30’s that while the intention to save for retirement is there, the reality is that it just doesn’t happen. Saving for retirement falls to the bottom of a long list of priorities and usually doesn’t make the cut. So our advice is to reverse the priorities. Pay yourself (by saving) first, immediately after you get paid each month. As a result, something else will suffer – this will usually be a discretionary spend (such as that 2nd coffee bought every day, the extra takeaway dinner every week) that actually adds little value to your life.
Understand the impact of debt
Debt plays an important role in all of our lives, whether it is a mortgage for your house or a loan for a car etc. We all know the folly of running up credit card debts and also borrowing to fund your lifestyle. However simply the availability of debt can really hurt your retirement planning too. Take the example of someone who gets a salary increase. This increases spending / saving power. Some people unfortunately see this as an opportunity to immediately change the car and borrow more money as additional repayments can now be afforded. Yes you’re driving a nicer car, but your salary increase now has no impact on improving your financial future. We’re not killjoys who think you should save every extra euro, but salary increases should reward you both today and tomorrow.
Don’t waste windfalls
Similar to the last point, windfalls that quite often are in the shape of pay bonuses are an opportunity to dial up your enjoyment of life today (after all you’ve earned it), while also improving your future. Set yourself a personal commitment to save x% of any windfalls you get for your long-term future, while enjoying the balance of that bonus today.
And really achieving balance is the key point that we are attempting to make. Yes enjoy the financial opportunities that present themselves to you today. But don’t do it at the total expense of your financial future later in life.
Avail of any “free” retirement support
This final point applies to anyone who is fortunate enough to have a benevolent employer who agrees to pay into a pension scheme for you. This will often be done on the basis of “matching” your own commitment, up to a certain limit. Don’t let this opportunity pass you by! This is effectively free money for you and a reward for sound financial behaviour carried out by you. Always avail of this opportunity to the maximum that you are able, as it is usually offered on a “use it or lose it” basis – if you don’t avail of your employer’s matching contribution in a given year, you can’t come back looking for it later.
As we said at the outset, we understand that planning your retirement is not going to be at the top of anyone’s wish list while in their 30’s. However by embedding some good financial habits, you can hugely improve the quality of your life, both today and in the future.