30s: Gain Momentum
30s: Gain Momentum
Case Study: It’s Never Too Early (Or Late) To Start Your Pension
by The Gloss
Your 30s bring big changes. With career progression and higher earnings, your big goals, like buying a home or starting a family, start to come into focus. That’s why it’s important to review where you are and what’s possible. This case study emphasises that even if the way forward is a little unclear, and you’re not quite where you want to be, you can still gain clarity.
Every year, Goodbody conducts hundreds of financial reviews for clients and prospective clients – and the most common issues they come across focus on savings plans, inheritance and pensions.
Our client Katie* (35) came to us as she had a new job on a higher salary and was looking to buy a house in the next five years. She had a big short-term financial goal, but wasn’t yet thinking about her long-term financial future.
You May Also Be Interested In
While her employer automatically paid 5 per cent of her salary into their pension scheme, she learned that she could also make Additional Voluntary Contributions (AVCs) with which she could avail of 40 per cent tax relief in her monthly paycheck.
Katie was shown an example of a 35-year-old and a 50-year-old contributing to their pension:
From age 35, if you contribute €100,000 over 30 years that equals €270 a month, but after tax relief the contribution will only cost about €160 a month. Based on a potential annual return of 4.5 per cent, this will result in a pension pot of about €202,000 at the retirement age of 65.
From age 50, investing the same €100,000 over 15 years with the same annual return will total €138,000 at 65.
Beginning a pension earlier also means that if Katie has to take time off work for any reason and can’t contribute to her pension, she will still have a scheme working hard for her.
Katie was advised to aim towards having two-thirds of her current salary in her pension years. This assumed that she would have paid off a mortgage by then and may have some inheritance at that stage. However, her needs could increase depending on other costs including paying for a child’s education or house repairs. Katie settled on an annual income figure that she would like to have in retirement and worked backwards from that. Katie also included the state pension to her far future annual income, but kept in mind that this number could decrease.
Working off her final income number, Katie decided to put €270 towards AVCs every month which only cost her €160 after tax relief. This allows her to save towards a house deposit and eventually secure a mortgage without greatly impacting her lifestyle.
Katie reviewed her monthly budget and progress annually, and was eventually able to pay more contributions. As retirement approaches, she can move her pension from high-risk to low-risk investments and into a post-retirement fund.
Katie’s experience is a reminder that your 30s are a pivotal decade for taking control of your financial future. Your choices around pensions and long term planning, have the potential to compound for decades. Ideally, Katie would have given more to her pension during her 20s, but by identifying the income she wanted in retirement, understanding the benefits of tax efficient contributions, and reviewing her progress regularly, she built a plan that supports both her current lifestyle and her future goals. The key takeaway is simple: start early, stay consistent, and keep adapting as life evolves.
*Names have been changed to protect client anonymity.
Related Articles from 30s: Gain Momentum
Invest in You | Join the Investment Club
What if your best financial decade starts today?
You can unsubscribe at any time by clicking the link in the footer of our emails. For information about our privacy practices, please visit our website. We use Mailchimp as our marketing platform. By clicking below to subscribe, you acknowledge that your information will be transferred to Mailchimp for processing. Learn more about Mailchimp's privacy practices.