Workers who are beginning to put money into their pension should put a financial plan in place as soon as possible and establish what is an achievable proportion of their income that they can put away now amid soaring living costs, according to pension advisers.
A survey by Royal London Ireland, published last week, suggests Irish workers believe they will need almost €41,000 per year for a comfortable retirement.
Workers frequently underestimate the savings they will need to guarantee a comfortable retirement, says Mark Reilly, pension proposition lead at the firm. However, he says the €40,860 average is not far off the mark, given that research in 2024 established that a single person would need €33,600 a year in retirement and a couple €43,200.
Royal London Ireland calculates that to secure €40,860 a year on retirement, assuming they qualify for the State pension, someone earning €61,908 who starts saving at 30 would need to put away €1,135 per month. That is 22 per cent of their income.
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Paul Merriman, chief executive of financial planning firm Fairstone, says that for most people beginning to save for their pension in their 30s, putting away 22 per cent of their income is “madness”.
“We need to be talking to people about what’s achievable for them,” he says.
“If you could put in 5 per cent of your salary today, you might be able to put in 30 per cent when you’re 60, when there are no kids [in the house] and your mortgage is cleared. That’s probably achievable.”
However, Merriman says his message to people beginning to save is that by the time they reach retirement age, “the State pension ain’t going to be there”.
He says people consistently undervalue the State’s offering, which is about €15,500 annually at the moment. For people retiring today, that is “a good chunk of change”, but for people in their 30s or 40s, it is likely to be reduced or pushed out to later in life by the time they retire.
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Inflation also needs to be taken into account, says Alan Fearon, a financial adviser with LHK Group.
“A retirement today could easily last 25 or even 30 years,” he says.
“During that time, the cost of living won’t stand still. Even inflation of 2 per cent or 3 per cent a year gradually eats away at purchasing power, so any retirement plan has to take rising prices into account rather than simply looking at today’s cost of living.”
Fearon says: “People often worry about whether they’ll have enough saved to retire. In reality, the better question is whether they’ll have enough income to live the life they want throughout retirement. That’s the conversation people should be having with a financial adviser.”
Claire Battersby, senior employee benefits consultant at NFP Ireland, says the €40,860 figure “is useful because it starts the conversation”. However, she says: “The real question is whether someone knows what income they personally need in retirement, based on their housing costs, lifestyle, health, family commitments and other sources of income.”
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Employers should also play a role by investing in pension and financial wellbeing education for their employees, she says.
