Create your unique financial plan
Life expectancy is now 84 years for females and 81 years for males. For many of us we can expect to enjoy 20-30 years or even longer in retirement. For this kind of timescale, you need to have a plan in place.
Pick the right place to save
If you had retired 10 or 15 years ago, your lump sum may have been paid into a bank Deposit Account in the bank and earned 5% interest each year. Today, however, interest is virtually at 0% and is not likely to change in any meaningful way in the next number of years. Ask yourself, is leaving money in a bank account a long-term plan? Yes, it’s ok for everyday purchases, home improvements or events we know are happening in the next year or two and we can budget accordingly for. No, it’s certainly not for money that we may be putting aside for 7, 10 or 15 years into our retirement.
Try to match or beat inflation
Think about how much the following have all increased by in recent years due to inflation: your weekly shopping bill, electricity, gas and oil bills or your health, home insurance or car insurance. The problem with leaving money on deposit is that: 1) it is generating zero return and 2) inflation takes a big chunk of your ‘real’ spending power over time. We may not notice the effect of inflation over one or two years, but over five or ten years we certainly do! Therefore, we should try and get a return on our money that will at least match and ideally beat inflation.
Think short, medium, and long-term
Ideally, we should divide our money into three different short, medium, and long-term ‘pots’. It’s important to remember that the longer we can put money away for, the better the return that we can achieve. By the same token, as we never know what’s around the corner, it’s equally valuable to ensure some money is always accessible in case we need to access it at a moment’s notice. Keep these different timeframes and needs in mind:
Short-term - the next year or two
This may be needed for home improvements, changing your car, taking a holiday, money to help the kids get on the property ladder. It includes events we know are going to happen and can plan for and perhaps a little extra as a ‘Rainy Day’ Fund. This money will most likely be held in you bank deposit or credit union account.
Medium-term - three to five years
This is generally used to replenish your short-term savings as you spend them and to maintain cashflow for other events as they arise. The Post Office is probably the best option in this timeframe, even though the returns are not as good as they once were for Post Office 3-, 4- and 5-Year Bonds.
Long-term – anything over five years
This is where you can try to achieve maximum return on your money, as the return on the short and medium-term options will not come close to matching the rate of inflation over time! If you wish to generate a return that will keep pace with and beat inflation, you must bring some Risk into the mix. Not for all your money, but certainly with the portion of it that you would be happy to accept can rise and fall in value over time. In order to do this, there are different Asset Classes that can be used.
Consider different Asset Classes
There are five main Asset Classes that you can invest in: Cash, Bonds, Equities or Stock Markets, Property and Commodities. To invest in these individually can be expensive and risky. The solution is to this is a ‘Multi-Asset Fund’, which is offered by all Investment Companies in Ireland. This type of fund invests in all five asset classes and in different countries, industries, and companies. This reduces the volatility and risk for your money, whilst increasing the probability of getting a better return overall.
There are low, medium, and high-risk versions of the Multi-Asset Fund, so with the help of a good independent and impartial adviser, you can identify which is the best one for you based on the return you aim to get and your Attitude to Risk and Reward.