The figures look daunting when you count up what you need for a comfortable retirement but it is possible as long as you plan ahead and are willing to embrace a new mindset. Caroline Madden, Irish Times, reports:

Invariably the biggest worry for people approaching retirement is money. Even for those fortunate enough to have a well-funded pension pot, the prospect of a drop in income is an unsettling one. However it is entirely possible to maintain a decent standard of living in retirement, as long as you plan ahead properly and are willing to embrace a new mindset.

John Higgins, chief executive of the Retirement Planning Council of Ireland (RPC) – a registered charity that runs retirement courses – advises people to use a projected cashflow statement as a key money management tool. The process of setting out your expected income and expenditure in black and white not only allows you to plan your lifestyle, but can also help to alleviate unnecessary fears about the impact of retirement.

According to Ian Mitchell, managing director of Deloitte Pensions & Investments, people are now starting to look at their retirement years in tranches. For instance, they may intend to maintain an active lifestyle from 65 to 70 or even 75, and then ease back as they get older. Achieving this requires even more careful financial planning: although the person’s fixed cost will remain constant throughout their retirement, their lifestyle cost are going to be higher at the beginning of retirement than at the end.

In order to fund this type of segmented retirement plan, it may be necessary to free up cash by tapping into non-pension assets, such as savings or a nest-egg investment. However “breaking open the piggy bank” can require a change of mindset which “an awful lot of people find very hard”, says Higgins. “You’re trained to save for a rainy day.” After relying on a salary and filling the ‘piggy bank’ for their entire working life, people have to make a difficult psychological shift to reverse the process and begin running down their savings and investments.

Mitchell has found that people’s spending habits in retirement are generally dictated by their background.

“If they’ve always been comfortable, well then they spend. If people have struggled in their working life, even if they have surplus pension they probably won’t spend it. When you learn habits over 40 years, they’re hard to get rid of.” In order to overcome this mental barrier, the RPC helps people to understand that although their gross income will drop in retirement, so too will taxes and levies. If you are 65 or over, you still have to pay income tax but much higher exemption limits apply. For instance a married couple (where one spouse is over 65) will be entitled to an old age tax credit of €650 and will not have to pay tax if their annual income is less than €40,000. Furthermore, they will no longer be making pension contributions. “On average a person might be taking home 58 per cent of their gross pay, but in retirement very often this goes up to 80 per cent,” Higgins says.

To read the full article follow this link: You can have a life on a pension: Irish Times