I have been posting a weekly blog now for just over a year. I had a look recently at the statistics on how many people had read each blog post. As I mentioned before I have no idea who reads each one but I do see the number of readers and what country they are reading it from. My post on the rugby player the legendary Jack Kyle was read by many in the UK. Whether that was England, Scotland, Wales or Northern Ireland I do not know, but perhaps a good few of these were from Northern Ireland, where the great man lives! If so you are all very welcome.
What I have decided to do is each year around the month of November is to post again the blog most widely read blog during the year and try to analyse why.
The two most widely read blogs were both about the perhaps dull (but very important when you get to a mature age like me!) topic of having a decent retirement fund to give you ongoing income when you want to (or have to) retire from work.
The second most popular blog was “Daylight Robbery” posted on the 25th of February when I gave out about the disgraceful levy that the Minister for Finance Michael Noonan put on everybody’s pension fund. Thankfully he has confirmed in the recent budget that this awful tax is ending.
The most read blog was “Why not pay some money to yourself each month rather than the taxman”! This one was posted on 27th of May. This blog is as follows:
*I have been a financial advisor now for more than 45 years and have always taken my responsibilities seriously.
As I see it there are three vital issues that we have to address and help our customers to understand
1- They need us to be there for them with money should they have a serious illness or accident that prevents them for working
2- They need us to provide money for their family so that their family can go on living in the style that they have become acustomed to, if they are no longer around to provide the income themselves
3- They need us to help them to have sufficient money at their selected retirement age so that they will have the financial independence to decide whether they want to retire or continue to work at that time.
When rearing a family there is very little if any surplus cash and the money to buy the vital insurance covers are sometimes hard to find. The cost of not buying the cover can however be catastrophic to the family so most times this money will be found.
To get our customers to pay money into a retirement fund which they cannot touch for maybe 30 or 40 years is however much more difficult to get a decision on.
Over the years I have used a very simple concept that helps people to make a decision to start putting a little money away each month into their retirement savings pot.
Irish people absolutely hate paying unnecessary taxes. I know that this is very different in countries like England and America and understand that it is just an Irish thing! In fact I was recently reading about my hero Warren Buffet who suggested that the USA tax people should raise the tax rate for him and other similar people. Can’t see that happening in Ireland!
When I have suggested to a new customer of mine that it would be a good idea to start a little retirement savings plan and I sense a reluctance to make a decision I say to them, “surely it is much better to pay some money to yourself each month rather than pay it to the tax man?”
I can tell you that this grabs their attention like no other statement I have ever made. The reaction is always the same” What do you mean?” And so I explain.
In Ireland our top rate of tax is 41% and people pay tax at these rates on ridiculously low incomes. So if I had been suggesting a payment of €500 per month it could mean that tax at 41% of €500 an amount of €205 per month would be saved. If my customer was aged 40 and was planning to retire at 65 we are now talking about tax relief of €205 per month which is €2,460 per annum or a massive €61,500 to their retirement age.
We now have created the situation that your customer understands that if they don’t do as we have suggested they will be paying unnecessary taxes to their retirement age of over €60,000. This is a step too far for most Irish people and their next question tends to be if I do what you suggest what will it do for me at age 65? We are now in a closing situation.
The situation becomes even more interesting if your customer operates a limited company.
Let me explain;
Let’s assume your customer takes a salary of €50,000 a year from his business and at the end of each year has a surplus of €25,000 in the company which can be taken as salary or put into a company retirement plan in their name.
If taken as salary tax will be paid at the current rate of 41% on the €25,000 which is €10,250 of tax every year which is a total of €256,250 of tax to be paid to retirement age. Perhaps better to pay the money to themselves each year than pay it to the tax man!
Over the years I have got great satisfaction in seeing our customers reach retirement age and to see the substantial funds they have accumulated with our help to give them income in their retirement. I call it pay back time! Many of these funds were started initially with very small monthly investments that we helped them to increase over the years.
My rule of thumb is simple if they told me they wanted €50,000 a year at retirement age I would say without blinking that they would need a million available at that time and then showed them how much they needed to invest each month to get to their target assuming modest rates of tax free growth, a status that retirement funds in Ireland enjoy!
If they could not afford to do what was needed at that time then I would break it down and maybe start their funding at a level at a quarter or a third of what they needed to do. Then the next year we would talk about their retirement plan again and bit by bit they would bring their funding levels to where they told me they wanted them to be when they were ready to retire. Their plan for their retirement not mine!
They had now taken ownership because they understood where they wanted to go. Our job will be just to help them along the way and try to keep them on track.*
Why was that blog the most popular?
I think that as Ireland starts its recovery from the worst economic crash we have ever seen that people are quickly starting to realise that they can no longer depend on the state for their income in retirement. They have to take control of their financial futures themselves. They have to help themselves!
I think people are starting to realise also that the quality and the clarity of the financial advice and the competitive pension products now available in Ireland from financial advisors make it much easier for people to understand what they need to do to accumulate a decent retirement fund at whatever age they decide to take it easy.
I think that as we come towards the end of what has been a tough business environment period in Ireland, that it should be the aim of everyone working in the giving of advice on retirement planning to encourage everyone and particularly the younger generation to consider starting a retirement plan before the end of 2015. Get them to start paying a little each month to themselves rather than giving so much to the taxman!.
Let that be our New Year’s resolution for 2015.
Ted Dwyer Family Business