Financial priorities will naturally shift – sometimes dramatically – across an entire lifetime. While early savings habits are a solid base, at times in your life you may find yourself spending more than you are saving, whether it’s purchasing a home or sending kids off to college.
Eoghan O’Hara, Raisin Bank’s country head for Ireland, says that as people start out in their career, the key is becoming confident in dealing with their finances rather than chasing huge returns.
“There is plenty of noise at the minute pushing young people into volatile stock-picking or what can be described as ‘vanity’ investing,” O’Hara warns. If someone’s goal is buying a home, getting a car or funding any other life milestone in the next two to five years, putting that money into a long-term investment product may not be the best decision. “Investing has a role to play at every stage of life and is a great habit to build young, but people should be cognisant of their own situation and goals.”
Fiona Haughey, director of financial planning with Davy, echoes this. “When someone has just gained employment, a balancing act is required to focus on enjoying the chapter they are in while balancing future priorities,” she says.
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Haughey agrees that building strong savings habits is to be encouraged. “Disciplined savings with modest amounts builds consistency,” she says, adding that eliminating any high-interest debt should be a priority too.
And while retirement may seem a long way off at this stage, the earlier someone starts contributing to a pension the greater the benefit they gain from compounding. “You should at least ensure you contribute enough to avail of any employer matches,” Haughey says. “With a long investment time horizon, pensions should have substantial growth assets.”
But even as people begin to earn more, when essentials such as mortgages, childcare and everyday costs hit at once, cash flow ultimately gets squeezed. Here, O’Hara says, the goal shifts from aggressive saving to protecting your financial progress.
“The key is keeping short-term emergency funds strictly separated from your long-term goals,” he says. Longer-term money should be working hard for people in an investment strategy that suits them. “Holding three to six months of living expenses in an easy-access account means an unexpected bill won’t force you into expensive debt or cause you to pull money out of long-term investments.”
One consistency should be maintaining pension contributions. Tax relief, O’Hara says, makes pension contributions, including additional voluntary contributions (AVCs), one of the most effective tax-saving tools in Ireland.
“As your salary grows or heavy expenses like childcare clear in your 40s and 50s, boosting contributions delivers a massive return,” he says. That said, this shouldn’t come at the total expense of real-life milestones. Locking every spare euro into a pension could leave you cash poor during prime family years, O’Hara says. “Using a deposit ladder strategy, ie staggering fixed-term deposits across one, two, or three-year maturities, allows middle-aged savers to ringfence cash for upcoming goals like family holidays, home improvements or weddings while earning solid interest in the meantime.”
Being aware of “lifestyle creep” is important, says Haughey. “This is when you earn more you raise your lifestyle spending absorbing every pay raise.” A mortgage and childcare shouldn’t mean abandoning long-term wealth planning, she says. “If you do get a pay increase you should direct a portion towards pension contributions.” If maternity or other extended leave is taken, the impact of such should be considered and top-up contributions could offset that impact. “Also, at this stage you need to protect your own and your family’s financial security through income protection, mortgage protection and life insurance.”
Nearing retirement, strategy often shifts from accumulating wealth to capital preservation and enjoying life. “While investing will usually provide a greater return, many retirees don’t want to endure stock market shocks or lock funds away for decades,” O’Hara says. Staying strategic means shifting a portion of investments into safer, predictable options such as fixed-term deposits so unexpected events do not disrupt retirement timing or other plans.
Those nearing retirement should review their pensions in line with the tax-efficient threshold, Haughey says; currently this is €2.2 million and increasing by €200,000 every year until 2028, bringing it to €2.8 million. “If approaching this tax-efficient cap nearing retirement age professional advice should be sought,” she says. The goal may move from chasing growth to protecting wealth and generating income from these assets in retirement.
“For those who are still building their pensions, maximising contributions from earnings in the later years of working can be beneficial from a tax standpoint and increasing the tax-free lump sum you can get when you crystallise your pension. Investment strategy will also need reviewing – it’s not a case of adopting overly conservative investment strategies closer to retirement age,” Haughey advises.
Prudent estate planning can also help reduce inheritance tax liabilities and simplify wealth transfer to the next generations, says Haughey. “Understanding capital acquisitions tax , which is the tax paid on inheritance in Ireland, is important to ensure you can make use of available exemptions when eligibility requirements have been met.”
“Simple proactive choices can save your family stress and financial burden down the road,” adds O’Hara. He urges people to consider utilising the annual “small gift exemption”, whereby each parent can gift up to €3,000 to each child every year completely free of tax. “Staggering wealth transfers over time is far more tax-efficient than leaving an entire estate that triggers a single massive tax bill down the road.”
