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In previous weeks, I addressed the importance of working farm spouses being registered as formal employees in farm business partnerships for the purpose of being able to contribute not only towards the funding of their own full state pension benefit, but to also be in a position to get their own independent financial plan in place.
This week, I am going to focus on how exactly this works in terms of how you can fund wisely for your retirement and how you can protect your income and lifestyle in the case that something happens to you prior to retirement. By being registered as a formal employee, working spouses gain several benefits and financial security measures.
Financial planning
A financial plan provides structure and guidance for employees on farms in Ireland; helping them effectively manage their income, expenses, savings, and investments.
It enables them work toward their own independent financial goals, secure their financial future and be in a better position to effectively navigate any challenges along the way.
Having a sound financial plan in place will provide the confidence to look forward to retirement while also providing peace of mind knowing that you and your dependents will be financially comfortable if you are unable to work due to an accident, illness or - God forbid - premature death.
All of these covers can be taken out by your business in a very tax efficient way.
If you are self-employed, in a partnership or are a company director, it is possible to take out a life insurance policy through your business. Some of these life insurance policies are also subject to tax relief; greatly reducing the cost of cover.
As registered employees in business partnerships, farming spouses can enjoy the benefits of contributing to state and private pension schemes, as well as accessing protection policies. These measures ensure greater financial stability and support for both individuals and their families - not only during working years, but also in retirement.
State pension contributions
Registering as a formal employee allows working spouses to contribute to the state pension scheme. This ensures that they accumulate the necessary PRSI contributions over their working years to qualify for their own full state pension in the future.
The state pension provides crucial financial support and security to individuals in their retirement years and greatly helps individuals maintain their quality of life, meet their basic needs and enjoy a level of financial independence after their working years.
Protection policies
Formal employment registration also allows working spouses to access various protection policies such as life insurance, income protection and specified illness cover. These policies provide financial security to the individual and their family in case of unforeseen circumstances, such as illness, disability, or premature death.
Protecting your income and lifestyle as a formal employee in a farm business partnership in Ireland involves taking proactive measures to mitigate financial risks.
Here are some strategies to consider:
Income Protection Insurance
Consider obtaining income protection insurance, which provides a regular income if you become unable to work due to illness, injury, or disability. This insurance ensures that you continue to receive a portion of your income, helping you maintain your financial stability and meet your living expenses.
Life insurance
Life insurance is essential to protect your family’s financial well-being in the event of your untimely death. It provides a lump sum payment to your beneficiaries, which can be used to cover outstanding debts, funeral expenses, and replace lost income.
Specified illness cover
This type of cover pays you a tax-free lump sum amount if you are diagnosed with one of the specified illnesses covered on your plan. It pays out on the diagnosis of some of today’s most common illnesses. This will help to maintain your standard of living and help you and your family cope financially during a difficult time.
Emergency fund
Establish an emergency fund to cover unexpected expenses or income disruptions. Aim to save three to six months’ worth of living expenses in a separate account. This fund can provide a safety net during challenging times and help you maintain your lifestyle.
Private pension contributions
Being registered as an employee enables working spouses to participate in private pension schemes. Private pensions are additional retirement savings that individuals can contribute to voluntarily. These pension funds will supplement the state pension and provide a valuable additional source of income during retirement.
Pension funding is a long-term commitment. Regular contributions, prudent investment choices, and monitoring your progress are essential for building a secure retirement fund. The earlier and more diligently you save, the better positioned you will be to enjoy a comfortable retirement as a formal employee in a farm business partnership in Ireland.
1 Avail of employer contributions
If your farm business partnership offers an employer pension scheme, ensure you take advantage of any matching or supplemental contributions they offer. Employer contributions are essentially free money towards your pension and can significantly boost your retirement savings.
2 Make regular contributions
Establish a habit of making regular contributions to your pension fund. Consistency is key to building a substantial retirement nest egg. Set up automatic contributions, if possible, to ensure a disciplined approach to saving.
3 Assess risk tolerance
Determine your risk tolerance when investing for your pension. Typically, a long investment horizon allows for a higher tolerance for market fluctuations. Consider diversifying your investments across different asset classes to manage risk effectively.
4 Review and adjust
Regularly review your pension plan and investment performance. Periodically reassess your contributions and investment strategy to ensure they align with your retirement goals and any changes in your circumstances. Make adjustments if needed.
5 Take advantage of tax benefits
Take advantage of the tax benefits associated with pension contributions in Ireland. Pension contributions are generally tax-deductible, meaning they reduce your taxable income. Consult with a tax advisor to understand the specific tax advantages available to you.
6 Seek professional advice
Always seek professional advice and engage with a professional financial advisor who specialise in this area as they can provide bespoke personalised guidance tailored to your specific personal needs and circumstances.
*Carol Brick hails from a dairy farm in Kilmoyley, Co Kerry, and is managing director of CWM Wealth Management Ltd. An economics graduate and qualified financial advisor, she has a particular interest in financial planning for women in Ireland and launched HerMoney, a specialist service, in 2017 with an all-female team of advisors. Carol advocates for urgent legislative change when it comes to the qualifying criteria for a State pension.
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