Björn Berg answers questions by the readers of online news outlet Vísir.

A 45-year-old woman asks:

It’s important to take worries about retirement income seriously.

The good news is that you’re still young enough to make a real difference to your future finances, provided you act deliberately and make careful decisions.

Start by understanding where you stand

The first step is to see what your situation would look like if nothing changed.

Remember that finances in retirement are about more than pension fund payments. Your assets and debts matter too. Write down when your current debts are expected to be paid off, including your mortgage, car loan, student loan and any other debt.

Next, sign in to your pension fund’s website using electronic ID.

There, you should be able to see an overview of the Icelandic pension rights you’ve already earned, including rights that are no longer being added to. You should also be able to see estimates of your position, in today’s money, at ages 65, 67 and 70.

Then use the calculator provided by the pension fund currently receiving your contributions to project your future old-age pension rights.

At that point, you’ll have a much clearer idea of the pension income you may receive later in life if you continue as you are.

You can also use a standard savings calculator, or a more specialised one, to estimate the future value of the private pension savings you’re building up today.

Now you can judge whether action is needed.

What kind of income are you on track to have in retirement? What will you own, and what will you owe? Does that picture feel safe to you?

If not, it’s time to look at ways to improve it.

Since I don’t know the full details of your finances or which pension fund you pay into, the following thoughts are fairly general.

Could you build up more private pension savings?

First, check that 4% of your salary is being paid into supplementary pension savings.

You can see this on your payslip. If your own contribution is only 2%, it’s usually very easy to increase it.

That can either increase the amount you’re saving for later life, without capital income tax while the money is invested, or increase the amount that can be paid each month towards your mortgage balance if you have a mortgage.

You may also have the option of building up other types of private pension savings through your mandatory pension contributions.

• Read about different types of Icelandic pension here

Some pension funds allow a fairly large share of contributions to be placed in unrestricted or restricted private pension savings. Others offer specified private pension savings, known in Icelandic as tilgreind séreign.

But there is a trade-off.

By increasing private pension savings through mandatory contributions, you may reduce insurance protection, including old-age pension rights and disability pension rights. So you need to decide whether you’re comfortable increasing personal savings at the expense of pension insurance.

If you do build up private pension savings, remember that the money may be invested for two decades. Take the investment choice seriously. Good long-term returns can make a large difference.

Pay down debt

Paying down debt is probably one of the safest and most effective ways to improve your financial position later in life.

I’ve spoken with thousands of Icelanders at or near retirement age, and I’ve never met anyone who regretted becoming debt-free.

A clear plan to pay down debt is tax-free and safe. The return can be very attractive, the uncertainty is low, and it doesn’t require specialist knowledge or effort.

If you manage to reduce debt well, you’ll be better prepared for the drop in income that often comes with retirement. You may also create more room for saving in the years leading up to retirement.

The importance of debt reduction is, unfortunately, greatly underestimated when people talk about pensions in Iceland.

Don’t copy other people.

And don’t assume you’re missing out on opportunities just because you aren’t investing more aggressively. Instead, consider going after the loans with real determination. The more you can pay down, the better.

But to do that, there needs to be room in the household budget.

So plan carefully. Create a household budget and stick to it. Use the breathing room in your finances to save for necessary future expenses, such as car purchases, home maintenance, Christmas and replacing appliances. Make sure an emergency fund is always available.

Then use what’s left to pay down debt.

A good loan calculator can help you estimate the effect of increasing your total monthly payments. You may be surprised by how powerful the result can be.

One small point matters here: it’s usually better to decide on a fixed total monthly loan payment than to attach yourself to a fixed extra payment.

How much is enough?

A person of your age recently asked me how much money is needed to retire.

That’s a useful question to explore, because it helps turn vague worries into numbers you can work with.

To estimate how much you may need, you can use calculators to look at both income and expenses in retirement, and how long savings might last if you draw on them over time.

The goal is not to find one perfect number.

The goal is to understand the range of outcomes and decide whether your current path feels acceptable.

Retirement income can come from several sources

Don’t be afraid to calculate different scenarios.

Your income in retirement may come from more than old-age pension payments from pension funds. Your aim is to make the overall household budget work.

Many Icelanders support themselves later in life through a mix of old-age pension, withdrawals from private pension savings, social benefits, personal savings, downsizing their home and working alongside pension payments.

Calculators and planning are your friends in this work.

It’s a very good sign that you want to take this seriously now rather than leaving it until much later.

I hope it goes well for you.