For those who plan financially, retirement is a time to enjoy one’s golden years. For others, it can bring anxiety due to uncertainty about whether enough funds have been set aside.
Hugh Reid, managing director, JN Life Insurance believes that approaching retirement does not have to cause jitters especially if the right amount of funds were set aside for the that period of one’s life. He offered the following advice to assist with planning for retirement.
1. Start Planning Early
“The first thing you should do is start planning for retirement early to avoid the feeling you have not saved enough,” he explains. “Early saving means your money is invested longer and has more time to grow.”
He added, “This means that in many cases persons are already at a deficit as it relates to their pension because they would have already spent the portion accumulated during their time in that particular scheme.”
Mr Reid points out that people are now living longer and so more needs to be done to plan for retirement.
“Also, when you consider that because of advances in medicine up to 25 per cent of your adulthood can be spent in retirement, and that the average life expectancy in Jamaica is 76 years, if you retire at 60, you could spend up to 20 years living in retirement and you will need funds for those years. This is why persons are sometimes anxious about those years because there is a worry if you have saved enough,” he stated.
2. Aim for a 75 per cent Replacement Ratio
“When planning for retirement, you want to achieve at a minimum a replacement ratio of 75 per cent of your current salary,” Mr Reid advises. “This ratio helps maintain your standard of living post-retirement. It estimates what percentage of your pre-retirement income is needed to sustain your lifestyle.”
3. Increase Contributions Over Time
Mr Reid explains that a young professional who has just left university may find it challenging to contribute more than the minimum amount to their pensions savings. However, he offers this advice.
“You may find it challenging to contribute more than the five per cent. However, as your salary increases, prioritise increasing that minimum amount until you reach the maximum you can contribute. Increasing your payments in the future may give you a better chance to improve your quality of life in retirement,” he adds.
4. Be Mindful When Changing Jobs
Mr Reid notes that many young people sometimes do not transfer their pension when changing jobs, or sometimes work with employers who do not have pension plans. He, however, advises that, “Many persons do not reinvest their portion into another pension scheme but use it for other purposes. This often leads to a pension deficit, as accumulated funds are spent instead of reinvested. I urge you not to use your pensions for other purposes but reinvest it in an approved pension scheme. Also, in cases where your employer does not have a recognised pension plan, you should start your own contribution to a recognised pension scheme where the funds are invested in multiple financial instruments to give you the best possible return on your investment,” he said.
5. Maximise Pension Contributions
“It is never too late to plan for retirement,” Mr Reid emphasizes.
He recommends contributing up to the maximum 20 per cent of your salary if possible.
“Research shows that minimum contributions— whether three or five percent— will not be enough to support you in retirement. Also, the money from the National Insurance Scheme (NIS) will not be enough to protect you during retirement when you have medical expenses and other bills,” he adds.
6. Diversify with Investments and Insurance
Mr Reid also encourages investing in real estate, the stock market and other financial instruments. He also highlights the value of critical illness policies and whole life insurance.
“Critical illness policies offer coverage against several major ailments and a whole life plan gives you peace of mind for your last rites and reduces the burden on your family,” he said.”
“Of course, real estate and financial instruments will also help to supplement your pension with additional income so those should be considered as well,” he added.
7. Explore Income-Generating Activities
Mr Reid also recommends participating in several activities to generate additional income.
“If you have a talent, for example, baking or sewing, you can use it to generate additional funds. Also, working as a consultant if you are qualified in certain areas is also options to consider,” he said.
