Saving For Retirement
Saving for retirement should be the most important thing you ever do with your money. The earlier you begin, the less money it will take. Individuals increasingly must manage their own retirement security.
The long-term shift from defined benefit to defined contribution retirement plans means that today’s workers must determine both how much they need to save for retirement and how to invest their pension assets.
During retirement period, older people must make difficult decisions on how to allocate their portfolios and how to draw down their life savings.
Yet, as the financial market meltdown has so clearly demonstrated, financial products have become very complex, confronting consumers with new and ever-more-sophisticated financial decisions.
The question that now arises is whether individuals are well equipped to make financial decisions.
In other words, do they possess enough financial literacy to function effectively in today’s complex marketplace?
Preparing retirement funds
When it comes to preparing for retirement, there are a lot of things you can’t control—the future of tax rates and inflation, for example. But one big thing that you can control is the amount you save.
Tax rates will almost certainly change between now and your retirement date, and inflation will continue to increase prices over time.
Other government programmes, like Medicare, might also change. But there’s one thing that only you can completely control: how much you save.
Pensions often offered an additional source of income for retirees.
But pension plans are becoming rare in today’s world, and it’s more important than ever to take advantage of the opportunity to save for your future.
Perhaps you’d rather spend your money on other things that are more fun than saving for retirement.
But because compounding can enhance the value of your savings, the “pain” of each dollar you save now can be greatly outweighed by the flexibility you gain later. Of course, it is not suggested that you are better off squeezing the last drop of enjoyment from your life. But knowing you’ll be all set to meet your basic needs later—with enough left over to let you comfortably do the things you look forward to in retirement—is worth going without a few treats now and then. It is important to provide guidance in making financial decisions and provide specific steps that people can act upon, particularly for the least financially literate.
Because individuals make many financial decisions and these decisions are interrelated, it is important to equip people with some basic tools.
Given widespread illiteracy, people are prone to make mistakes and these mistakes can be costly.
The public, both young and old need to be well-equipped in order to make these financial decisions.
Processing economic information
Specifically, we focus on financial literacy, by which we mean peoples’ ability to process economic information and make informed decisions about financial planning, wealth accumulation, pensions, and debt.
Financial knowledge can be a type of investment in human capital, where those who build financial awareness can earn above average expected returns on their investments, yet there will still be some optimal level of financial ignorance.
Prior to retirement, an individual earns labour income from which he/she can consume or invest, so as to raise his/her return on savings by investing in the sophisticated technology.
After retirement, he/she receives retirement benefits/packages which are a percentage of preretirement income.
Additional sources of uncertainty include stock returns, medical costs, etc.
Each period, therefore, the consumer’s decision variables are how much to invest in the capital market, consume, and whether to invest in financial knowledge.
Established organisations
Here in Fiji, we have well established organisations that cater for retirement benefits. Organisations such as Insurance companies, financial institutions and of course Fiji National Provident Fund (FNPF) to name a few. Financial institutions have visited schools, village communities, organisations and even to the interior of the main lands just to educate the public on how to save whatever little money they earn.
Certain bank products have been created to influence the public to save more than spending unnecessarily.