Pathways to a secure retirement
IN THIS year’s Sectoral Debate in Parliament, Minister Without Portfolio in the Ministry of Finance Fayval Williams stated that the Financial Services Commission reported that at June 2017, an estimated 9.4 per cent of the employed labour force, about 115,000 persons, was covered by private pension plans and that the figure rose to 16 per cent when the Government’s pension was added. Some persons seem to be quite prepared for retirement. A few years ago, I had a discussion with a retired teacher. He had worked for about 40 years in the public education system and mentioned that he was better off than he was in his active years. He cited better physical and emotional health, and, importantly, financial health. He was benefitting from his pension, his small family business, and his savings, which he was able to build by being frugal – a practice he carried into retirement.
What about persons who fall outside of the group that has a certain pension? Do the selfemployed, for example, make any preparation for retirement?
Some self-employed can count on retirement benefits from previous employment, if, indeed, there were any and if they were vested. The level of such pensions would vary, depending on several factors, including length of service.
But there are many others who do not have an employee pension. Some are not worried as they have charted a course for a financially secure retirement
I share two stories with you today – one about a 48 year-old male and the other about a 36year-old female. Both have, in their own minds, laid out a path for a secure retirement.
Gary is a carpenter and has a compulsory savings plan. He saves a set percentage of his earnings at financial institutions but exceeds that portion when his income is higher than normal. He does not have a separate emergency fund, so he withdraws from his savings when an emergency arises or when his earnings are not enough to meet his regular expenses in the slow periods. He has been on this path for the last 15 years.
His other pathway to a secure retirement is agriculture, but his focus is on long-term crops. He is not too keen on the quick money, which can be generated by short-term crops. He reasons that the long-term crops offer a higher level of security and require less work because there is less need to replant.
He must, though, pay attention to pruning and spraying the trees and cleaning the land. He sees rich rewards in less than 10 years.
He recognises the need to diversify, so he plants a variety of crops, including pimento, soursop, citrus, and breadfruit, and takes diversification to another level by planting several varieties of the same type of crop.
CROPS SUITED FOR WEATHER
Being aware of the risk of weather conditions, he deliberately chooses crops better able to withstand the wind and dry conditions after spending time to observe and conduct research, and he pays attention to where he plants the various crops.
Kari describes herself as an entrepreneur. She started her own business 16 years ago while she was employed. She is has done hairdressing in the past but prefers to focus on her trading business, which takes her all over the island. She sells a wide range of products, including shoes, cosmetics, and perfumes.
She has no plans to go into full retirement but expects to change the pace by the time she is 50. She budgets but does not maintain records as accurately as she should.
Kari saves at financial institutions and through the partner system. How much she saves depends on the season. Some periods are good, but others are slow, and it is sometimes necessary to withdraw savings to cover shortfalls during such periods and to cover emergencies.
Investment is another pathway she has established to guarantee a secure retirement. Ten years ago, she embarked upon house rental and reinvests the income that it generates. She is currently working on another project, which she expects to launch soon.
Other self-employed persons, no doubt, have created other pathways to a secure retirement, and it would be interesting to know about them although it is quite likely that they are informal.
There is a formal pathway available to self-employed persons and employed persons who are not members of a registered pension arrangement. It is the approved retirement scheme, which is marketed by the financial community and allows participants to contribute up to 20 per cent of their income. The portion of income contributed to the scheme and the income earned thereon are not taxed.
Some eligible persons have taken advantage of this facility, but indications are that they do not contribute consistently thereby limiting the potential benefits that it promises.
I Oran A. Hall, principal author of ‘ The Handbook of Personal Financial Planning’, offers personal financial planning advice and counsel. finviser.jm@gmail.com