Start planning for retirement as soon as possible!
IT’S ALWAYS good to start planning for retirement as soon as possible, and a portion of a person’s salary should be put aside in preparation for the golden years, says Othneil Blagrove, senior manager – sales, JN Life Insurance.
Blagrove added that persons should contribute to a pension scheme to ensure retirement income and to supplement social security and personal savings. Additionally, funds from approved pension schemes are invested in several instruments which are used to spur economic growth. When persons are a part of an approved pension scheme, fewer resources of the State will need to be directed to elderly persons, should an unfortunate situation arise, because the savings accrued reduces the burden on the State. This is why he believes that retirement planning, by setting aside a portion of one’s salary, is important.
“When contributing to a pension, persons should take the opportunity to increase contributions to the maximum 20 per cent, if possible, regardless of age or income. What the research has also revealed is that the minimum contribution towards your pension, whether it is three per cent or five per cent, will not be enough to support you in retirement. Therefore, saving what you can, in addition to the maximum 20 per cent allowed statutory minimum, will help to increase the income you could receive during retirement,” he added.
FINANCIALLY COMFORTABLE
The senior manager pointed out that investment in the stock market and other financial instruments, as well as having critical illness policies and whole life insurance are also beneficial. He added that, even if persons did not feel they had saved enough, there were still activities they could do to ensure they were financially comfortable during retirement.
“The critical illness policies are advantageous if you develop a chronic illness, because they offer coverage against several major ailments,” he said. “A whole life plan gives you peace of mind when it comes to planning for your last rites, and will reduce the burden on your family.”
“Also, retirement is not a time to be pessimistic. There are several activities you can do to generate an income to ensure you do not have to worry about your golden years.You can earn from your talents. For example, if you sew or bake, that can be a source of income. If you have fruit trees, you can earn from them. You can also teach or become a consultant if you are qualified to do so. Therefore, there is really no need to worry, especially if you have been planning for that period of your life,” he said.
He added that retirement is an opportunity to enjoy one’s golden years if there was smart financial planning. However, he pointed out that, for some, it can be a time of great trepidation because there is uncertainty surrounding the funds set aside for their golden years.
But he believes that approaching retirement does not have to cause jitters, especially if the right amount of funds were set aside for that period of one’s life.
REPLACEMENT RATIO
“When planning for retirement, you want to achieve, at a minimum, a replacement ratio of 75 per cent of your current salary, which should allow you to maintain your standard of living after retirement. A replacement ratio is a rule that estimates what percentage of a person’s pre-retirement income will be needed to maintain their lifestyle at retirement,” he said.
He explained that, though the best approach to retirement is to start to plan from early “to avoid the feeling you have not saved enough,” he explained.
“Saving early means your money is invested for longer and has more time to grow. Additionally, increasing your payments in the future may give you a better chance to improve your quality of life in retirement,” Blagrove added.
The insurance executive pointed out that the average person changed his or her job four to seven times. He added that, in some cases, the job carries no pension plan, and, if it does, many persons do not reinvest their portion into another pension scheme, but use it for other purposes.
“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,” he revealed.
“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 not saved enough,” he added.