CHOOSING to retire early requires careful consideration. A few years ago, the Jamaican Government introduced the Special Early Retirement Programme (SERP) to public sector workers.

Permanent Government of Jamaica employees between the ages of 50 and 59 were eligible to apply. However, the police, teachers, correctional officers and public health workers were exempted, and only people who had a minimum a of 10 years’ service in the public sector could apply.

Attractive incentives were offered with a view to increase the retirement rate. The 2019 Auditor General report, however, found that only 37 per cent of eligible public sector workers took up the offer. The SERP, therefore, failed to meet its target as out of a take-up target of 1,600 only 597 employees participated. In addition, the SERP did not meet Government’s objective of managing the wage bill over the long term.

At a retirement seminar in 2018, I recall addressing eligible public sector workers who were considering whether retiring early would be the right decision to make. Majority of those I interviewed subsequently opted to retire at the normal retirement age, based on varying factors such as financial obligations, indebtedness, as well as calculated income shortfall in retirement.

Advantages of Retiring Early

Retiring early provides the opportunity for business ventures. It’s also an opportune time to change jobs. Embarking on a career change early is more beneficial than to wait until later as employment conditions in the job market will not remain favourable for the older employee. After working for many years, early retirement offers more time for leisure and travel, and so retiring early could be good for one’s health. There are individuals who also opt for early retirement due to stress-related issues at work or the onset of lifestyle diseases.

Disadvantages of retiring early

Early retirement reduces National Insurance Scheme (NIS) pension benefits. Postponing retirement to age 65 means a higher pension benefit. If you have been saving in a retirement plan, then the longer retirement is postponed, the more contributions you can make to your pension fund. Your contributions will have a longer time to benefit from the wonders of compound interest, resulting in a larger pension nest egg at normal retirement age. Early retirement can rob you of precious retirement income. An employee who retires at the normal retirement age of 65 may go on to spend at least another 20 years in retirement. If you retire at age 55, you will need to have retirement income for at least another 30 years. It’s important to note that if an employee is incapable of performing his/her duties due to any permanent illness or disability that individual can retire early.

Many employees either lose employee health benefits after retirement or experience reduced health benefits. Health insurance premiums increase with age and in some instances skyrocket beyond what retirees can afford. There are instances where person retire early before considering what to do with their time. This may lead to boredom. Transitioning from a lifetime of work to an unplanned retirement can be traumatic as retirees are faced with uncertainty regarding financial and physical health.

Living life by design

You can retire early and live the life of your dreams. But it necessitates making sacrifices early during the working years that require you to live beneath your means during order to live within your means in retirement. Living beneath your means refers to spending less than you earn during your working life. Put a financial plan in place that accommodates living by design and not by default. Having an approved retirement plan should actually start with the very first pay cheque. Contributing the maximum of 20 per cent per annum to a personal pension plan and complementing that with a diversified investment portfolio for the long term can aid early retirement. Early retirement planning requires estimating how much your living expenses will be in retirement and creating a retirement spending budget to cover costs base on the lifestyle that you desire to have. Debt reduction must be a financial goal if early retirement is to be meaningful. An emergency fund is important to cover unforeseen expenses. Maintain and revise your emergency fund as the economic climate changes. Examine the pros and cons of early retirement prior to making any retirement decision. Finally review your retirement plan periodically. If planned correctly early retirement can be a dream come true.

– Grace G McLean is financial advisor at BPM Financial Limited. Contact her at gmclean@bpmfinancial or visit www.bpmfinancial.com. She is also a podcaster for Living Above Self (livingaboveself@gmail.com).