THIS week we will focus on how retirement strategy differs or is similar for two self-employed individuals, one aged 21 years old and the other 55.

Camille Steer, senior corporate manager, JMMB Fund Managers, advises that, whether an individual is planning for retirement at 21 years old or 55 years old, his/her retirement portfolio should include:

· an emergency fund to safeguard against high-interest rate debt in case of unforeseen circumstances;

· an investment portfolio that suits his/her retirement lifestyle and risk tolerance, while also providing an income stream in retirement and

· a retirement scheme that will ultimately distribute money to sustain the individual when he/ she stops actively working.

Self-employed strategy

Self-employed individuals have similar options for saving for retirement, as their salaried colleagues include making contributions to an approved pension arrangement such as JMMB Retirement Solutions (JMMB RS), other company managed retirement solutions, and also the National Insurance Scheme (NIS), which also offers additional benefits.

Key Takeaways for Your Retirement Action Plan in Your 20s

· Join an approved retirement scheme now, like a company managed retirement solution.

· Start with a small contribution, be consistent and increase contribution later: As your business grows and becomes more profitable, examine if you can increase your monthly contribution to 20 per cent of your income, which is the maximum allowable.

· Establish an investment portfolio with a growth component, as the long-term horizon for retirement will allow one’s investments to outperform inflation.

Even though individuals need to choose assets (stocks, bonds, real estate, etc) that are aligned with their risk appetite, equity unit trusts are a good start and will help to build investment confidence, even as they learn about varied financial opportunities.

Equities/ Stocks and bonds are good investment options to include in one investment portfolio during your 20s.

Use debt wisely and practice good financial habits. Use debt to acquire assets that can provide long-term benefits and practice budgeting so that some funds can be set aside to allow self-employed individuals to maximise their retirement savings and investments.

“Pay yourself first.” Start now and be consistent in setting aside retirement savings as one of the first priorities when collecting money weekly or monthly.

Key Takeaways for Your Retirement Action Plan in Your 50s

· Join a retirement scheme now: like a company managed retirement solution (such as the JMMB RS) and maximise the rate of contribution to 20 per cent of one’s income.

· Create your income plan: Make an assessment of sources of income and potential expenses during retirement, in order to determine one’s retirement target amount. This can be done with the assistance of a financial advisor.

· Supplement retirement income: One’s investment portfolio, at this stage should seek to secure and preserve future income.

Investments that provide consistent cash flow are good options to consider, such as bonds that give coupon payments; ordinary stocks and preference shares with attractive dividend payments, as these investments will bolster your income during retirement; and real estate and bond unit trusts, which tend to have more moderate risk profiles.

· Reduce debt: This will allow individuals more income during retirement. If necessary explore the possibility of a debt consolidation loan, especially for high-interest rate debt; as this can provide the increased financial bandwidth to save and invest more and strengthen one’s overall financial position.

Additionally, practice good financial habits like budgeting to ensure that one’s retirement goal is not compromised.

The 55-year-old can also consider late retirement, which is up to 70 years old: as this can add to one’s pension benefits.

Retirement savings calculation

Retirement income will naturally be more, the longer you save. The following are projections for a 21-year-old and a 51-year-old, both self-employed who have both invested in an approved retirement scheme until normal retirement age of 60 years.

This calculation is based on the JMMB Retirement Solutions with the individuals having an income of $2.5m, with an increase in earning annually for both members.

The projection provided is intended for primarily demonstrative purposes. Past performance of the retirement fund is not a guarantee of future performance.

The 51-year-old member and 21-year-old member consistently contributed 20 per cent and five per cent, respectively on a monthly basis towards an approved retirement scheme.

Note that the 21-year-old is saving at a lower rate than the 51-year-old who needs to make up for time lost. However, the 21-year-old can contribute the maximum 20 per cent also, which would further increase savings and result in a larger pension.

For the member aged 21 years, who has 39 years to save towards retirement, this individual would accumulate $63,932,000 in retirement savings by age 60. The total pension available annually would be $5,977,746.65. Monthly payments is projected to be $498,145.55

However, for the 51-year-old, who is contributing four times the amount (20 per cent), would have a total accumulated, after nine years of monthly salary contribution , of $13,654,544.

Annual pension available for the 51-year-old would be $1,276,722.25, which results in a monthly payment of $106,393.52.

Several factors based on a member’s unique circumstances can impact the projection, such as gender, risk profile, etc.

Although the retirement accumulation amount would be the same for both men and women, the monthly payout during retirement would be different in Jamaica, as this is based on the fact that women have a longer life expectancy than men. You therefore would only see that difference in the monthly payments at retirement.

Additionally, the calculation shared was also a fairly modest risk profile and therefore individuals with a more aggressive risk profile can expect higher returns than the projection shown.