In Jamaica, the normal retirement age for several organisations is 65, while globally there is ongoing discussion with regards to delaying retirement.

Should policymakers review the retirement age? In a letter to shareholders of Blackrock — a multinational United States investment company — Chief Executive Officer Larry Fink stated that the age of 65 is too early for Americans to retire, noting that medical technology has advanced life expectancy because of new developments in the treatment of diseases.

With life expectancy increasing globally and the fertility rate falling, will retirees outlive their retirement savings? Blackrock CEO Larry Fink said that great effort has been expended for people to live longer, but little effort is made in “helping people to afford the extra years”.

I support the view expressed by Fink. With nearly 80 per cent of the Jamaican working population without a pension plan, the retirement crisis in Jamaica is disturbing. It is also a fact that many workers make minimum contributions to their pensions. Workers should be encouraged to make maximum contributions to their pension plans and to begin contributions early. Since some employers have no superannuation fund in place for employees, effort should be made to educate staff members on the risks of not saving enough for retirement. I find it interesting that there is a tendency for some people to enquire about the minimum contribution instead of suggesting an affordable contribution amount. Every retiree wants to live comfortably in retirement, although the reality is that many run the risk of running out of money.

A 2022 US Census Bureau survey revealed that nearly half of Americans do not have any retirement savings. In Jamaica, a 2014 actuarial review reported that the National Insurance Scheme (NIS) could collapse by 2033. Since then the NIS contribution rate has been increased from 5.5 per cent in April 2020 to six per cent. But this may only delay the crisis if more effort isn’t made to have more workers and self-employed people contributing to the fund.

Another interesting research showed that individuals who have emergency funds are more than 70 per cent likely to save and invest for their retirement. That’s because the emergency funds are their safety net. I am a strong advocate for emergency funds, and this research strongly reflects the importance of being a good saver. People who are savers are excellent candidates for investments. Planning for retirement is a lot easier when money is not hard to find.

Whenever I interview people who want to invest long-term, my first question is, “Do you have an emergency fund?” Emergencies will happen, but we don’t know when, where, or how, and it’s because of this uncertainty that we should plan for the unforeseen.

In Jamaica, the retirement landscape has changed. Since the advent of individual pension plans, more employers have shifted from the defined benefit (DB) to the defined contribution (DC) plans.

The DB plan offers employees the security and certainty that the employer will provide for their retirement income based on a prescribed formula, whereas the DC plan shifts the investment risks and responsibility to the employees whose retirement income is based on the performance of the retirement funds. Both the DC and DB plans provide steady streams of income in retirement. One main advantage of the DC plan is that people can carry their pension plan wherever they go, whether they change jobs or become self-employed or entrepreneurs. There is no refund of contributions upon changing jobs. Since DC plans provide great cost savings for employers, it should be imperative that employers play a greater role in ensuring that all employees, whether part-time workers or permanent employees, are enrolled in a pension plan. Financial literacy should be seen as an employee benefit. Employers should match employees’ contributions to individual retirement plans.

In the meantime, delaying retirement can prove financially beneficial to retirees who did not save enough for retirement, and it will also boost the nation’s economy. Blackrock’s Larry Fink is of the view that workers should delay retirement and the authorities should consider raising the retirement age. The retirement age in the USA was 65 and then raised to age 67 in 1983. A Howard Business Review disclosed that people are likely to live longer if they retire after age 65. It was based on the analysis of data from a health and retirement study concerning a survey of Americans aged 50 and over. In Jamaica, policymakers should ensure that automatic enrolment in a pension plan is made mandatory for all categories of workers in Jamaica. This will go a long way to tackle the affordability of living longer in retirement.

Grace G McLean is a financial advisor and retirement specialist at BPM Financial Limited. Contact her at: gmclean@bpmfinancial or visit the website: www.bpmfinancial.com. She is also a podcaster for Living Above Self. E-mail her at
livingaboveself@gmail.com