I recently met with a 65-year-old senior who doesn’t plan to retire in the foreseeable future because she doesn’t have enough retirement funds.

When asked if she contributed to a pension plan, her response was in the affirmative. She referred to the National Insurance Scheme (NIS) as her sole pension. I am quite concerned that others like this senior worked for 40 years or more with their hope of pension income hinged solely on a social security pension benefit. According to this senior, her priority while working was to own a house. I congratulated her for acquiring her home and paying off her mortgage.

Her major concern now is providing an income for her old age. Both she and her husband continue to work, as he, too, has no pension income except for the NIS pension benefit. Delayed retirement is their only recourse. This option provides them with more time to save for their golden years instead of exhausting their savings to cover living expenses. Our society is an ageing one, and they are likely to live long in retirement, especially since they are currently enjoying good health. Health costs can wipe out their savings, and they are mindful of that fact.

Research shows that women have a higher life expectancy than men, therefore the aforementioned female is not taking any chances at this stage of life. It’s better late than never to start her investment journey and she sought financial advice on the best way forward. She plans to complete the expansion of her home to create rental income which offers another income stream for retirement. It will not be easy, as tremendous sacrifice is needed in saving and investing regularly from her monthly income. At the same time, she contemplated starting a home-based business as time is of the essence in growing her funds to meet her real estate goals. Recognising that streams of income in retirement are important to maintain her standard of living, she was confident that her financial goals were attainable and the only time she was sure of is now. Don’t rely solely on social security for retirement income, it is insufficient to offer a feasible monthly income. Ideally, retirement income should replace 70–80 per cent of one’s pre-retirement income. However, it’s not “a one size fits all”. Some retirees may need to replace 100 per cent of their pre-retirement income to live comfortably in retirement due to lifestyle, longevity, or financial needs.

As demonstrated in the case highlighted today, reliance solely on NIS pension benefits will be insufficient to replace your income in retirement. A 2020 report by the United States-based National Institute on Retirement Security reported that “40 per cent of older Americans rely solely on social security for retirement income”. Interestingly, only seven per cent of retirees receive income from three sources. These sources are a pension, social security, and savings. They are considered to be ideal for financial security. The report concluded that persons with these sources of income are far less at risk of “poverty and economic hardship”. It also revealed that social security plays a pivotal role in reducing old-age poverty.

In Jamaica, it has been an ongoing complaint that some employers have not been compliant in paying over to the Government the NIS contributions. With a reduction in unemployment in Jamaica, the number of NIS contributors should increase. But this may not be the reality. The law stipulates that employed persons aged 18 and older must be NIS contributors. Self-employed persons are not exempted. Social security may prove to be a financial crisis in the future, especially with an ageing population, reduction in birth rates, and NIS compliance challenges.

NIS pension benefits are payable at age 65.

Employees or employed persons should be made aware of the benefits of planning for retirement at an early age, preferably from the very first job. Financial literacy is more important now than ever before. The Ministry of Labour and Social Security should embark on an aggressive campaign to educate the masses about the benefits of social security. NIS pension benefit was not designed to replace an employed person’s income. Employers, employees, the self-employed, and the government all have a role to play in securing livable income in retirement. The famous quote by the 35th president of the United States is still apt today. He said, “If a free society cannot help the many who are poor, it cannot save the few who are rich”.

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.