RETIRING early is a dream for many but achieving it requires careful planning, disciplined saving, and strategic investments. According to Grace McLean, pension and retirement specialist at BPM Financial, understanding how retirement plans work is the first step toward building a secure future.

“Only 20 per cent of Jamaica’s employed population contribute to a pension plan, and that is worrying for any country,” McLean told the Jamaica Observer in an interview.

This low participation rate means many Jamaicans may not have enough funds to support themselves during retirement, placing additional pressure on national resources and potentially leading to financial hardship later in life. Early retirement in Jamaica is typically considered between the ages of 54 and 55, while the normal retirement age is 65. However, retiring early means potentially losing 10 years of pension contributions, which can significantly impact retirement income.

“If you decide you want to retire early, you should have started contributing to a pension plan in your 20s,” McLean advised.

For those who start saving in their 30s, early retirement is still possible — but only if they contribute the maximum amount allowed by law, which is 20 per cent of their gross salary, and supplement their savings with other investments. Pension plans come with significant tax advantages. Contributions made through an employer’s payroll system are deducted before taxes, reducing overall income tax liability. For example, if your monthly salary is $100,000 and you contribute 10 per cent to your pension plan before taxes, your taxable income drops to $90,000, reducing your overall tax burden. However, if employers do not deduct pension contributions from salaries before taxes, employees may miss out on this tax benefit

The two major types of pension plans are the traditional superannuation or group pension plans (defined benefit plans), which are typically employer-managed workplace pension schemes whereby the employer uses a formula based on the employee’s years of service and salary history to determine the retirement payout. The other is defined contribution plans wherein the responsibility shifts from the employer to the employee, and the pension payout depends on how well the invested funds perform over the years and the amount contributed. With this pension plan, employee contributions are mandatory while employer contributions are optional. This model poses less risk for employers and forms the basis for individual retirement accounts (IRAs) and personal pension plans.

If the aim is to retire early, McClean suggests beginning to contribute to a pension plan as soon as an individual starts working. The earlier you start, the more time your money has to grow through compound interest. She outlined that one should aim to contribute the maximum 20 per cent allowed by law. The more you contribute, the better your chances of retiring early. If you leave a job and receive a pension refund, transfer it to another pension plan rather than spending it. This ensures your retirement savings continue to grow. Plan for multiple income streams as retirement planning isn’t just about pensions; consider additional income sources such as the National Insurance Scheme (NIS), investments, rental income, and other business ventures.

“In retirement, you should have various income sources. The earlier people understand this, the better prepared they will be,” she told Sunday Finance.

For those starting in their 40s or 50s, McLean advises contributing the maximum allowable amount and looking for additional income sources.

“If you can’t contribute the maximum, do what you can but you must also be investing. If you don’t have the money to invest, you need a second income,” she said.

While starting late poses challenges, it’s never too late to plan for retirement. Contributing the maximum and seeking additional income streams can still provide a comfortable retirement. McLean stresses that early retirement requires discipline, commitment, and a well-thought-out plan. Without proper planning many Jamaicans will face the reality of having to continue working in whaat should be their retirement years.

The final tip she shared with Sunday Finance is to clear all debts before retirement so that one can have more money to invest up to retirement. Early retirement in Jamaica is achievable but it requires early action, maximum contributions, strategic investments, and diversified income streams. By starting early, taking advantage of tax benefits, and resisting the temptation to spend pension refunds, Jamaicans can build a financially secure future and enjoy the retirement they desire.

Grace McLean, pension and retirement specialist at BPM Financial.