For years many employees automated their pension contributions through salary deductions or standing orders. They developed a habit of saving and investing regularly which carries over into retirement to generate streams of income.

A 2019 report from the National Institute on Retirement Security (NIRS), Washington, DC, United States revealed that most Americans plan to stay as long as possible in the workforce or reduce spending to ensure income security during retirement. According to the report, more than 75 per cent of American workers say “they don’t have the financial skills to manage money in retirement”.

Recently a retiree shared his retirement journey of how he has been able to navigate retirement by automating his pension income. He currently receives pension income from four sources, including the National Insurance Scheme. One would have thought that his combined pension earnings would be sufficient to provide for his retirement needs. The combined pension is approximately $130,000. He spent his working life as a civil servant working in different areas of the public sector. He had the foresight to recognise the need for the services of a financial advisor to guide his decision-making. With a diversification strategy employed, this client automated his pension income by ensuring that funds are invested every month as he re-enters the workforce at the age of 70. He plans to continue working for as long as possible since he now enjoys relatively good health while treasuring his new role of imparting his knowledge and skills to the younger generation.

This retiree’s automation of retirement funds for investments for long-term and emergency needs provide the security that he needs and protection against outliving his investments.

Benefits of automating pension income

Automating pension income for savings and investment is simple and cost-effective. The retiree gives instructions to implement the automation once, and the pension transfers go on autopilot. The client mentioned in this article benefits from dollar cost averaging since some of his pension payouts go to a diversified fund of stocks and bonds. The dollar cost-averaging strategy of transferring monthly pension income to purchase stocks in a managed fund ensures reduce investment costs and higher returns over the long term. His investment benefits from compounding and the value and growth of the fund increase more rapidly over time. Automation of pension income provides the opportunity for the retiree to live comfortably in retirement with the peace of mind that his investments will provide income when he needs it most. Automation will also protect against market volatility that happens from time to time as well as protects against the negative impact of rising inflation. The retiree can rebalance his account when necessary, as automation facilitates the transition from one type of investment to another with little hassle. The investment portfolio must be reviewed as needs and lifestyle may change. Retirees may have several automation systems in place as funds may be invested with different institutions. Retirees can make withdrawals without fear of depleting resources too early. It’s ideal that a separate fund is in place for emergency needs. An automated system to fund the emergency account is important to ensure that it is well-resourced. Having an automated system of investing does not prevent ad hoc or lump sum deposits to investment funds.

Having pension income automated for future investments is a sure way to increase earnings in retirement. The pay cheque will someday stop, but the bills never cease. Based on the NIRS 2019 report, 79 per cent of Americans have little knowledge of investing and are unaware of the steps to take so they can have sufficient savings for retirement. Many Jamaicans face the same dilemma. Today some people are not able to make a distinction between saving and investing. Financial literacy is the key to peace of mind in retirement.

Grace G McLean is Financial Advisor at BPM Financial Limited. Contact her at gmclean@bpmfinancial. and visit the website: www.bpmfinancial.com. She is also a podcaster for Living Above Self. Email her at livingaboveself@gmail.com