Are You Ready For The Big RSunday, January 31, 2021
For many people, the events of the past 10 months have understandably brought certain financial questions to the fore, chief among them being: Is my emergency saving fund in good shape? Am I carrying too much bad debt? Does my budget realistically reflect my current reality? Is my financial portfolio adequately diversified? Do I have enough of a safety net by way of insurance?
But, increasingly individuals of a certain age have been asking themselves this question, in light of the volatility and seeming randomness occurring all around them: Am I ready to retire?
Many of us are ready for other Rs, like rest, relaxation, and respite from daily rigor; we expect to have all of those with retirement but if our financials are not appropriately handled all those Rs will look impossible.
If you're in your 20s and 30s, you're probably not concerned with this, even though you should start planning for this. But for those approaching their 40s and 50s, retirement planning is an issue you should start to become very mindful of. Realistically speaking, if you're in your 40s you have around 25 years left in the workforce. If you're in your 50s you should already be well on your way to implementing your retirement plan.
But what do you do after you turn 65? Life expectancy data indicate that on average we're living longer than our ancestors; how will you take care of yourself financially for another, say, 15 years once a steady pay cheque stops coming in? Because this is what retirement is; not simply the end to the rat race you've been a part of since your 20s.
Now is the time to put in place a plan of action for how you're going to not simply survive, but rather flourish, in your golden years.
Deficit in retirement income sources
How many times have you witnessed elderly people on the streets who have obviously fallen on hard times and are getting by on the kindness of strangers? Or, maybe you personally know older individuals, while not begging on the streets, but whose lifestyles, after retirement, have been so drastically cut (fixed-incomers) so as to push them almost to the margins of well, downright penury. Children are not a retirement plan either, there are no guarantees that your children will take care of you or can take of you.
The truth is, this can happen because of a failure to plan for some persons, but also, in many cases, because of an inadequacy in their plan. There are many reasons for this: Some may have started their plan for accumulation too late, they may not have taken into account inflation, their savings and investment portfolios could possibly have been too conservative, or they did not take fully into account the devastating effects of sickness. People who were perennial contract workers and thus not contributing to the National Insurance Scheme (NIS), self-employed, or worked with a company that did not provide a pension scheme or superannuated funds, too, stand to possibly find themselves ill-equipped to face retirement.
Deficit in preparation for the emotional toll
Some people who've been taken unawares by retirement have done so simply because they've actually enjoyed being in the workforce; they relish the hours spent at work and have no desire to no longer beat rush-hour traffic or be puttering around in their gardens, or whatever they perceive retirement to mean. Or, perhaps their jobs are closely associated with their identity; retirement may mean they will no longer have a sense of self or their place within the context of the society. Will they still be able to add value to their community?
Being forced into retirement, for them, therefore may not be seen as enriching, but rather, can represent a time of depression, in which they must consider the next chapter, and for them, if there is no plan for a second-act resurgence, this can be a very scary thing.
What does it take to be retirement-ready?
If you're still some distance away from retirement, the following are a few things to start considering.
• Are your finances stable? If you're grappling with a large amount of debt, it isn't time to retire. Your savings will be strained trying to pay off debt, including your mortgage, as a retiree.
• Are you struggling to pay your bills with your pay cheque from work? Conventional wisdom says that about 75 per cent of your pre-retirement income is needed to enjoy a comfortable life after retirement. Even at full-age pension your benefits from the NIS in tandem with inflation, this may not be enough.
• Can you afford to beef up your portion of the pension contribution plan on your job? At retirement the total amount in this fund, which earns interest over time, is used to purchase an annuity, and from this income is payable. The greater the total contribution, the greater the benefit at retirement. If you're self-employed, open an individual retirement account, offered by banks and insurance companies, to which you can contribute, tax-free, 20 per cent of your income.
• Do you have a robust and diversified personal investment portfolio? Realistically speaking, this is where the brunt of your retirement income has the potential to come from. In addition to diversifying across various asset classes like stocks and bonds, start now to prioritise financial instruments that offer long-term cash accumulation and capital appreciation.
A careful projection of the finances you will need to support you when you retire is necessary when contemplating retirement. If planning this budget seems overwhelming, your financial advisor is there to help you protect yourself from potential risks to your financial security in your post-retirement years.
Now you can read the Jamaica Observer ePaper anytime, anywhere. The Jamaica Observer ePaper is available to you at home or at work, and is the same edition as the printed copy available at https://bit.ly/epaper-login