Hugh Reid, managing director, JN Life Insurance, says approaching retirement does not have to cause jitters especially if the right amount of funds were set aside for that period of one’s life. He said retirement planning involved following smart steps to ensure they could enjoy their golden years
The managing director explained that pension contributions also have other benefits because those funds represent a significant pool of resources that can be used to advance development in a wide array of areas such as infrastructure, health care and educational advancement. The pension funds are normally invested in various assets such as securities, stocks bonds, real estate, commercial paper and repurchase agreements which help to provide a steady stream of income that can be used for consumption or more investment which helps to grow the economy.
He offers some advice for Jamaicans to help with retirement planning.
“When planning for retirement, you want to achieve at a minimum a replacement ratio of 75 per cent of your current salary,” Reid advised. “This ratio helps maintain your standard of living post-retirement. It is an estimate of the percentage of your pre-retirement income that is needed to sustain your lifestyle.”
“The first thing you should do is start planning for retirement early to avoid the feeling you have not saved enough,” he explained. “Early saving means your money is invested longer and has more time to grow.”
Reid explained that in many cases persons are already at a deficit as it relates to their pension because they would have already spent rather than saved the funds they needed to have invested for their retirement. He pointed out that people were now living longer and so more needed to be done to plan for retirement.
“Also, when you consider that because of advances in medicine up to 25 per cent of your adulthood can be spent in retirement, and that the average life expectancy in Jamaica is 76 years, if you retire at 60, you could spend up to 26 years living in retirement and you will need to ensure you have enough retirement funds for those 26 years. This is why persons are sometimes anxious about those retirement years because there is a worry if you have saved enough,” he stated.
Reid explained that a young professional who has just left university may find it challenging to contribute more than the minimum amount to their pensions savings. However, he offers this advice.
“You may find it challenging to contribute more than the typical minimum of five per cent. However, as your salary increases, annually, prioritise increasing that minimum amount until you reach the maximum you can contribute. Increasing your payments in the future may give you a better chance to improve your quality of life in retirement,” he added.
Reid noted that many young people sometimes withdraw their pension contributions when changing jobs, or sometimes work with employers who do not have pension plans. He however advises that many people do not reinvest their pension contributions into another pension scheme but use it for other purposes.
“This often leads to a pension deficit, as accumulated funds are spent instead of reinvested. I urge you not to use your pensions for other purposes, but opt for a deferred pension or reinvest it in an approved pension scheme/fund. Also, in cases where your employer does not have a recognised pension plan, you should start your own contribution to a recognised pension scheme such as the JN Individual Retirement Scheme where the funds are invested in multiple financial instruments to give you the best possible return on your investment,” he said. “It is never too late to plan for retirement.”
He recommends contributing up to the maximum 20 per cent of your salary if possible.
“Research shows that minimal contributions will not be enough to support you in retirement. Also, the money from the National Insurance Scheme will not be enough to protect you during retirement when you have medical expenses and other bills,” he added.
Reid also encourages investing in assets which offer a real return over time such as real estate, the stock market and other financial instruments. He also highlighted the value of critical illness policies and whole life burial insurance.
“Critical illness policies offer coverage against several major ailments and a whole life burial plan gives you peace of mind for your last rites and reduces the burden on your family,” he said.”
“Of course, real estate and financial instruments will also help to supplement your pension with additional income so those should be considered as well,” he added.
Reid also recommended participating in several activities to generate additional income in addition to your main source of income.
“If you have a talent, for example, baking or sewing, you can use it to generate additional funds. Also, part time gigs and working as a consultant if you are qualified in certain areas are also options to consider,” he said.