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Financial Adviser | How much is enough for returnee to retire on in Jamaica

Published:Sunday | February 28, 2016 | 2:00 AM- Paul

QUESTION: I have recently retired from my job in the United States. I will have a pension of US$1,700 per month after taxes and health, dental, and life insurance are taken out.

I will be 58 years old this year and am eligible to access my 401K account for a monthly supplemental retirement income of US$1,400 after taxes are taken out. I will not incur any early withdrawal penalties from the 401K account because of my retirement status. Based on the principal balance in the 401k account, I calculate that the balance in the 401k account will run out at age 63, at which time I will be eligible for social security.

Having said all of that, I am planning to reside at my family residence in Jamaica I will not be paying rent or mortgage because the family residence does not have a lien. Is this enough to live on in Jamaica? The only major monthly expense that I will have in Jamaica besides electric, cable, telephone, and so on, is a car payment. Thanks in advance for your advice.

FINANCIAL ADVISER: You could have a long retirement before you. Fortunately, your retirement income seems secure and could get better if you have investments and savings. Additionally, receiving income in foreign currency in Jamaica is helpful in protecting your purchasing power.

Your big question is whether your income can support your retirement in Jamaica.

You have not said if you have dependents nor have you indicated if you have financial resources outside of the retirement benefits you are banking on from the formal retirements arrangements you have in place. What is good is that it seems that you will have a steady flow of retirement income into the future in US dollars.

The lifestyle you choose will determine the cost of your retirement. Matters such as health and dental expenses are provided for as is living accommodation. I do not know the level of your car payment and the likely cost of maintaining the vehicle, but you should realise that food could account for a sizeable chunk of your expenses.

Although price levels have been quite stable in Jamaica in recent years, inflation is one factor you cannot exclude from your calculations. You may want to consider if the benefits you will derive from depreciation in the value of the Jamaican dollar will be sufficient to compensate for any increase in price levels. I doubt it will do so fully.

If you plan and budget wisely and are prudent in your spending, I do not see why you should not be able to live on the income you expect to receive from the sources you have mentioned in your retirement years.

I would suggest that you save as much as possible in the earlier years so that you can keep in step with the rising cost of living as the years pass. Generally, you can expect health-related expenses to increase with time, but I am not able to say how adequate your insurance coverage is. Perhaps you could take a good look at the insurance benefits and determine what the cost of health care is in Jamaica in your planning.

It is generally accepted that your retirement expenses should be about 70 per cent to 80 per cent of your pre-retirement expenses, but I suggest that you bear in mind that you are planning to live in a society and economy different from the one in which you live now and that you will not have some expenses other persons normally have. That could make a meaningful difference.

I would not be surprised if you have an idea of what it costs to live in Jamaica today. If you do not, I suggest you familiarise yourself with the kinds and levels of expenses associated with living in Jamaica today and compare them with the income you anticipate. In other words, make a retirement budget.

If it seems you could have a shortfall, it would be sensible to identify ways to close that gap. You are on a sensible path. If you continue thereon and thus make good plans, you should be able to have a reasonable retirement in Jamaica.

n Oran A. Hall, principal author of 'The Handbook of Personal Financial Planning', offers personal financial planning advice and counsel. Email finviser.jm@gmail.com.