Ryan McMorris | Rescuing your retirement
It is no secret that the rate at which we save is grossly insufficient. The new norm for employees is to transition from job to job, not staying long enough to be vested with pension benefits. As such, they can no longer rely on a single employer to help finance their retirement.
Also, if you have been employed at three different jobs over a 10-year period, the probability of attaining a pension plan from any of those employers is minimal. As a result, this presents a very serious problem for our ageing workforce.
There are very few employers that offer a properly structured retirement programme; and moreover, a matching 5 per cent or 10 per cent contribution (for NIS) does not constitute such a programme. This results in more employees making the scary discovery that they have not saved enough to retire.
Think about being 50 or even 60 years old and realising your retirement will be characterised by a mode you have been in practically all your life that is, scrambling to pay bills. Imagine an even more dire scenario actually being retired and having to go back to work just to survive. This is clearly no way to spend one's latter years.
As such, there are a number of questions you need to start with: What is the right age for retirement? How much income will you need? How far are you from your retirement goals? Have you even written down a retirement goal? What can you do to lessen the gap between where you are and where you need to be?
CORRECT THE SHORTFALL
There are several factors that significantly impact retirement. They include, but are not restricted to, projected inflation rates, market conditions, expected rates of return, length of life post-retirement, and the trickiest of them all, health.
No longer can there be an elementary approach to planning for those latter years. Our circles are littered with people who we can talk to about the importance of incisive planning; our parents, grandparents, aunts, uncles and neighbours.
The illustration [see graphic on this page] shows how important, and beneficial, it is to start planning as early as possible. In this regard, time can be your greatest ally or your worst enemy.
We need a generational shift in the way we plan for retirement. Young professionals need to stop looking at the cup as being half empty by echoing the sentiment that they have no money to invest; and start looking at it as being half full because they have so much more time to invest.
In the illustration, we see that it is easier to reach the desired goal of $20 million when there is a longer time horizon for any given rate of expected return. Conversely, we see the difficulty when time is limited.
Let us look at what can be done in an effort to help correct the shortfall of how ready you may be for retirement. A quick and easy way to track your progress in planning for retirement is to calculate what is often referred to as a retirement readiness score. A credible adviser can sit with you to calculate this.
The readiness score is essentially the ratio of your sustainable income to your target income (having already established what that target is, of course). So, a ratio of 100 per cent indicates that you are fully on track relative to what you foresee as your retirement income needs.
If you are at 50 per cent, you may need to consider working beyond your anticipated retirement age or increase the monthly contributions in your plan. Bear in mind, also, that it is strongly advised to have contingency plans in place to protect against the ugly head of the unforeseen.
None of us can predict the future. We have no clue what will happen tomorrow, let alone 10, 20, or 30 years from now. Where health is concerned, we are literally rolling the dice. One bout of serious illness can obliterate any nest egg. Protecting yourself via critical illness coverage may seem rudimentary to some, yet it is ignored by most another mindset that needs shifting.
Retirement planning has to be treated with the seriousness warranted, as though our lives depend on it because they literally do. There is no room for error or recovery in the latter years.
While keen attention has to be paid to preserving our investments and savings, we have to also ensure that we do not outlive them. Happy planning!
- Ryan C. McMorris, MBA, is financial adviser at Sagicor Life Jamaica Limited, Holborn Branch, Kingston. email@example.com