Oran Hall, Contributor
QUESTION: I enjoy reading your articles/responses to queries and find them very informative. I am 36 and hoping to make serious progress on retirement saving as this was interrupted in years past due to various activities — graduate school/illness, etc. I work overseas as a consultant mostly. Should I consider one of the IRAs on the market or would long- term tax-free investments in lump sums be better for me?
FINANCIAL ADVISER: Retirement planning is serious business. I like the approach you are taking to create a good quality retirement, but should let you realise that you have several options.
According to Tax Administration Jamaica (TAJ), to qualify to participate in an Approved Retirement Scheme (ARS) - which is what I believe you mean by an IRA - you must be a Jamaican resident.
To qualify as a resident of Jamaica, you should live in Jamaica for at least six months in the year, which do not have to be consecutive, and file your tax returns in Jamaica. You may pay up to 20 per cent of your chargeable income into the scheme.
The chargeable or statutory income of a self-employed person, according to TAJ, is gross income less the following: expenses incurred in earning the income, National Insurance Scheme contributions and the portion of income which is taxed at the nil rate. Other employed persons are allowed to contribute 20 per cent of pensionable salary.
The Long-Term Savings Account (LSA) is the other instrument you mentioned. There is no discrimination between resident and non-resident, but the most you can deposit to that account in a year is J$1 million for five years. The account must be a Jamaican-dollar account.
If you qualify for the ARS, you will find that it offers you greater flexibility, diversification opportunities and opportunities for growth. On the other hand, the LSA is an interest-bearing instrument so it offers no opportunities for growth and inflation protection. If you earn a high income, you will be able to put a larger portion of it into retirement savings using the ARS. Both offer meaningful tax savings but, whereas funds put into the LSA account are after tax dollars, contributions to the ARS are pre-tax dollars. That is a great advantage.
But there are other options to consider. You do not have to confine yourself to the Jamaican market and Jamaican instruments. Mutual funds are available in the local market and in foreign markets.
The same is true of common stock if you have the capacity to deal with that type of investment. Unit trusts are available on the local market, and do not forget that some types of life-insurance policies can also generate a good pool of funds for retirement.
You still have some time to build a reasonable pool of retirement income, but you should bear in mind that the markets will not always be kind to you so do not panic when such situations arise.
I am pleased that my column is beneficial to you and thank you for letting me know. I wish you great success in building your retirement portfolio.
Oran A. Hall, a member of the Caribbean Financial Planning Association and principal author of "The Handbook of Personal Financial Planning", offers free counsel and advice on personal financial firstname.lastname@example.org