Camille Steer | Retirement planning: make your money last a lifetime
There are many of us who need to place retirement and post–retirement as one of our top priorities. It is never too late to start planning. The key is to begin by making SMART moves and having a strategy in place.
WHAT ARE SMART MOVES
• Set specific financial targets to achieve your retirement goal. It is important to know what your target amount is. Based on the current industry benchmark, your retirement goal should be approximately 75-80 per cent of your final salary. This is also known as the replacement value. Simply put, your pension payments should be able to cover 75-80 per cent of your final salary.
The best approach is a multilayered approach to retirement planning. Bolster your retirement plan by contributing to an individual retirement solution, to the National Insurance Scheme (NIS), or superannuation plan, while at the same time exploring other financial options to supplement your retirement income.
• Monitor and measure your progress. Your retirement fund statement, provided by your fund/pension manager, is a good tool to help you to monitor and measure as it typically indicates your replacement value.
• Assess the adequacy of estimated income at retirement. The way you choose to retire is personal, and so, too, is the amount you will need in retirement. With the support of a financial adviser, you need to assess the adequacy of any estimated income you will receive, and determine if this will allow you to live the life you desire and deserve.
• Rebalance your budget and make adjustments. If you realise that you are off-track with your retirement target, you can make adjustments to your expenses, your retirement contribution, your investments, and your income stream.
• Take proactive steps. The key to staying on track, and if possible, contribute a maximum of 20 per cent of your income towards your pension. Additionally, supplemental income can be a game changer. This can be in the form of investments in stocks, real estate, bonds, unit trusts, or investment property, or via a part-time job. Select the best option, in consultation with your financial adviser, based on your unique circumstances (time horizon, risk appetite, etc). No one size fits all.
CONTINUOUS FINANCIAL PLANNING
As you reach retirement, you want to keep the ‘gains’ from your SMART moves. This stage of life is often overlooked, even by us in the financial industry. Here are some pointers that will help to change this approach.
• Manage your expenses. Having a balanced approach to money management will allow you enjoy the best of both worlds – pursuit of your dreams and financial security. In this new phase of life, you want to be prepared for incidentals such as increased medical expenses; cost-of -living adjustments due to inflation; daily living expenses; taxes; gifting your family; and any emergencies, without compromising your comfort and pursuit of your passions.
At the start of retirement, you have the option to access up to 25 per cent of your pension savings in the form of a lump sum retirement payment while the remainder will be disbursed in monthly payments to you over your retirement. Upon retiring, resist the urge to splurge by purchasing that dream car or other expensive luxury items that can cause a long-term burden to maintain.
• Tap into NIS benefits. You can access a funeral grant of up to J$90,000, which is paid on the death of an NIS contributor, pensioner or their spouse, to the person who pays the funeral expenses. Additionally, there is the National Insurance Pensioners’ Health Plan, which is a comprehensive medical insurance scheme that can be combined with your existing healthcare plan so that you can maintain and manage the costs of your healthcare.
• Stay Invested. Although you have transitioned to a more relaxed pace, you can remain an active player in the ‘investment game’. It is best that you have a holistic conversation with your financial adviser about your changing needs, assets, debt, and financial obligations, so that you can establish a plan that is best-suited to you and your changing circumstances. Your focus should be largely on maintaining a consistent income stream and preserving wealth, and staying ahead of the game.
• Supplement your income. Similar to your pre-retirement years, you may choose to supplement your retirement income. Having amassed years of experience and knowledge, you can still put it to use and bolster your current retirement income, while staying engaged, by working part-time or on special projects that will not compromise this new phase of your life.
As your needs change, so will your financial outlook. It is important that that you continue to monitor your portfolio and adjust, in consultation with your financial adviser. Making your money last a lifetime takes deliberate effort as you make SMART moves. Life continues after retirement, so should your financial planning. With good money management, tapping into NIS benefits, staying invested, and supplementing your income during retirement, you will be able to make your money last your lifetime.