Wed | Dec 6, 2023

Growth & Jobs | Aim for at least 75% income replacement ratio when planning for retirement - Blagrove

Published:Tuesday | September 27, 2022 | 12:06 AM

PLANNING FOR the golden years is an important undertaking since more persons are leading longer, active lifestyles beyond their working years. However, it is recommended that persons ensure that they set aside an adequate sum in order to maintain their current standard of living when planning for this period along life’s journey.

Othneil Blagrove, senior manager of sales and marketing at JN Life Insurance, says persons planning for retirement should try to achieve a replacement ratio of 75 per cent of their salary if they want to maintain their current standard of living after retirement.

Blagrove says that persons can enjoy retirement with smart financial planning.

“When planning for retirement, you want to achieve at a minimum a replacement ratio of 75 per cent of your current salary, which should allow you to maintain your standard of living after retirement. A replacement ratio is a rule that estimates what percentage of a person’s pre-retirement income will be needed to maintain their lifestyle at retirement. Therefore, the first thing you should do is start planning for retirement early to avoid the feeling that you have not saved enough,” he explained.

“Saving early means your money is invested for longer and has more time to grow. Additionally, increasing your payments in the future may give you a better chance to improve your quality of life in retirement,” Blagrove added.

The JN Life Insurance executive pointed out that provision must also be made for instabilities with employment and income, given that the average person changes his or her job four to seven times. In some cases, the job carries no pension plan, and if it does, many persons do not reinvest their portion into another pension scheme but use it for other purposes.

“This means that in many cases, persons are already at a deficit as it relates to their pension because they would have already spent the portion accumulated during their time in that particular scheme,” he explained.

“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 20 years living in retirement, and you will need funds for those years. This is why persons are sometimes anxious about those years because there is a worry if you have saved enough,” he added.

“When contributing to a pension [scheme], persons should take the opportunity to increase contributions to the maximum 20 per cent, if possible, regardless of age or income. What the research has also revealed is that the minimum contribution towards your pension, whether it is three per cent or five per cent, will not be enough to support you in retirement. Therefore, saving what you can, in addition to the maximum 20 per cent allowable, will help to increase the income you could receive during retirement,” he advised.

Blagrove pointed out that investing in the stock market and other financial instruments, as well as acquiring critical illness coverage and whole-life insurance, are also beneficial.

“The critical illness policies are advantageous if you develop a chronic illness because they offer coverage against several major ailments,” he said.

“A whole-life plan gives you peace of mind when it comes to planning for your last rites and will reduce the burden on your family.

“Also, retirement is not a time to be pessimistic. There are several activities you can do to generate an income to ensure you do not have to worry about your golden years. You can earn from your talents. For example if you sew or bake, that can be a source of supplemental income.

“If you have fruit trees, you can earn from them. You can also teach or become a consultant if you are qualified to do so. Therefore, there is really no need to worry, especially if you have been planning for that period of your life. Proper financial planning from now can help you to enjoy your golden years,” he said.