Retirement Planning: Making Your Money Last a Lifetime
Whether you plan to spend your post-working years as a globe trotter, take up a new hobby, enjoy the simpler or finer things in life; the opportunity to just march to your own beat every day is probably the most rewarding part of retirement. Yet, how many of us have placed retirement and post –retirement, as a top priority?
If you have not taken any deliberate action towards ‘upping your retirement game plan’, you are not alone, shared Camille Steer, corporate manager, JMMB Fund Managers Limited. She urges individuals to not panic; instead, change this state by making ‘SMART moves,’ and have a strategy in place to make that money last so that you can enjoy retirement.
Make ‘SMART Moves’
• Set specific financial targets to achieve your retirement goal: Like any goal, it is important to know what is your target amount. Steer notes that your retirement goal, based on the current industry benchmark, is approximately 75-80% of your final salary, also known as the replacement value. That is, your pension payments should be able to cover 75-80% of your final salary.
She recommends a multi-layered approach to retirement planning to assist individuals to achieve this goal, namely: make contributions to the National Insurance Scheme (NIS); bolster your retirement plan by contributing to an individual retirement solution, or superannuation plan, while at the same time, explore other financial options to supplement your retirement income.
• Monitor and measure your progress along the journey: Your retirement fund statement, which is provided by your fund manager, is a good tool to help you to monitor and measure your progress; as it typically indicates your replacement value.
• Assess the adequacy of estimated income at retirement: The way you choose to enjoy retirement is personal, and so, with the support of a financial advisor, 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, all is not lost. Simply, make adjustments to your expenses, your retirement contribution, your investments and your income stream.
• Take proactive steps: Camille outlines that the key to staying on track, is consistency and commitment to your goal. She encourages you to contribute the maximum of 20% of your income towards your pension. Additionally, supplemental income can be a game-changer. Investments in stocks, real estate, bonds, unit trusts, or investment property, or ‘banking on yourself’, via a part-time job, are all viable options. Of course, select the best option, in consultation with your financial advisor, based on your unique circumstances (time horizon, risk appetite etc.).
Your Financial Planning Continues into Retirement
As you hit retirement, leaving the stresses of the 9-5 or the weight of the daily operations of running a business behind, you want to keep the ‘gains’ from your SMART moves; after all, life continues post-retirement and so should your financial planning. This stage of life is often overlooked, even by the financial industry; and so Steer shares these pointers that will help you to enjoy your retirement in style, while ensuring that your money lasts your lifetime.
• 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.
Additionally, at the start of retirement, you have the option to access up to 25% 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. Camille cautions individuals, upon retiring, to resist the temptation to purchase 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 health care 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 advisor 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. At this stage, your focus should be largely on maintaining a consistent income stream and preserving wealth; so stay invested and stay ahead of the game, is the word of advice from Steer.
• 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 even during retirement that you continue to monitor your portfolio and adjust, in consultation with your financial advisor. 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. If you too want to make your money last a lifetime, make the SMART move, email jmmbpensions@jmmb.com