Disclaimer: The views and opinions expressed by the author(s) do not represent the official position of Barbados TODAY.
By Audrey Reid
Quite recently on a local morning programme, the broadcaster sought to engage listeners about retirement/retirement planning. One caller moaned, “pension from the National Insurance Scheme (NIS) is so low. Sorry I didn’t have a private plan.” Another caller said: “Are we helping others to learn from the mistakes we made?” Yet another one said, “Even if you are working for a little bit, you can still plan.” Another one said: “Don’t invest all in one place, spread it around?” All words of wisdom and experience. I would also like to add mine. Have you ever heard a retiree say that he/she has too much money in retirement? Neither have I. Rather, you hear the opposite – “it is not enough”. Therefore, the message is clear – to experience that financial security in retirement, it takes planning, commitment and cash over a long period of time. Therefore, do not sit and wait only on the National Insurance Scheme (NIS), take things in your hands. Take to heart the foregoing comments made by the callers so that you can live the lifestyle in retirement like/or as close as possible to what you were accustomed when you were working.
How easy is it to do? Without planning? Not easy at all. However, like anything else, you start with your goals, and the next step is to move to have a financial check-up with your financial professional. Some of the goals that you are likely to consider are:
• Do you aim in retirement to maintain the kind of lifestyle to which you are accustomed when you were working or as close as possible?
• Are you looking forward to travelling to those exotic places that you see advertised on the television and on the internet?
• Would you like to start some new activity that you never had the time for before e.g., learning to play an instrument, dancing, tennis or golf?
• Would you like to know that you can attend your private doctor/clinic without seeking a payment plan/breaking the bank?
• How about pampering yourself e.g., massages, manicures, pedicures etc?
• What about treating your grandchildren from time to time without feeling that you will have a shortfall?
• What if you should require long term care as you age gracefully into the 80’s, 90’s and beyond?
Alternatively, would you want to plan for a less active lifestyle and live a simpler life such as?
Go to the beach, Q in the community, visit friends, get involved in community work, join the library, or form a book/kindle club with friends who are also retired. What about utilising the piece of land around your home and discovering the “green thumb” that you never realized you had before? This could result in another source of income to supplement that NIS cheque.
A simplified life during working life reduces the stress of finances e.g. if you updated your kitchen while employed, no need to worry about that when retired; or downsized your home to have a small apartment, this could assist in supplementing your retirement income.
Your retirement outlook and outcomes are based solely on YOU. The fact that your neighbour travels each year, does not mean that you must do the same. You may even decide to continue to keep actively working 2 days a week. Your decisions should be focused on your projected income.
Based on the maximum NIS monthly pension representing 60% of maximum insurable earnings (currently $4,880) assuming you qualify for the maximum, your monthly pension would currently approximate $2,928. If that is your only income in retirement, which of the foregoing activities can you afford in retirement? Therefore, we need to recall the various comments alluded earlier from the callers and let us explore the options available.
The next step is to schedule the financial check up with the financial professional. This will entail an assessment of what you already have in hand, a projection of what you will need based on your goals and potential challenges along the way. Such challenges will include inflation, rising health care costs and health insurance, savings and investment risks. In addition, various retirement planning options could be explored based on the risk profile.
WHAT ARE YOUR OPTIONS?
Savings/Fixed Deposits
Registered pension plan (Group/Individual Pension Plan)
Registered Retired Savings Plan (RRSP)
Unregistered pension plan (Individual Pension Plan)
Investments (financial & real estate)
Life Insurance policies
Part-time assignments in the initial stages of retirement
Savings – this is the starting point as it is the first place that surplus funds would be allocated to build emergency funds. The low market interest rates do not make this option particularly attractive, however funds are more easily accessible in an emergency.
Registered pension plans (group) – Some companies offer these as part of the total compensation package, and the employee should take advantage of them as there is a percentage match contribution made by the employer. Essentially, there is some “free” money being contributed to the plan for the employee. These plans cannot be used as security for debt and are generally restricted to maturing at pensionable age. The Plan becomes portable after 2 or 3 years should the employee leave the organisation. If it is not transferred to a company pension plan or other options offered accepted, including an individual registered pension plan, the result would be a tax payable of 25 per cent of the proceeds to the Barbados Revenue Authority (BRA).
RRSP – these plans are available from non-insurance financial entities primarily banks and credit unions with the added benefit of the plan holder being able to make one withdrawal limited to 25 per cent of the accumulation, without a tax penalty, for use towards a first home purchase.
Unregistered pension plans – as the name implies, they are not registered with BRA and therefore do not have the restrictions that are applicable to the registered plan. These are available from insurance companies.
Investments (financial) – mutual funds, bonds, debentures, treasury bills, commodities, the trending crypto currency etc fall into this category. These instruments tend to fall into the more sophisticated class and individuals are advised to arm themselves with a much higher level of financial literacy in understanding risk and return. In addition, guidance from a financial professional is advised. The caution is “if you do not understand it, do not invest in it.”
Investments (real estate) – a larger capital outlay and borrowing is generally involved and requires more complex management based on the size of the project. Critical elements tend to be location and market need for the facility.
Life insurance policies – based on the type of plan matures at a specific age or after a specific time providing a lump sum which supplements other income at retirement.
Part-time assignments – one may choose to move into retirement gradually and having reach pensionable age can continue to work for a few hours a day or week earning the associated income which supplements retirement income sources.
WHEN DO YOU START YOUR RETIREMENT PLAN?
The earlier, the better – from your first pay cheque. Why? On average, we may work for approximately 40 years and given that life happens there may be breaks in that period. COVID-19 is a perfect example where 50- and 60-year-olds and some younger have not worked for the last 2 plus years, and job opportunities are not imminent. They expected to work to the current retirement age of 67 and given an average life span of 85 years, could spend approximately 20 years or more in retirement. Their retirement will turn out to be longer. Given rising health care costs and inflation generally, the demand for a bigger “pot of gold” keeps growing. Therefore, we need to take our retirement planning in our hands. In the words of an unknown author: “Retirement is wonderful if you have two essentials – much to live on and much to live for.”
Audrey Reid FSCP is a Financial Services Certified Professional.
