“The difference between and old man and an elderly gentlemen is there retirement savings”.
“Don’t put off today what you can’t afford to do tomorrow!”
These are common sayings when we speak about retirement planning.
There is a growing acceptance that we must plan and save for our retirement and the harsh reality is we are not saving nearly enough. Despite the worldwide pension crisis, research has shown in the UK and USA that only 5% of citizens are saving sufficiently for their future. In the Bahamas statistics show that the average bank account has less than $1,000 and less than 30% of businesses have a pension plan, therefore we are not immune to the world wide pension crisis. With governments around the world already talking about increasing the mandatory age for retirement there is a serious concern that people will have to work during their golden years. Here in the Bahamas there is no difference; an Actuarial Review of our National Insurance Plan has indicated that a number of measures need to be revisited in order for our National Insurance Plan to survive; some of the suggestions include but not limited to, increasing the retirement age from 65 to 70, increasing the contribution rate and the contribution ceiling.
With shrinking working populations and rising life expectancies the days of relying on National Insurance for pension benefits in our retirement are at worst over, or at best numbered. Besides, for most people a pension from National Insurance is not sufficient; the maximum that National Insurance will pay as a retirement benefit is approximately $963 per month; this presumes that the individual has made the maximum contribution for a period of 30 years. This is nearly not enough for a family to live off. Traditionally, when we look at retirement planning there are three principal sources of retirement income that the individual should look to:
• National Insurance,
• A Company Sponsored Pension Plan,
• Personal Savings.
Together these three principal sources of income should provide approximately 70% - 80% of ones final year’s income which should provide for a comfortable retirement presuming the individual has no debt. If all debt are not paid this number increases to 100% - 105% of your last annual salary.
The fact of the matter is most of us are insufficiently funded for our future needs; we are ill-prepared for retirement. The chances are also high that we are unaware of the extra issues that surround retirement planning. Hence we should consider the following when we look at retirement planning:
• Determine what your objectives are in retirement
• Consider your financial situation both present and in the future
• Inflation
• Health Care Costs
• Longer Life Expectancy
• Determine how you wish to receive your retirement income.
The average time you will spend in retirement is now over 20 years and you would not want to out live your retirement income. If you work during your retirement it should be because that is what you choose not because you have to. The unfortunate fact is many individuals who have retired have to return to the workforce because the retirement income that they save simply was not enough.
Below is a table with varying years to retirement, desired annual retired income and the monthly investment needed to attain that goal (assumes a 6% investment return). The desired retired income represents the income an individual will receive for life.
The quality of life you want in the future depends on what you contribute in the present. You likely want to retire happily and comfortably with personal and financial peace of mind. The last thing your retirement should be is stressful for you or your family. Therefore, it is important to prepare a retirement plan now.
