If you’re planning a life of leisure and travel when you retire, you may need to consider replacing 90 percent or 100 percent of your preretirement income.
PENSION poverty refers to insufficient retirement income. Unfortunately, for many seniors in Jamaica, the only source of income in retirement is the National Insurance Scheme (NIS).
This has proved insufficient to meet basic needs. Earlier this year, the nation’s attention was drawn to the plight of a retired security guard. After 26 years as a security guard, his monthly pension is $8,400. With poor eyesight and failing health, he is a victim of retirement poverty. He was unable to fund his medical needs or meet his nutritional needs. It is very important that the younger generation is encouraged to start saving for retirement from the very first paycheck. Habits formed early are hard to break. Developing good money habits early on can protect the younger generation from poverty in old age. Planning for retirement should be just as important as planning for other goals like buying a home, buying a car, funding an education plan, etc.
Studies show that in the United Kingdom (UK) almost two million pensioners earn less than 60 per cent of the UK average wage. In times of high inflation, many retirees around the world are at risk of pension poverty. The UK Poverty Report 2022 has shown that poverty is rising in the UK. Poverty among women is increasing faster than among men. In addition, the poverty rate for women in retirement in the UK is higher than that for men, as women live longer, pay less social security contributions and historically have a larger wage gap compared to men.
How far will your pension last in retirement?
The OECD Pension at Glance 2021 report shows that the income poverty rate is high among seniors and even higher among pensioners aged 75 and over. Median income is the amount of income that divides a population’s income into two equal groups. One group has an income above the median, the other an income below the median. The majority of older people affected by income poverty are women. At local and global levels, social benefits have not proven sufficient to stave off income poverty. Therefore, it is important that working adults and seniors who are still employed contribute and invest in a retirement plan to supplement their retirement income for retirement.
There is a common phrase “time waits for no one”. People who wait too long to plan their retirement often say, “I should have done that years ago.” How can you avoid income poverty or retirement poverty? First, assess where you currently stand financially and set your goals for the future. How are you going to get there? Having an experienced and trusted financial advisor is key when planning for retirement. How much money do you need in retirement? Are you currently enrolled in a retirement plan? If yes, are you able to increase your contributions? What about your investments? Is there an emergency fund for unforeseen events? Always plan for emergencies.
Please note that emergencies happen. You may not know when an opportunity or crisis will come, but be sure to plan for it. It’s better to plan for an emergency and not have one than not to plan and have one. Aim to have at least three to six months of monthly living expenses in a low-risk, high-yield emergency savings account. Keep checking your savings goals. Don’t despise small amounts; they add up and condense over time. Do you have long-term investments? If so, add small amounts to them regularly. If possible, add lump sums as well. Have a diversified investment strategy. If necessary, delay retirement. Make time your friend.
Time is a precious commodity that is needed to grow your retirement fund. Plan for income streams in retirement. Income can come from home or real estate rentals, personal or state pensions, Social Security, freelance or part-time employment, real estate sales, investing in stocks and bonds. Aim to replace at least 80 percent of your preretirement income (80 percent retirement rule). If this is your last year before retirement and your annual income (preretirement income) is $2,000,000, then your minimum retirement income is $1.6 million per year. If you’re planning a life of leisure and travel when you retire, you may need to consider replacing 90 percent or 100 percent of your preretirement income. Inflation is another factor to consider when determining your desired retirement income. Avoid the retirement poverty trap.
Grace G. McLean is a financial advisor to BPM Financial Limited. contact you [email protected]. and visit the website: www.bpmfinancial.com. She is also a podcaster for Living Above Self. Email her at [email protected]
People who wait too long to plan their retirement often say, “I should have done that years ago.”