By Finbar Garcia LUTCF, FSS, MFA
With all these life-changing events like COVID-19, I am quite sure you had many thoughts about your financial future and that of your family. Well, I certainly did!
Many persons are temporarily unemployed; some have lost their jobs; and a few business places may not reopen. This will surely create some anxiety about your future plans. If one of these was your retirement, how prepared were you? Did you start planning from your first job at age 20 or even age 30 or have you recently started?
Retirement is an age-based planning process, meaning that you set that age you feel you want to retire and enjoy your Golden Years. Setting the perfect age from early is essential, as you will first be establishing your ‘Retirement Timeline’.
Having set this, you need to ask yourself, ‘How do I begin to save? How much money can I comfortably invest now? What is the amount needed at retirement? How does Inflation affect my savings? What if there are unforeseeable events like COVID-19 again?’ Let’s discuss these.
Firstly, you need to decide a realistic retirement age eg: 50, 55, 60, 65 or any age between. Next subtract your current age, this will reveal the time you have remaining, your timeline to retirement.
In the March 1 issue, we spoke about your budget. You need to add the desired retirement investment amount as a fixed expense. So, what is the desired amount? You can start with 10 per cent of your gross income and increase every year by 10 per cent. Point to note, most people want to retire with at least 65 per cent of their last salary. So, what will be your last salary?
Assuming that you get an increase of three per cent every year and you have 30 years to retire (age 60), that would be 30 salary increases (see Time value for Money).
Having established your last salary and using 65 per cent as your desired pension, we now look at all sources of retirement income. Currently NIS is paid at age 60 (may be subject to adjustment in the future) providing that you made your 750 contributions to enjoy a full pension.
Next, does your company offer any pension benefits? What is it and how much would you get? Can you contribute towards it? What happens if you leave that company? Can you transfer it? These are important questions you need to answer.
Most company pension plans, and personal pension plans are based on defined contributions which means the outcome (pension) is based on contributions made and the performance of the pension funds.
It is difficult to know the exact amount you would receive. So, let’s look at some sources of retirement income.
These are just some of the tax incentive savings plans approved by the Board of Inland Revenue. There are other vehicles for investing towards retirement, like life insurance policies, property rentals, stock markets, Government bonds. These will carry some risk, so we will chat more in detail on these and many others in my next column. So, until next time, let’s look at your projected future income and get started NOW.
“When God blesses you financially, don’t raise your standard of Living, raise your standard of Giving” Unknown.
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