By Finbar Garcia, LUTCF, FSS, MFA
Two years ago, I wrote about retirement planning (June 7, 2020 CN) and had many conversations over the last eight years with financial advisers and agents on the effects of the current NIS and what adjustments that is urgently needed to recalibrate the pension benefits.
The hype now is all about our NIS and the changing of the country’s retirement age. While I am in full support of this move, regardless of which government implements it, I strongly believe that it should be done based on age bands and not a sudden age change across the working class.
Many are planning to retire at age 60 and any sudden broad-brush changes to this could have a negative and ripple effect on both employees and employers alike.
If the NIS retirement age changes to 65 and employers have set retirement age of 60, then what will happen to the employee for the next five years, 60 to 65, before their NIS pension is paid?
What about those workers who are employed within the Government payroll system, who calculate their retirement as having worked 33-1/3 years, just before age 60 in most cases to receive their NIS retirement benefit?
How prepared are you for this change? Will this create a gap in your current retirement planning process and benefits?
In my view, these changes should be done on pre-set age bands. These are my suggested age bands and retirement ages:
This will allow for a structured pay-out system and adjustments to income to the NIS pension plan and investments. Failing this move, the NIS contribution levels will have to be increased to allow more income into the funds at a faster rate. Where does this leave the employers!
The Ministry with responsibility for the NIS should hold consultations with employers and other relevant bodies to have a better understanding as to the age demographics of their employees, so hiring practices and adjustments can be made to allow for continued growth of the NIS Funds.
Sources of retirement income
Let’s look at the three main sources of retirement income, your Personal Plans, your Company Plan if any, and NIS. If these three income streams are what you are depending on for retirement at age 60, and the Government moves the NIS to age 65, then there will be a shortfall of income at age 60 for at least five years.
I would suggest that you recalibrate your plan now. Let’s look at what you have in place and what increases you need to make now to buffer the movement of the NIS to age 65 and reduce or eliminate the financial shortfall. Failing this, you may be forced to work for another five years.
Those persons who believe that the Old Age Grant that is paid through a particular Ministry is an automatic income, think again. You need to qualify for that Grant, and your level of income and living conditions must be below a set threshold. Don’t factor this into your planning.
For persons with personal pension plans, more so those who have plans directly with insurance companies, you will need to look at your current fund growth: how much you invested in relation with your fund value to date, based on the amount. A review should be done to assess where you are at now, and what increases you need to make to close the gap.
A simple way to calculate what you need is to first know what you want at retirement from your personal plan, once your personal plan can give you $72 per $1000 of your funds, then you will need to accumulate funds of approximately $1 million to receive a pension of approximately $6,000 per month.
If you have a plan with any of the commercial banks, then enquire about the fund value. They may not be able to give you a pensionable figure, as this is usually sent to an insurance company for pension benefit calculations when you are ready to retire. However, we can chat personally for a review on this if you wish.
As to your company’s plan, these can be a bit tricky to calculate based on the type of plan in force. While some companies offer a Single Group Plan, owned by the company for the benefit of its employees, others offer individual plans which allow for portability and flexibility.
All these plans are called ‘Defined Contribution Plans’, which simply means that your pension will be based on your contributions and funds accumulated with interest.
If the plan is a non-contributory plan owned by the company, then it tends to be difficult to calculate your pension, as you may not be sure how much the company was contributing and who was managing the funds.
The best option you have is to fast track your personal plan to stay in line with your retirement income goal.
Remember, retirement planning is really the younger ‘you’, sending money in the future through investments for the older ‘you’. This sacrifice you make now for the delayed gratification is well worth it, as you become older and other issues pop up, you will need all the income possible.
“If you don’t step forward, you will always remain in the same place.”
Call me for more information on planning your financial future. Send your questions to email@example.com or call 620-1185.