The budget blues…

By Finbar Garcia LUTCF, FSS, MFA

Okay, so the National Budget was read, and we are hearing various stories and rumours on the effects on the working class, unemployed, single parents, retirees, and every imaginable class of person. But how will this budget affect YOU as an individual?

There were increases in some areas and decreases in other areas. You need to find the balance between these two areas to really appreciate, adjust and enjoy the benefits.

I have heard people talk about the increase in alcohol and cigarettes, and that people will still drink and smoke. These are lifestyle habits which can be controlled, and enjoyment with family and friends, limes, parties, and Carnival fetes can still occur.

There is an area in the budget that will affect every single person going forward, from the first-ever employed person to those who are still working—retirement. It may not be important to those who have just begun working but it is an area of concern to those looking at retirement in a few years.

The approach made by the Minister of Finance to push the retirement age to 65 and even increase the contributions for retirement benefits to be received from the National Insurance System (NIS) is a bold one.

From as far back in 2006 to 2016, there were increases in contributions and the addition of another earnings band to sustain the NIS system for years to come, so another increase was inevitable.

In my almost 29 years of being in the Insurance and Financial Services Industry, and a moderator/trainer for insurance agents, I have been preaching that this needs to be done. However, there must be a system to allow people to retire earlier than age 65, but at a reduced pension option. Remember, people are living longer.

This adjustment will create a gap between some employer’s retirement age of 60—in both the private and public sectors, where there are bargaining contracts or agreements with worker’s unions—and the receipt of the NIS at age 65. So, how do you fill this gap? Planning for your retirement should start as early as age 18, when some people have started to work.

While planning is key to an enjoyable retirement, you will need to determine early what pension benefit you want to receive in the future, taking into consideration inflation, salary increases, and what employer benefits you may have.

There is a calculation system that I use to assist clients accomplish this, while still enjoying their working life.

There are advantages and disadvantages of retiring at age 60 compared to age 65. Let’s look at these.

Advantages of retiring at age 60:

• More free time and better health for enjoyment
• Reduced work stress
• Opportunity to start a small business or hobby/sport you always wanted
• Quality family time

Disadvantages of retiring at age 60:

• Reduced retirement savings
• Smaller personal pension or NIS (based on the proposed system)
• Higher healthcare cost if you are no longer on any Group Health Plan
• Risk of outliving your savings

Advantages of retiring at age 65:

• Higher personal pension and NIS (based on the proposed system)
• More time to save and invest
• Shorter retirement period. Based on family history, you may not outlive your savings
• Eligibility to be on the Retirees’ Group Health Benefit part of the plan at age 65

Disadvantage of retiring at age 65:

• Less time to enjoy retirement
• Burnout or health issues before retirement
• Missed life opportunities

With the introduction of the new NIS retirement system, planning for your retirement should have a greater focus on your personal/private pension plans. These are programmes that you have almost full control over, as you will be able to pump as much money as you can afford to enjoy a greater retirement benefit at an earlier age, let’s say 60, while waiting for your NIS to be activated at age 65 if you desire. Your desired pension should be a minimum of 75 per cent of your last income as a guide.

This is a simple and quick check to see where you are at.

Establish what’s your desired Retirement Income Goal. Let’s say it’s $9,000.

Less what you already know (NIS). Let’s say it’s $3,500. The gap that exists, shortfall that you need to fix is therefore $5,500. Personal pension—you have control over this. Employer’s Pension (if any)—you may not know the exact pension.

It’s clear that the best way to plan for your retirement is through your personal/private pension programmes. You can have a few of these and have them activated at different ages. This will allow better money management and cash flow in retirement.

“Retirement: The art of doing nothing, less hustle, more harmony, and still being paid handsomely.”

Call me for more information on planning your financial future. Send your questions to myfinancialadvisor2020@gmail.com or call 620-1185.