Wednesday, October 07, 2015

LIMA, Peru — Lucia Mendez, 40, checks on a pot of frying fish, as she prepares lunches that she sells for 3.50 soles, or about one US dollar, in the Nueva Esperanza neighbourhood, on the outskirts of Lima, Peru, yesterday. The annual meetings of the World Bank Group and the International Monetary Fund are taking place in Peru on October 6-11, a country that according to the World Bank, has been able to reduce its poverty rate by more than half since 2002. Yet while only one in four Peruvians is poor, 40 per cent of the population, or 12 million people, are at risk of sliding back into poverty. (PHOTO: AP)

RETIREMENT… an ominous concept to consider, at any age. The normal retirement age in Jamaica currently is 65. Most average young professionals dream about early retirement. Unfortunately, the reality is, for most young individuals just starting their professional life, perhaps in their early to mid-twenties, retirement is not usually at the top of the agenda of mature actions. Even if we do worry about affording retirement at that age, this doesn’t usually translate into responsible financial planning, that is: save hard, invest wisely, and retire early.

As we mature and become more experienced in our professional life, we earn more, but as we earn more, our expenses increase. However, if our dream of retiring is to be realised, then saving hard and spending less is a balance that must be attained.

To do this we have to consider living within our means. This is easier said than done, I know. Keep in mind that one of the easiest things to do is to save on those small expenses, which will turn into larger ones quite quickly, and then you run the risk of living too large.

Proper and realistic budgeting is one of the best ways to avoid falling into the ‘consumerism’ trap. Devise a plan and stick to it. If you are already saving, whether for retirement or another goal, keep going! Saving is a rewarding habit. The sooner you start saving, the more time your money has to grow. If you haven’t started saving already, it’s never too early or too late to begin.

We all know that change is constant and one of the unfortunate things about change is the change in money as it devalues over time.

Nevertheless, there is no sense in avoiding the inevitable. Start thinking about your retirement needs. To do this we must invest wisely in an effort to take charge of our financial security. Investing is a balancing act between risk and return. Retirement is expensive and there’s no doubt that much needs to be considered, not the least of which is how much you will need to save and invest in order to maintain a comfortable lifestyle when you retire.

Consider basic investment principles and do your own research. Enlist the help of a professional advisor. Keep in mind about inflation and the types of investments you may make. The professional will help you determine your true tolerance for risk and together, settle on a reasonable asset allocation.

Learn about your investment options and ask questions. It may even be best to diversify, for example by dividing the savings you’ve decided to invest between an approved pension plan, and the purchase of stocks and bonds. Whatever you plan, you must be comfortable with the mix that must have a reasonable shot at delivering the returns you’ll need to maintain your standard of living at retirement.

Any dividends and interest that could be paid out of the stocks and bonds mix you’ve purchased, must be treated as funds for reinvestment into the retirement savings.

Consciously make the effort not to touch or withdraw from the retirement savings and investment, unless your objective for doing so is to review the portfolio to rebalance. Resist any urge to withdraw, even if it means giving up short-term comfort, because the long-term benefit of comfortable retirement living is the goal.

Additional considerations for retirement, if you can afford it, while maintaining your current standard of living could be to contribute to your employer’s savings plan and contribute as much as you can, if it exists. If it doesn’t, ask for it.

If your employer has a traditional pension plan in place, check to see if you are eligible for the plan and make the effort to understand how it works and learn all the benefits, such as tax breaks.

Remember to consider your health when planning retirement. Many of us throughout our professional life depend largely on the establishment with which we work to provide medical insurance, and therefore we would not have the necessary healthcare insurance coverage needed when we retire. Do not disregard healthcare costs. It may be a good idea to invest in your own private healthcare insurance, which is cheaper when purchased at a younger age. If healthcare insurance is purchased, ensure you maintain the payments, and know that it will only be a benefit if it is a long-term contract. Do your own research for long-term care options and how you plan to pay for the future expenses if you need to.

Financial security in retirement takes planning and commitment. Avoid the typical mistakes such as living too large, and not contributing enough into your retirement savings. Keep watch on your investment portfolio and resist the urge to panic when the stock market is in a downturn.

Life appreciates. We owe it to ourselves to plan for retirement and take charge of our financial security in retirement.

Sandrene Weichenberger is General Manager, Montego Bay Unit, at Stocks and Securities Limited.

http://www.jamaicaobserver.com/business/Planning-for-retirement_19232317