When it Comes to Retirement, ‘the Earlier the Better’

    JN Group

    Retirement planning is not ‘ole people suppen’ as one would say in Jamaican vernacular. Neither is retirement a monthly stipend from your adult children when you are no longer able to work. It is a lifelong decision to save and invest smartly, so you can enjoy your ‘golden years’. And, while some people start later in life, you can start planning for retirement right out of university or even high school- and you should.

    Othneil Blagrove, Senior Manager Sales, JN Life Insurance, advises that the earlier you start your retirement plan, the better. Here are five reasons why:

    1. You have time on your side.

    “When you’re in your 20s, you may be thinking you are young and have all the time in the world,” notes Mr Blagrove. “While this may seem true, time flies when you are having fun and in no time you could find that you are close to retirement with no pension savings. So, starting early is beneficial to you. Also, pension savings are calculated using compound interest and this means that if you start planning for retirement at age 21, and if you are able to contribute the maximum amount from that age, you will have amassed a tidy sum by retirement. If you haven’t been contributing the maximum amount, you would have taken the steps to accumulate a modest savings by retirement. And, because you are young you can increase your contribution as your career progresses,” he noted.

    1. You will reduce your income taxes.

    “A retirement savings plan, or a pension plan is good because you pay less income tax when you are a part of a retirement scheme,” Mr Blagrove says.

    He continued: “It is structured this way because the pension is subtracted from your salary before taxes are withdrawn and so you end up paying less income tax. Also, the more you contribute to the pension scheme the less income tax you pay. For example, if you decide to contribute the maximum amount which is 20 per cent of your salary, then you will only pay income tax on the remaining balance of your salary which means that you will be taking home more and also having a better chance of living as comfortably as you are now when you’re retired.”

    1. You want to be able to enjoy your retirement.

    “One of the things you want to do when retirement comes is not have to worry about your future,” says Mr Blagrove. “The last thing you want to do in your retirement is wonder ‘Will I have enough?’ Also, although Jamaica has the National Insurance Scheme, which many of us will contribute towards, the amount paid out monthly will not be enough to cover your expenses from month-to-month. You may also want to take that cruise you have always wanted, travel, and attend high profile events. You may also want to help your children or grandchildren pay for their tertiary education and start their own families. By starting to save early, you’ll give yourself a better chance of reaching these financial goals.”

    1. Your funds can recover from external shocks.

    “Market downturns are a part of the reality of investing. Although most pension plans invest in safe financial instruments that guarantee a return on your investment, there are times when your funds can be affected by turmoil in the market. Therefore, starting to plan for retirement in your 20s will ensure that in the event of a market downturn, there is time for your funds to recover,” Mr Blagrove explains.

    “If you wait until later to start planning for retirement, and this happens your savings could be badly affected. Also, by that time you may have added responsibilities, such as a family, mortgage, car payments and other bills to take care of and so it becomes harder to start over which mean you may face retirement struggling to survive.”

    1. It’s a good way to develop financial discipline.

    “Saving for retirement requires planning,” Mr Blagrove reiterates. “Therefore, when you decide to start planning for retirement in your 20s, you are taking charge of your personal finances and how you contribute to retirement so you can save more despite your financial circumstances. You are also managing your finances by planning ahead and you are making a sacrifice because that money could be used to do something else. Remember a dollar can only be spent once. If you want to save more, you’ll need to spend less and having a pension plan ensures less spending because you will be saving what you would have otherwise spent.”

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