It is important to have a formal retirement plan. Financial plans should be written and reviewed periodically.
Growing demand for retirement advice
In Jamaica, and globally, more people are seeking financial advice in planning for retirement. I receive frequent requests for holistic financial advice from individuals who are nearing retirement or who have recently retired.
A holistic financial approach involves a comprehensive look at all aspects of retirement, including the individuals’ current situation and their personal and financial goals.
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Last week I discussed with a senior adult the importance of having a pension plan. He is a contract worker who earns streams of income from several side hustles. He is an avid saver, but was oblivious to the impact of inflation on his savings. I advised him that $2 million saved today would lose tremendous value in 10 years if funds were not invested wisely.
His wife was unaware that her husband, as self-employed, was eligible to have an individual retirement/pension account. She expressed regret that his pension account wasn’t opened 15 years ago. Thankfully, she contributes to a workplace pension plan, has the benefit of employer-matching contributions, and has already begun her investment journey.
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Her husband plans to delay retirement to at least age 70. Together they are building their financial future with more clarity and understanding of the financial discipline that is needed to achieve their goals. They appreciate the importance of the services of a financial advisor at every stage of the financial journey.
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Retirement planning involves more than having a pension plan. It’s ensuring that there are adequate savings and investments to support one’s retirement lifestyle.
Financial wellness should be introduced in workplaces early to encourage young employees to plan and invest for the future. Employers should be motivated to include financial wellness in wage packages and solicit the help of experienced financial advisors in conducting financial and retirement sessions either in-person or virtually.
Retirement consists of an accumulation stage and a decumulation phase. The accumulation stage refers to the period of the employee’s or individual’s life in which saving and investing for the future occur. The focus is on accumulating assets, such as property, stocks, bonds, and other assets that will increase in value with time. This phase is necessary to create wealth or financial freedom for the future and live comfortably in retirement. With an aging population, more financial resources will be required to maintain one’s standard of living in retirement.
Planning for retirement should start early to alleviate stress and anxiety in the senior years. The decumulation stage represents that phase of life in which the employee stops receiving pay cheques and begins to draw on retirement savings such as their pension and investments. It’s the conversion of retirement savings into lifetime income to cover expenses during retirement.
A financial advisor’s assistance at the decumulation phase is beneficial in assisting retirees to adjust from saving/accumulating to spending. Guidance is particularly important at this phase as the retirees risk running out of money if they are not prudent. Retirees may spend many years in retirement.
Sound financial advice is needed at both the beginning of an individual’s career as much as at the post-retirement stage. A survey done by global investment company T Rowe Price revealed that the demand for financial planning information was highest among participants who were “within one to five years of their retirement date than any other participants”. The survey showed that individuals who had a retirement plan were “62 per cent more confident about their financial outlook”.
The research showed that financial planning was a major priority for retirees. A financial plan that implements an effective decumulation strategy will ensure that the retiree’s funds last a long time in retirement. The survey showed that it is important to have a formal retirement plan. I recommend that financial plans should be written and reviewed periodically.
The T Rowe Price survey found that people with a formal plan are likely to be two to four times “wealthier than pre-retirees without a plan”. Additionally, the report stated that these people usually contribute more towards their pension and often have the help of a financial advisor. This underscores the important role advisors play in retirement planning.
The use of technology will have to play a significant role in aiding employees in creating financial or retirement plans. Retirement calculators can prove helpful too, and some are available online. Planning for retirement must be strategic and realistic. Too often people are unsure of what their retirement goals are. Know your retirement goals and create a retirement map. As a well known maxim states, “If you don’t know where you are going, any road will take you there.”
Grace G McLean is a financial advisor and retirement specialist at BPM Financial Limited. Contact her at gmclean@bpmfinancial or visit the website: www.bpmfinancial.com. She is also a podcaster for Living Above Self. E-mail her at livingaboveself@gmail.com.
