CAN YOU AFFORD TO RETIRE?

This week I want to revisit my article on pensions and their importance.??I am concerned that many people I know are not ready for retirement and find that they must continue working instead of enjoying life and spoiling their grandchildren.

One of my readers asked the following questions: How do I determine a monthly fixed payment that ensures that I will have enough funds during retirement???Do you have a retirement income calculator (or worksheet)?

I expect that many of us will live healthy and productive lives well into our nineties.??What Dr. Peter Attia refers to as “Health Span” in his book Outlive.??Therefore, I believe that it is important that revisit material on retirement planning, which should help many of you to answer these questions.??The questions I addressed in the original article were: Can you afford to retire???Will you be able to live on your retirement income???What is different today compared to when our parents retired twenty years ago?

But before I address the questions, I want to share a new way of looking at our lives, “Stage (Not Age)”.??This video explains the concept:?Stage (Not Age).

In her book, “Stage (Not Age): How to Understand and Serve People Over 60—The Fastest Growing Most Dynamic Market in the World”, Susan Wilner Golden notes “For most of history, people lived no more than one generation.??In one century, lifespan has increased more than it did in all other prior years combined.??The average life expectancy for a man born in 1900 in the United States was 47, and for a woman, it was 49.??American children born today have an average life expectancy of nearly 80, and over two-thirds can expect to live to 104.”

In my earlier articles I started with a brief look at the history of pensions, a fairly recent development.??We will start the conversation about pensions by looking at retirement and your options generally.??The questions we will address are:

• Can you afford to retire?
• Will you be able to live on your retirement income?
• What is different today compared to when our parents retired?

But before we do that let’s take a brief look at the history of pensions.??The first pension funds originated over 300 years ago in Germany to support the widows of clergymen and teachers who served the crown.??Later on, pensions in the form of annuities were granted by the rulers of the day as compensation for the loss of spouses (especially for officers killed in action), loss of limbs (again, mostly for the wounded in action) or in return for acts of merit, either military or civil.

Around 1889, the German Empire established a fully-fledged pension system for workers aged 70 and over.??Workers in Great Britain had to wait until 1908 to be eligible for a state-pension and after World War II the UK’s National Insurance Act provided universal social security coverage.??We have similar benefits in Trinbago.

The National Insurance Board’s (NIB’s) Retirement Benefit

The NIB’s?Retirement Benefit?is designed to supplement the income of individuals after retirement.??Every employee who has paid National Insurance contributions is entitled to a Retirement Benefit.??You qualify for the Retirement Benefit at any time between the ages of 60 and 65 if you are retired or at age 65 whether you retire or not.

The Benefit may be either: A Retirement Pension payable for life to persons who have 750 contributions or more - the minimum requirement for a basic pension; or a?Retirement Grant, which is a one-time lump sum payment, subject to a minimum sum of $3,000 paid to persons who have made less than 750 weekly contributions the minimum requirement for a basic pension.

An average rate of contribution is calculated by considering all the contributions paid. The?earnings class?to which this average rate corresponds is the class in which the benefit will be paid. You should note that for every block of 25 contributions paid in excess of 750 one increment is added to the basic pension rate. Notwithstanding the benefit rates in respect of retirement pension the board shall pay with effect from February 1, 2012 the sum of $3,000 monthly, as a pension to each person qualifying for a Retirement Pension.

• Where the insured person reached retirement age on or after January 7, 2008, the retirement grant will be equal to 3 times the value of total contributions, subject to a minimum of $3,000.
• Where the insured person reached retirement age on or after April 10, 1975 the Retirement Grant is equal to 3 times the value of the total contributions paid by both employer and employee, subject to a minimum of $200.
• Where the insured person reached retirement age between April 10, 1972 and April 9, 1975 the Retirement Grant is equal to 5 times the value of the total contributions paid by both the employer and the employee, subject to a minimum of $200.

This is obviously not enough for most of us to live on and will have to be supplemented by a company pension, your individual retirement plan, income from accumulated savings and investments, or income from continued employment post retirement.

Next week we will take another look at employer pension plans.

Have a disciplined week as you work to build your financial freedom.??If you find this advice helpful, please share with your friends and colleagues.??As usual, I look forward to your questions and comments.??Be safe.??Take good care, and if you can, help someone in need.

Cheers, Nigel

Nigel Romano, Partner, Moore Trinidad & Tobago, Chartered Accountants