NIF remains viable, says minister

LABOUR Minister Derrick Kellier says the National Insurance Fund (NIF) remains viable, despite its participation in the National Debt Exchange (NDX), and is assuring pensioners that their benefits are not in jeopardy.

The minister, who was speaking at a church service yesterday in Montego Bay to mark the 47th anniversary of the National Insurance Scheme (NIS), stated that participation of the fund in the NDX involved reduction in the interest rate, but allowed "access to longer-term maturing securities, which helps to maintain the long-term viability and sustainability of the fund".

Said Kellier: "Let me assure all of our pensioners that you can set your minds at ease, as you have absolutely nothing to worry about. The NIF remains strong and vibrant at its current value of approximately $63 billion. Additionally, we continue to maintain sufficient cash flows to satisfy our obligations to our beneficiaries."

The NIS is a compulsory social security scheme for workers, which provide financial protection to its contributors and their families against loss of income arising from injury on the job, incapacity, retirement or death. It also has maternity allowance for domestic workers, a health plan for all contributors, grant for funeral, widow and widower's pensions, and orphan's allowance.

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Avoid last-minute retirement planning

PLANNING for retirement maybe the last thing on your mind the first day of your professional life, but it should actually be at the foremost of your mind as you greet your new boss, say financial experts.

In the same way that some people dread making a will, for fear of the inevitable, retirement planning appears to also conjure horror of the impending downhill trod into old age, an aspect of life that the young and adventurous would prefer not to think about.

There can never be too much saving for retirement.  1/1

But the earlier you begin to save, the more you will manage to accumulate to put yourself in a comfortable financial position after your working life is over, said First Heritage Co-operative Union's Richard Dunn.

"One should plan for retirement with joy," he told Sunday Finance.

For the business development officer, individuals should also try to contribute the maximum amount allowed in pension schemes since "there can never be too much savings for retirement".

He explained that defined benefit — superannuation or group pension — plans which are typically offered by companies, specify the amount that will be paid to an employee upon retirement.

Workers are required to contribute a minimum of five per cent to this fund, which is then matched by the employer's five per cent contribution on the employee's behalf.

"The difficulty comes in when people who can afford to contribute more than the specified five per cent, do not do this thinking that they will have enough put aside for retirement," he reasoned.

The maximum five per cent contribution to the National Insurance Scheme (NIS), which includes a one per cent National Health Fund (NHF) contribution, seems to also be perceived by some as adequate savings for retirement.

However, the NIS pension "by itself cannot be depended on to afford an individual the quality of life they had during their working years," Denzil Thorpe, director of social security with the Ministry of Labour and Social Security, said.

"The contribution rate is very small, which puts it at the bottom rung when it comes to retirement savings," he said, adding that there is no requirement for those who can pay more to do so.

Thorpe explained that social benefit funds such as the NIS are used to provide benefits for varying social needs and therefore have to be spread to benefit the entire segment of the population who need it.

As such, benefits such as funeral grants and maternity allowance for domestic workers must also be taken from the fund.

"So individuals are encouraged to seek additional retirement packages that will afford them a better quality of life," he said.

Approximately 450,000 persons currently contribute to the NIS, with the scheme paying benefits to over 100,000 of which 75 per cent receive retirement benefits.

To compound the problem, inflation and economic shifts such as the National Debt Exchange (NDX) present further challenges for retirement savings.

The NDX aims to lower the annual finance costs of Government by $17 billion, by shaving an average of two percentage points off interest rates on $860 billion of its domestic debt.

"The time value of money therefore necessitates that the more prepared you are the better," Dunn reasoned.

Operating on the principle that a portion of one's earnings should be used as a safeguard against uncertainties, insurance policies may present a source of monthly income for retirement.

For Dunn, Jamaicans tend not to think long term, which he reasoned, can be problematic for retirement planning.

He explained that some persons opt to pull their pension funds from their company pension schemes when they change jobs and often end up "eating the money instead of investing it".

The business development officer urged a disciplined approached to pension planning and suggested that the funds be left in the pool at the former company, transferred to the new company's pension funds or to an individual retirement scheme.

He further suggested that individuals in company pension schemes consider rolling their benefits into their salary packages when approaching retirement since payments are calculated using an average of the last three year's gross salary.

"Some people have a benefits package that is bigger than their actual salary," he said. "So if you roll your benefits into your salary, your pension payout will be calculated at a higher rate giving you more to live off," he explained.

"You just can't wait until you are near retirement to start preparing, it takes a lot of planning and discipline to ensure a decent life after you have stopped working," Dunn cautioned.

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Retirement Planning is too confusing. Should I even try?

Question: Planning for Retirement Is Too Confusing. Should I Even Try? 

Answer:

Yes you should begin planning for retirement. It can be intimidating to sit down and try to figure out how much money you will need to retire. Additionally, you may be intimidated at the estimated amount that you will need to save to retire comfortably. It is important to start now, because the sooner you start, the easier the sacrifices will be to make.

If you are completely confused, consider visiting a financial planner for at least one session. The financial planner can sit down and go over your finances with you. She can help you to project how much money you will need to retire, and ways to find that money in your budget. She may give suggestions on what types of products you should be using to reach your goals. Some financial planners may sell products, and some do not. Before you purchase or invest in a product, you need to understand what the risks and return on the product are.

Once you have figured out how much money you need to retire, you may want to break it down into smaller goals. You may set a goal to be saving fifteen percent of your income towards retirement by age thirty or you may choose to use dollar amounts as a goal. It is important to realize that there will come a point when your money is earning more than you are contributing to it. Your savings will really begin to grow then.

You may want to start by simply contributing to an ARS. This is a simple way to start investing, and as someone in your twenties the majority of your plan should be invested in aggressive funds or stocks. These are slightly riskier, but will give you a higher yield. As you grow closer to retirement, you may want to change the way you invest  to lower risk investments. You can change the way your ARS is balanced at any time. However, you should eventually begin to save in addition to your ARS with other options. This may come after you have purchased your first home and paid off your debt. 

If the thought of using investment tools is intimidating to you, you should find a financial planner who will explain your options to you. Additionally, mutual funds spread the risk by having investments in several different stocks and companies. You may want to find a few good mutual funds to invest in, and simplify things that way, as well. You can research the mutual funds and review the companies you invest in by looking at their portfolio. When you are considering a mutual fund, compare the administration fees, the average rate of return and the history of the mutual fund. You want to choose a mutual fund that has been open at least five years with a steady positive rate of return.

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10 Ways to Fix your Retirement Planning Mistakes

Some investors make radical mistakes that threaten their long-term retirement plan. (Think about all those Enron employees who invested their money in company stock.) Fortunately, no mistake has to put you out of the game for good. The following tips can help investors recover from portfolio mistakes in time to revitalize their retirement plans.

1. Reconsider Your Retirement Age. Some people are stubbornly determined to retire at a particular age. But if you've made an investment mistake, you may not be able to retire at exactly the time you'd chosen. If you truly want to retire with security, you may have to work longer than you'd planned, for example, until age 68 instead of 65.

2. Fine-Tune Your Retirement Goals. Initially, the purpose of your retirement portfolio might have been to improve your current standard of living and maintain it for the rest of your life. But after taking a hit to the portfolio, you may want to redefine those goals. Be realistic in re-evaluating your portfolio's purpose. You might have to accept a dip in the standard of living you'd like your portfolio to support, but making that compromise is better than continuing to believe in an unrealistic, and even more disappointing, scenario.

3. Diversify Your Retirement Investments. Many portfolio mistakes are the result of a gambling mentality that leads the investor to sink too much money into a single investment or stock. Although some people do get lucky this way, don't push it. Take the time and effort to construct a balanced portfolio that reduces your exposure to any one risk. If all of your money is in a high-risk, small-cap mutual fund, for example, you might want to offset that volatility by putting some of that money into a more stable vehicle like a money-market fund. The yields will be considerably less, but so will the risk.

4. Establish Guaranteed Recurring Income. You can ease some of the uncertainty generated by your portfolio mistakes by setting up low-yield but high-predictability recurring investments such as certificates of deposit.

5. Seek Qualified Help. Don't hesitate to seek out a certified financial planner who can help you construct a portfolio. CFPs are certified professionals whose credentials and track record are available for your inspection. 

6. Reduce Expenses Before Retirement. Remember, you can accumulate money not only by making it but also by saving it. If you're coming off a big investment loss, find ways to reduce your expenditures immediately. Create a streamlined budget and find ways to spend less money - delaying large purchases like a new car, or not taking an expensive vacation, for example. The money you save can not only pay your cost of living but also serve as a fund for savings and investments.

7. Watch the Cost of Investment. If you invest in mutual funds, try to pick funds that don't incur extra costs, or "loads". Similarly, regardless of the investment instrument, read the fine print to make certain that you aren't paying someone simply for the privilege of investing. Instead, stick with passively managed investments such as no-load index funds.

8. Max Out Your ARS. If you've never contributed to an employer- or self-provided ARS, start now. Traditional ARSs allow you to sock away money for your retirement tax-free until withdrawal.

9. Get Support. Watching your portfolio dwindle in value or disappear, especially after you've spent years working to grow it, is very stressful. In addition to taking proactive steps to revive your portfolio, it's a good idea to revive your well-being. Join a support group, spend more time with friends and family, improve your diet, get more exercise - these activities sound unrelated, but they'll help give you the patience and optimism needed to renew your investment activities after a disappointment.

10. Try Other Ways to Create Wealth. Investing in a traditional portfolio is not the only way to achieve this goal. If you're particularly concerned about bringing in additional money to save or invest, you might want to consider putting your professional experience to work for you by freelancing or consulting in addition to your full-time job.

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Six Retirement Planning Mistakes to Avoid

We all make mistakes, but learning from our mistakes and identifying what mistakes to avoid can make a big difference. Here are six common mistakes people make with retirement planning that you should avoid. 

1.                 Not maximizing your match. If you work for an employer who offers a retirement plan with a match program, take advantage of it. This is free money, and the best return on your dollar that you’ll likely find. By not maximizing your employer’s match is leaving money on the table.

2.                 Cashing out. Many people decide to cash out their employer retirement plan when they leave the company, which is a big mistake. This distribution becomes fully taxable and possibly subject to an additional early withdrawal penalty. For some people this means nearly cutting the account value in half! When you leave an employer, you should consider rolling the money over into your new employer’s plan or an ARS. This eliminates any current taxes or penalties that would otherwise apply.

3.                 Taking a loan. Too many people treat their retirement plan as a savings account if the plan allows for loans to be taken out. Borrowing money from your retirement savings can be a costly mistake. The money you take out doesn’t have the chance to grow and compound like the rest of the money. While you may pay yourself back the interest, it generally doesn’t make up for the time lost. Also, if you leave your job before repaying the loan, it may count as a distribution if not paid off in full. This means paying taxes and possibly a stiff early withdrawal penalty.

4.                 Not diversifying your investments. Don’t put all of your eggs into one basket. Sound advice, yet people often don’t follow it. It is easy to get caught up in your investments when the market is doing well, and chasing those big returns may seem like a good idea. Without proper diversification you are subjecting yourself to higher risk with only a potential for better returns. A properly diversified portfolio will help you minimize your risk while maximizing your return.

5.                 Not rebalancing. While diversifying is important, it doesn’t do much good if you don’t regularly rebalance your portfolio. Over time, your portfolio of 50% stocks and 50% bonds probably won’t be the same as when you started. If stocks experience a period of significant growth, the stock portion of your portfolio will grow while your bond holdings may only grow slightly. This disparity could turn your portfolio into a 70% mix of stocks and 30% bonds. This portfolio is now significantly more risky than your initial 50% mix.

6.                 Paralyzed by choices. “How much money do I need to save?” “How much money do I need to have in retirement?” “What investments are right for me?” Retirement planning is full of important choices to make, so don’t be forced into inaction by them. Take things one step at a time, and don’t let the sheer number of choices stop you from moving forward. Time is a valuable asset; don’t let it go to waste.

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