Home' Trinidad and Tobago Guardian : April 20th 2014 Contents SBG 16 | COMMENTARY
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt APRIL 20 • 2014
Part IIIn the first part of this article, we con-
sidered the challenge of pre-retirement
inflation and identified several effective
approaches to off-setting same. In this
segment, however, we shall focus upon
the issue of post-retirement inflation.
Ironically, the combination of early retire-
ment trends, the practice of better healthcare
and advances in medical science have led to
a disturbing consequence. People are living
longer and often out-live their ability to support
themselves and their desired lifestyle.
For instance, to retire at age 55 years and
then live to age 91 years means to be in retire-
ment for 36 years. This may likely represent
a period longer than the actual working life
of a person.
Even if one were successful at accumulating
sufficient savings and investments to produce
adequate income at the point of retiring, post-
retirement inflation can significantly erode
purchasing power in just a few years. Such an
occurrence can result in the unplanned reduc-
tion of living standards or the need to tolerate
Let us consider the situation in T&T for
example. Over the last 20 years, the prime
driver of the local inflation has been food
prices. Consider the inflation table which
tracks the Retail Price Index for the years 2000
Inflation may seem quite tolerable from the
perspective of the "All Items" index, which
remained in the single-digit range for each
year, with the exception of 2008 and 2010.
However, the "Food" index appeared as a "sin-
gle-digit "only once (ie the year 2000) during
the 11-year period.
In fact, it averaged 11.9 per cent annually
between the years 2000 and 2004 and, there-
after, averaged 20.0 per cent annually until
Impact upon retirees
First consider what portion of the retiree s
budget represents the expenditure on food.
Then determine the real impact of inflation
on their lifestyle.
Let s consider an example.
Rupert and Sasha both age 60 years retired
in the year 2010 and live quite comfortably
on a budget of $4,850 per month. Their joint
income from pensions totals $6,000. They
reside in their beautiful home which is debt
free. Their two children are married and live
overseas. The retirees love to visit their grand-
children once a year.
Let us hold all the expenses of Rupert and
Sasha stable, with the exception of food which
we will subject to 17 per cent inflation annually.
Let s project their budget for ten years, and
observe the lifestyle changes that may become
necessary, as they try to adjust to the price
Consider Table 2 above. The word "out" is
used to indicate those items of expenditure
which could no longer be covered.
Five years into retirement at age 65 years,
the retirees have begun to make lifestyle adjust-
ments. Annual vacation travel has to be cur-
tailed, while a minor adjustment is necessary
with respect to monthly entertainment. Note
their entire income is now committed to living
Five years later in the year 2020, all of their
income is expended upon feeding themselves,
after making unavoidable modifications to the
shopping list. The former level of purchases
would place them in the deficit position of
$1,687 per month.
It is important to note several realities regard-
ing the local context. Thanks to the Chronic
Diseases Assistance Programme (CDAP),
healthcare and medicines are greatly subsidised
by the State for the elderly and for citizens
with certain chronic diseases. This puts mem-
bers of the general public in a better position
than some of their counterparts in the USA,
in certain respects.
Surprisingly, many may not appreciate this
fact. TT Card and free public transport for
those over 60 years---including travel on the
inter-island ferry---are social benefits that are
worthy of note.
Concerning inflation, sectors such as trans-
portation, clothing and house items such as
utilities are very well contained.
Nonetheless, this sobering illustration under-
scores the importance of building a post-
retirement inflation hedge into one s retirement
planning. It is impractical to expect that one s
lifestyle after retirement will be adequately
supported by a pension alone.
Even if that pension were indexed for infla-
tion, that index is customarily limited to a
maximum of three per cent or the actual infla-
tion experience, whichever is the lesser. There-
fore, such a pension will not cover the cost
of living adjustments that exceed three per
In such a case, a retiree should have secured
other sources of income. Tax free lump sums
received as the initial payment by a pension
plan should be directed towards a prudent
investment that provides both capital gains
and current income. In short, saving and
investing should continue after retirement.
Post-retirement income earning
The notion that retirement is a period of
idle bliss is often neither convenient nor even
healthy (from a practical point of view). Prefer-
ably, it should be a time for doing those things
that one truly enjoys but might have never
had the time to pursue.
At retirement, one may have the chance to
convert a hobby into a business or to satisfy
an unquenched spirit of enterprise (albeit after
due planning and guidance). Given the pre-
vailing socio-economic climate, opportunities
may be found in:
• Planting long-term and short-term crops
• Food processing
• Breeding dogs, chickens, rabbits
• Retailing and servicing security equip-
• Teaching languages, music and self-defense
• Function managing
• Interior decorating and joinery
Retired persons have found post-retirement
business ventures both rewarding and enjoy-
Another excellent inflation hedged invest-
ment is real estate. This is primarily a property,
apart from the retiree s residence, which is
devoted to generating rental income. Such
income normally keeps pace with inflation.
The United Kingdom is a significant example.
Owing to the high prices for acquiring prop-
erties in the UK, owners of properties (often
retirees) convert a former residence into apart-
ments, thus earning ready and lucrative
These apartments are tenanted by the
younger working population whose payments
provide inflation-hedge revenue.
For the retired property owner, who must
live in his or her residence there are a number
of options, for releasing cash from the equity
in the residence:
• Sell and purchase another at a lower price.
• Sell property and purchase two others at
lower prices (eg townhouses). Thereafter, live
in one and lease out the other
• Convert part of the residence into an
income producing asset
• Sell the property to a relative and retain
a life interest
• Consider a reverse mortgage, as a last port
This brief article seeks to light a fire under
the complacent income earner and to encour-
age the motivated to pursue a practical
approach to providing financial independence
during retirement. While the future at best is
uncertain, one can improve the chances for
success by timely planning.
Nevertheless, it will be advisable to seek
professional guidance and to know your risk
profile, before making investment decisions.
So plan well.
Lloyd Ince, ChFC, CLU, LOA (Institute of
Canadian Bankers) is the president of the
Caribbean Financial Planning Association-
with retirement in mind
Life can be a paradox. During our working life, we may have money and little time to
enjoy it. However after retirement, we may have time but little money to enjoy it.
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