Home' Trinidad and Tobago Guardian : August 10th 2014 Contents SBG16 PERSONAL FINANCE
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt AUGUST 10 • 2014
Retirement planning can be
more intimidating than any
other personal finance topic.
The years can creep up and
suddenly you find yourself
unprepared. Retirement is not
something most people look forward to, but
it is a necessary part of life. Picture yourself
at the end of your working years with family
in tow and you are able to keep the lifestyle
you had enjoyed during that period. You are
well equipped financially to handle all your
expenses, treat yourself to some fine dining
and take Mrs. Retiree on that long transatlantic
cruise you promised when you were still work-
Now, imagine yourself in retirement with
all your family commitments, bill payments,
university fees for your teenaged children and
home repair expenses. But in this scenario,
you are struggling financially and not able to
enjoy the lifestyle you maintained in the early
To make matters worse, you are not in the
pink of health and confronted by mounting
medical expenses. Which of these two scenarios
do you find more appealing? Of course, the
one that brings comfort and peace of mind.
How do you achieve it then?
NIS not enough
A common habit among employed people
is to place significant reliance on a company's
pension plan to provide for retirement. Similar
reliance is often placed on NIS contributions
and an old age pension to meet their retirement
obligations but the reality is that most people
find this challenging.
Planning not to retire is not a retirement
strategy. Even if you win the Lotto, this does
not eradicate the need to build one's own
retirement investment portfolio. There are
practical realities, and unforeseen circum-
stances, especially as we get older. Taking a
look at your sources of income for retirement
well in advance will prompt you to identify
some other opportunities for earning income.
Perhaps you are an accountant or teacher, you
can prepare yourself to rely on these skills for
additional income when you are no longer at
a desk or at the office.
On the expense side, you will need to con-
sider a few factors since expenses may vary
according to your social circumstances, social
lifestyle, longevity, healthcare issues and infla-
tion which reduces the value of your dollar
As a result, your retirement assets must
grow at least as fast as inflation in order to
keep up. It may surprise you how much infla-
tion can erode purchasing power so it is impor-
tant to keep it in mind when you determine
how much you want to save for your nest egg
A $200 monthly contribution is nothing to
put out at right now, but after 20 or 30 years,
$200 won't buy you very much. As you con-
tinue with your retirement plan year after year,
simply check the inflation number each year
and revise your contributions accordingly. Pro-
vided you do this, you should be able to grow
your capital at your estimated real rate of
return and reach your target nest egg.
As in all successful ventures, the foundation
of a good retirement is planning. The com-
position of the investment portfolio will depend
on several factors including your risk appetite,
financial position, current age and target retire-
Such a portfolio may include stocks, bonds,
mutual funds and other assets.
One pitfall to avoid is the heavy reliance on
your company's pension plan to provide for
retirement. More often than not, this proves
to be inadequate and should be supplemented
by a personal retirement vehicle such as retire-
ment and pension funds. These vehicles can
strengthen your retirement planning and pro-
vides a cushion to cope with some of life's
uncertainties that occur during the golden
For younger people, the power of compound
interest can give you more motivation to save
early and often. The power of compounding,
which simply means interest being earned on
interest, makes it possible for your retirement
savings to increase exponentially.
Consider this: Someone who puts $4,000
a year (about $333 a month) into retirement
accounts starting at age 22 can have $1 million
by age 62, assuming 8 per cent average annual
returns. Wait 10 years to start contributing,
and you'd have to put in more than twice as
much---$8,800 a year---to reach the same goal.
The more years you have to save, the more
effective it is.
So the earlier you begin contributing to your
retirement and the longer you are able to leave
the money in your account, the greater the
opportunity you have to enjoy the benefits of
If you get your act together now, you can
achieve financial independence decades ahead
of your peers who keep muddling from pay-
check to paycheck.
Remember that the single best way for
investors to protect themselves from risk is to
spread their portfolio across several different
Such asset class diversification allows
investors to limit their risks by reducing the
effect of a possible decline in the value of one
any asset class or security, so if one asset class
or security underperforms the others can offset
As retirement approaches, the allocation to
equities in one's portfolio should be reduced
as you may want to preserve your wealth and
reduce exposure to the volatility of stocks.
Investors may want to manage risk by investing
in fixed income instruments such as Treasury
Bills (T-Bills) and high-quality bonds via bond
or income mutual funds.
You must plan for your retirement so that
you can enjoy it in comfort. Don't be caught
playing catch up because you may not be able
to recover. And remember, putting your
finances in order is important for your family.
Your investment of time, affection and security
for your loved ones during your working years
could repay you with rich dividends in your
Planning for your retirement should begin
NOW -- even if it means a small amount being
utilised through a standing order.
Here are a few tips to consider:
• Start saving: It is advisable to start
investing towards your retirement upon receipt
of your first paycheck. Start small if you have
to and try to increase the amount annually.
The sooner you start saving, the more time
your money has to grow.
• Plan ahead: Retirement is expensive. In
order to maintain your standard of living when
you stop working you should take charge of
your financial future now. The key to a secure
retirement is to plan ahead.
• Leave retirement savings alone: If you
change jobs, it is advisable that you leave your
savings invested in your previous retirement
plan, or roll them over to your new employer's
plan as far as possible.
It much better to start saving for retirement
from young. While retirement may seem a
long time way, you should take a serious
approach to saving to ease the stress later.
Log on to www.ttutc.com for more infor-
Do you have any questions or comments
about this column? Are there any topics
that would like covered? Please e-mail us
Unit Trust Corporation
Get a grip on
Rick Miller, president of Sensible Financial Planning, advises:
"Start saving and stop spending. Put another way: Live not just
within your means, but well below."
Planning, and lots of it, is required to leave work before official
The save more/spend less bromides represent the biggest part
of being able to call it quits while others have to keep toiling. But
there are other instructions to follow in the "retire early owner's
• Find work with good benefits. "The second most important
thing we did (after saving) was worked for a company that had an
excellent pension-matching programme and the choice of a lump-
sum pension or monthly pension program," Darrell Fagala says.
• Be a prudent investor. Yes, some people retire early because
they struck it rich with this or that investment, but most average
folks who want to retire early need only invest wisely and strike
that delicate balance between risk and return. "We feel the biggest
concern is the one that most early retirees never consider," says
Aaron Coates, a certified financial planner with Valeo Financial Ad-
visers in Indianapolis. "The increase in (retirement) time---even five
years---exponentially increases the likelihood of unfavourable
events impacting their retirement savings during the critical early
• So ... diversify your accounts. Investing wisely means not
being too aggressive in your retirement accounts but also not put-
ting all your eggs into those accounts. "Many savers/investors pile
every penny they can into pension plans and IRAs," says Joe Pitzl,
managing partner of Pitzl Financial in Arden Hills, Minn. But those
accounts have age restrictions for penalty-free withdrawals. "If you
want to retire at 50 or 55, this can create some issues accessing
the dollars you need to live on."
• Cover health costs. When crunching the numbers to see if you
can retire early, don't forget to include what your healthcare might
cost in retirement.
Experts suggest budgeting at least $11,000 per year for health-
care. If you don't spend it all, you'll have more money to go toward
travel and spoiling your grandchildren.
• Talk to your loved ones. Folks contemplating retirement often
overlook how their change affects their partner and family rela-
tionships. Individuals (need) to take time to really talk with their
partners and close family members about what their plans might
be, what expectations, goals, and fears they have, and how they
might manage new roles and responsibilities.
• Also, consider hiring a financial adviser if only to double
check your numbers. "My biggest fear about retiring early was
being financially sound for the long haul," says Darrell Fagala. "One
thing we did to validate the possibility of retiring was to check with
our financial adviser."
• Retire to something. Don't forget to address what you'll do
and who you'll be in retirement. What passions will you pursue?
What's on your bucket list? "Be sure that you have something to
retire to," says Pitzl. "And that better be something other than golf
How to retire early while everyone else toils at work
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