Why should millennials start thinking about a retirement plan?
If you ask most Bahamian millennials if they have a retirement plan, they would probably tell you no. To be quite honest, the fact that most millennials don’t have or are not thinking about a retirement plan isn’t that uncommon. Despite this being the grim reality, a retirement plan should be something that every Bahamian should have.
There are serious personal and national implications for a citizenry that isn’t prepared for retirement. Here’s why planning for a retirement at a young age is so important:
During a person’s lifespan, one will become accustomed to a certain standard of living during his or her working years and would like to maintain this standard during retirement. The fact of the matter is, the only way you can sustain a lifestyle that you have become accustomed to is to ensure that you’re financially able to do so once you’ve stopped working.
The retirement saving process must begin during your most productive and gainful years of working. Most financial planners advise that the sooner you begin to plan for retirement, the better it will be. I also agree with that logic but I am also mindful of the local Bahamian economy and the likelihood of when a person can seriously start looking at a retirement plan.
Getting started, like most investments, is the hardest part. But it is very doable. Some statistics that I agree with advise that persons should start preparing for retirement at age 30 because this gives an individual time to get a stable financial footing in their career and a possible 30 to 35 years to prepare for retirement. During this time, your retirement plan can grow very slowly and should not be something that strains your monthly budget.
So, how can you start?
There are a number of local insurance and financial institutions that provide group and personal pension plans for individuals in The Bahamas. The minimum initial investment ranges from $50 to $500 with an average monthly contribution of $100. Your contributions are invested primarily in funds that are designed to guarantee a return on your investment in the long term.
A prevailing question when it comes to retirement is, how much money will I need to retire? The simple answer is, there is no magical number for retirement, because that will all depend on an individual’s standard of living and priorities. So, this number will vary based on the individual. I urge you to not look at retirement plans as financial burdens or possible dead investments. Some private companies offer group retirement plans in which the company matches your monthly contributions during your employment period. There is also a government pension program that is paid by the Ministry of Public Works to government employees who qualify for either full or reduced pension at retirement.
In 2015 KPMG indicated that less than 25 percent of the working population is covered by a pension plan. These numbers are startling because, presently, in our country too many of our older members of society are living in substandard conditions. This, in part, is because over a period of time, they didn’t think about what would happen when they retire. As millennials, we cannot make this same mistake.
Establishing multiple sources of income before retirement is also a key to maintaining a proper quality of life in your golden years. We have reached a point in our country where the reliance on National Insurance contributions at retirement will not be sufficient. It is strongly advised not to solely rely on National Insurance contributions at retirement. Presently the maximum amount a person can receive from the National Insurance Board for pension is $1,690 per month. As expected, this amount would be very difficult for a person at age 65 to live comfortably on, and with an ever-increasing national inflation rate, the picture becomes even bleaker.
It is our obligation to build on the foundation set for us by the previous generation. We must fulfill where they had their shortcomings and help grow our country financially for all. It should be a personal obligation to yourself and your future family to be appropriately prepared and ready for retirement. No one should want to be a burden on their family or country. A great man once said, “Mistakes are meant for learning, not repeating”.
• Quinton C. Lightbourne is a certified financial planner with the Chartered Institute of Bankers in Scotland and presently works with the investment and financial services team of a local law firm.