Na­tal­ie?Brig­gs

This week the Sun­day BG takes a look at what those who are be­tween the ages 50-59 and will be re­tir­ing with­in the next 10 years.The is­sue is not as sim­ple as defin­ing a sum of mon­ey that needs to be saved and stick­ing with it for a par­tic­u­lar pe­ri­od of time. Here is the first part in a two part se­ries on as­cer­tain­ing what you will need to save dur­ing your work­ing life in or­der to en­sure that your re­tire­ment is as com­fort­able as your work­ing life.

Be­tween this year and 2024, one of the largest gen­er­a­tional co­horts born in this coun­try will be re­tir­ing. How com­fort­ably they would be able to do so would de­pend not on­ly on de­ci­sions they would have made through­out their lives, but al­so on sev­er­al fac­tors out­side their con­trol.

In the US, mem­bers of this gen­er­a­tional co­hort, bet­ter known as Ba­by Boomers are fac­ing some chal­lenges. Ac­cord­ing to the Amer­i­can As­so­ci­a­tion of Re­tired Per­sons, many of them will be work­ing longer. The av­er­age age of re­tire­ment is up to 67 years. Peo­ple are fore­go­ing re­tire­ment in or­der to make up for lost sav­ings op­por­tu­ni­ties. They are al­so stay­ing em­ployed longer to in­crease their so­cial se­cu­ri­ty ben­e­fit pay­out.

The rea­son?

Eq­ui­ty in their homes would have de­creased when the US hous­ing bub­ble went bust and half of all Amer­i­cans have their net worth tied up in their homes. The 2008 fi­nan­cial cri­sis would al­so have seen a re­duc­tion in the worth of their in­vest­ments in stocks even though this is steadi­ly im­prov­ing.

US em­ploy­ers are al­so cut­ting back on de­fined ben­e­fit pen­sion plans or elim­i­nat­ing them com­plete­ly. Un­der a de­fined ben­e­fit plan, the em­ploy­er con­tributes as well as con­trols and mon­i­tors the in­vest­ment of these con­tri­bu­tions, tak­ing much weight and ex­pense off of the em­ploy­ee.

When they re­tire, the em­ploy­ee re­ceives a pen­sion pay­ment for life from the com­pa­ny. How­ev­er, with these plans in­creas­ing­ly be­com­ing a thing of the past, Amer­i­cans will be go­ing home with less when they re­tire, but from all pro­jec­tions will be liv­ing longer.

The Em­ploy­ee Ben­e­fit Re­search In­sti­tute has said that 46 per cent of Amer­i­cans have less than US$25,000 saved for re­tire­ment. This fig­ure di­verges sharply with es­ti­mates of what Amer­i­cans would need to re­tire com­fort­ably in to­day's en­vi­ron­ment.

In­vest­ment com­pa­ny, Fi­deli­ty says that some­one hop­ing to re­tire should have saved at least eight times their an­nu­al salary in or­der to live com­fort­ably. In a Times mag­a­zine ar­ti­cle, ben­e­fit con­sul­tant Aon He­witt said that one should have 11 times their an­nu­al pay af­ter they have re­tired. In the same ar­ti­cle, oth­er ex­perts es­ti­mat­ed as high as 18 times a per­son's an­nu­al salary.

Fi­deli­ty al­so sug­gest­ed that some­one about to re­tire should have as much as 80-85 per cent of their fi­nal salary as re­place­ment in­come.Time gave some guide­lines as well on how much one should have saved to meet some of the above tar­gets. The mag­a­zine sug­gests that by 35, one should have one's an­nu­al salary saved, by 45, 3 times one's av­er­age salary, by 55, 5 times your an­nu­al salary and by 67, 8 times.

Fi­deli­ty said the fol­low­ing as­sump­tions would be nec­es­sary to com­ing up with your own num­bers:

�2 The age one start­ed sav­ing

�2 The date one planned to re­tire

�2 In­come saved an­nu­al­ly

�2 An­nu­al salary growth

�2 Salary re­place­ment at re­tire­ment

�2 Life ex­pectan­cy

�2 And the ex­pect­ed rate of re­turn

The Sun­day BG won­dered what mul­ti­ple of their cur­rent salary would peo­ple head­ing in­to re­tir­ment here in Trinidad and To­ba­go need to live a com­fort­able lifestyle. To ar­rive at those fig­ures, we made some as­sump­tions of our own

Our re­tirees are a mar­ried cou­ple of se­nior teach­ers, named Samuel and Jen­nifer, who are both in their mid-fifties and who are set to re­tire in 2019, five years from now. Be­tween now and the, it is like­ly they will re­ceive an in­crease of ten per cent on their salaries, as a re­sult of the ne­go­ti­a­tions be­tween TTUTA and the Chief Per­son­nel Of­fi­cer.

Their joint in­come is about $30,000 a month. They are in good health and are like­ly to live to at least 85 years, or 25 years af­ter re­tire­ment. Mean­while, in­fla­tion is ex­pect­ed to av­er­age about five per cent a year.

The Sun­day BG put the fol­low­ing to Lloyd Ince, Pres­i­dent of the Caribbean Fi­nan­cial Plan­ning As­so­ci­a­tion.

Crunch­ing the num­bers

Ince, who has over 30 years ex­pe­ri­ence as a fi­nan­cial plan­ner, has some sober­ing news for the would-be re­tirees. He said what was saved or in­come from an­nu­ities and in­vest­ments would not mat­ter as much as the cou­ple's abil­i­ty to live with­in their means, both be­fore and af­ter re­tire­ment.

"In­come is al­ways nev­er enough. It is the abil­i­ty of the per­son to live with­in their in­come that re­al­ly mat­ters. We have a sit­u­a­tion of two teach­ers earn­ing a joint in­come of $30,000, each earn­ing about $15,000 a month. If they are able to live with­in their means, then five years from now their joint in­come would be $33,000 be­cause their in­come would have gone up by ten per cent. If they are liv­ing with­in their means and that's their in­come, they would im­me­di­ate­ly suf­fer a 33 per cent drop in in­come be­cause their max­i­mum pen­sion is now $21,978."

The news gets worse for our re­tirees, Ince said."In such a case, if they were liv­ing a $33,000 a month lifestyle, they would now have an im­me­di­ate short­fall of $11,022 in the home. If they are able through lifestyle ad­just­ments to live with­in the lev­el of the pen­sion then things are okay for the time be­ing. But then there is the five per cent in­fla­tion rate, and what will hap­pen five years lat­er (in 2024) is that their liv­ing ex­pens­es will then be $28,044.

"In oth­er words, the house­hold is now hav­ing a deficit of $6,056 a month and if we were to project that 25 years in­to the fu­ture then, they would have liv­ing ex­pens­es of $74,418 or in oth­er words or a short­fall of in­come of $52,440.Those num­bers are very fright­en­ing."Look­ing at the sit­u­a­tion an­oth­er way, Ince said if you can­not live well with­in 100 per cent of your in­come now, it is un­like­ly that you will do well with on­ly 66.6 per cent of in­come dur­ing your pen­sion years.

No Lon­gi­tu­di­nal Stud­ies

When asked if he could pro­vide Sun­day BG with mod­els sim­i­lar to those done by Fi­deli­ty In­vest­ments and Time Mag­a­zine, Ince said this would be dif­fi­cult."Those are text­book de­f­i­n­i­tions. Many times they do not ap­proach the re­al­i­ty. Num­ber crunch­ing and pro­jec­tions like that are good for math­e­mat­ics but not for lifestyle man­age­ment is­sues like re­tire­ment. That will re­quire some lev­el of re­search and sur­veys with­in the nor­ma­tive arrange­ment for our re­gion. As­sump­tions that work in the States will not nec­es­sar­i­ly work here."

It has been sug­gest­ed by at least one ac­tu­ar­i­al pro­fes­sion­al that per­sons about to re­tire in T&T might re­quire less mon­ey as they re­ceive the NIS se­nior cit­i­zens grant, as well as oth­er ben­e­fits such as free trans­port and C-DAP. But it's hard to tell for sure, since ac­cord­ing to Ince, the Caribbean does not seem to have the da­ta over the length of time, to make such analy­sis pos­si­ble.

"You have to be do­ing re­search over the years in­to the be­hav­iour of Caribbean peo­ple, the in­vest­ment op­por­tu­ni­ties and to crunch the num­bers that the Amer­i­cans would crunch. You would have to do lon­gi­tu­di­nal sur­veys. What hap­pens over a pe­ri­od of time to such a per­son and track­ing that for high in­come earn­ers, mid­dle mid­dle class, low in­come."

"The da­ta gath­er­ing process for what you call lon­gi­tu­di­nal sur­veys need to be done. I don't think we have a his­to­ry of cap­tur­ing da­ta and an­a­lyz­ing it over a long term."

Some more ad­vice to the re­tirees

In ad­di­tion to liv­ing with­in their means, Ince tells those about to re­tire to se­ri­ous­ly con­sid­er what he called hedged in­vest­ments."You should seek to have a pen­sion plan that will al­low you an op­tion of a re­duced pen­sion and a tax free lump sum. The tax free lump sum, they should ear­mark to earn in­fla­tion-hedged in­vest­ment to sup­ple­ment their pen­sion, which most like­ly is go­ing to be flat."He said re­al es­tate and eq­ui­ty are con­sid­ered "in­vest­ment hedged", be­cause if prices go up, re­al es­tate for ex­am­ple tends to match that.

"When prices go up, in­fla­tion works to your ad­van­tage. In­fla­tion is on­ly a dis­ad­van­tage when you are pur­chas­ing."He al­so ad­vised that with re­tire­ment in view, peo­ple should in­vest in apart­ments units to rent in their 40s and 50s, us­ing the price of their cur­rent house as a guide."Once the rental in­come, is high­er than the mort­gage pay­ment , you have se­cured in­creased in­come which will then im­pact pos­i­tive­ly on re­tire­ment."The pur­chase of a house is not need­ed, if one has the abil­i­ty to con­vert a cur­rent home to rental units, Ince said.

Spe­cial in­ter­est and hob­bies could al­so be an ad­di­tion­al rev­enue stream. Ince said ac­quaint­ing one­self with new tech­nolo­gies is al­so good as re­tire­ment years close in."A per­son ap­proach­ing re­tire­ment should not al­low their abil­i­ty to in­ter­face with the tech­nol­o­gy be im­paired. Some­body could in­crease their re­source­ful­ness to their com­mer­cial ben­e­fit."

But all this aside, is there a mag­ic num­ber by which those in their 30s, 40s and 50s should be think­ing about and could we come by it, with as­sump­tions rel­e­vant to our own sit­u­a­tion?

Write us at an­tho­ny.wil­son@guardian.co.tt or na­tal­ie.brig­gs@guardian.co.tt and tell us what you think you will need to save to­day to en­sure a com­fort­able re­tire­ment.