In weeks 7 and 8, we examined your risk management strategies: having an emergency fund that prepares you for the unexpected and making sure you are properly covered with the right insurance.

Let us now look at retirement. Do you have a retirement plan? Think about it: If you live long enough, you will retire someday. If that day comes, how will you be taken care of?

Retirement planning is all about figuring out where money will come from when you no longer have a job. It is prudent to develop a plan to support your financial needs in your retirement years.

How much money will you need?

The amount of money you will need will depend on:

1.     Your normal living expenses – This includes food, utilities, transportation, etc.

2.     Your financial obligations – If your mortgages, credit cards and car payments are not paid off by retirement, you will have to continue making payments.

3.     Your state of health – If you have a health condition, you may need to have money (in addition to insurance) to cover your medical expenses.

4.     Inflation – Over time, the value of money decreases while the value of goods increases. Thus, you should expect that you will have to pay more for goods tomorrow than you do today.

In addition to the amount you need annually, you need to also determine how many years you would like to plan for. Keep in mind that many persons in the BVI live well into their 80s and 90s.

Where will your retirement funds come from?

It is recommended that you have at least three sources of retirement income:

1. Social Security

It is important to note that Social Security will only provide a portion of the money that you will need in retirement. The maximum Social Security benefit for a person retiring in the BVI at full retirement age in 2016 is $3,358.34. Of course, only persons who made the required contributions to Social Security are eligible for this maximum payout.

2. Pension

Many employers in the BVI prudently offer pension plans, where the employee and/or the employer contribute to a pool of funds set aside for the future benefit of the employee, provided that the employee meets specific requirements. The amount of money that the employee receives would be dependent on the contributions made and the provisions outlined by the employer.

3. Savings and investments

Savings and investments is perhaps, the most important source of retirement income as it is the source that you have the most control over. If you were not to receive social security and pension benefits, you would have to rely solely on your savings and investments to sustain you during retirement.

Can you retire with confidence?

The last thing you want is for retirement to creep up on you. It is never too early to save for retirement. The sooner you begin and develop a consistent pattern of saving, the greater the potential that you will reach the amount needed to live comfortably in retirement.

Start planning today to secure peace of mind in your retirement years.

Your prescription for Week 9

Take some time this week to review your retirement plan.

• Estimate how much money you will need annually during retirement.
• Determine how many years you want your retirement money to last.
• Figure out how much money you should expect to receive from Social Security during retirement.
• If you have a pension plan: check your contributions and see how much money you can expect to receive from it.
• Review your retirement savings to determine how much you currently have saved for retirement. (We will review your investments next week).
• Use our retirement calculator to determine if you are on track. If you are not on track, make adjustments. Some adjustments you can make:
  • If you have a pension plan: consider increasing your contributions.
  • If you don’t have a pension plan: talk with your employer to learn more about what plan (if any) they offer. Also talk with a reputable financial advisor to determine if there are other options available.
  • Increase the amount of money that you are saving for your retirement.

Next week we’ll focus on investment.