“I’m going to retire after working for over 40 years and I’m feeling a little anxious about the future. The way how prices are rising now, I wonder if I’ll be able to survive on my pension. I don’t have any children and I worry what will happen to me if I run out of money.”

Retirement is a big lifestyle change that can bring some amount of anxiety about your financial future. To reduce your apprehension, you have to learn how to assess your spending needs and to calculate if your planned income will be enough to meet them.

If you’re approaching retirement, here are some key considerations that will help you to be fully financially prepared:

How much money will you need to spend each month?

It’s very important to know exactly how much money you’ll need to meet your expenses during retirement. Spend some time to create a realistic budget of your expected income and expenses. Writing these figures down will let you identify if you’ll have enough money to pay your bills, and it will help you to make decisions about how to distribute the money you have.

To properly record all your expenses follow these simple steps:

1.   Write down all the unavoidable monthly expenses
2.   Estimate all the periodic expenses that don’t happen every month
3.   Decide how much you can afford to spend on non-essentials like gifts and entertainment
4.   Make allowances for emergency expenses
5.   Break down all your expenses into average monthly amounts

What are your sources of retirement income?

Now that you have a good picture of your immediate spending needs, the next step is to record all your income amounts. In Jamaica, there are three possible sources of retirement funds:

1.   The National Insurance Scheme (NIS)
2.   Pension plan payments
3.   Returns from your personal investments

To ensure a smooth transition from salary to pension, speak to your human resources department on a timely basis about plans for your upcoming retirement. Visit the NIS office to apply for your benefits, and if you had invested in a retirement insurance plan, advise your agent that you will be retiring soon. Once you have a good idea of your monthly income amounts, record them in your budget.

Will your income sources meet your needs?

Once your expected income and expense figures are recorded, subtract your outflow from your inflow. If your calculations show that your money won’t be enough for your needs, try to reduce your spending estimates by this amount. If there’s no room for adjustment, then you’ll have to figure out how to earn some extra money. If your budget shows that you have excess income, then you should put this money aside for emergencies.

Will your money last throughout your retirement years?

It’s important to note that your budget only indicates your current financial picture. Many retirees are not aware of the devastating effects that inflation can have on pension and retirement savings.
You also have to work out your future costs, and to calculate if your income sources will still be sufficient to meet those needs.

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For this step it’s best to get help from a financial advisor who can use a financial calculator to determine your future expense needs. Using estimates for inflation, interest on savings, and your retirement life expectancy, the advisor will help you to see if your nest egg will be enough.

Let’s look at worked example:

Sixty-five year old Daisy needs to withdraw J$30,000 monthly from her savings, and wants to receive this income for about 25 years. The advisor estimates that average inflation over this period will be ten per cent per annum, and that Daisy can earn about eight per cent after taxes every year. Daisy would need to have a lump sum of about J$12.4 million at the start of her retirement to fulfill her requirements.

What if your money won’t be enough?

As with any other budget shortfall, there are only two things to do – earn more or spend less. Just because you have retired, it doesn’t mean that you have to stop working. Here are some possible money-making options:

–   Work part-time at your old employer
–   Provide consulting or tutoring services in your field
–   Rent out part of your home
–   Find a hobby that pays (e.g. plant cultivation)
–   Join a network marketing business

As a senior citizen, you may have more options to reduce your expenses than you think. You can save on health costs through the Jamaica Drugs for the Elderly Programme (JADEP), the NI Gold Health Card, and the National Health Fund. Many businesses offer senior discounts, so shop around. Apply for senior loyalty cards at supermarkets and pharmacies, and look out for senior rates at your cable company and the movies. Even if it’s not immediately offered, don’t be shy about asking for a reduced price.