Othneil Blagrove, Senior Manager, Sales and Marketing, JN Life Insurance is encouraging young persons to begin contributing to a retirement scheme as early as possible because of the benefits of starting young and also Jamaica’s rapidly aging population.
Mr. Blagrove points out that the number of elderly persons in Jamaica’s population is expected to be about 500,000 by 2030 and a fifth of the population by 2050, thus contributing to a pension scheme is even more important for younger persons.
“A recent paper published by the Pension Industry Association of Jamaica indicated that by 2050, some 22 per cent of our population would be made up of elderly persons. When you compare this to our current situation where only about 20 per cent of our workforce is contributing to a retirement scheme, there is a need to urge young persons to start planning for retirement as soon as possible,” Mr. Blagrove opined.
He added that there are many benefits for young persons to start planning for retirement from early.
“There is the view especially among some younger persons that they cannot afford to plan for retirement because their salary is too low. There is also the belief among others that they may not live to see retirement and therefore there is no great urgency to begin preparations. However, our life expectancy keeps increasing and most persons live for up to 20 years after retirement. As a result, the earlier persons start, the better,” he stated.
“One thing you should note is that when you’re in your 20s, you may be thinking you are young and have all the time in the world. While this may be true, time flies when you are having fun and in no time, you could find that you are close to retirement with no pension savings, so starting early is beneficial to you,” he added.
Mr. Blagrove pointed out that the income earned from pension savings are calculated using compound interest which is beneficial to the contributor.
“What this means that if you start planning for retirement at age 21, and if you are able to contribute the maximum amount from that age, you will have amassed a tidy sum by retirement. Even if you haven’t been contributing the maximum amount, you would have taken the steps to accumulate a modest savings by retirement. And, because you are young you can increase your contribution as your career progresses,” he noted.
The insurance professional adds that there are also tax benefits for young persons who start early.
“A retirement savings plan, or a pension plan is good because you pay less income tax when you are a part of a retirement scheme. It is structured this way because the pension is subtracted from your salary before taxes are withdrawn and so you end up paying less income tax,” he noted.
“Also, the more you contribute to the pension scheme the less income tax you pay. For example, if you decide to contribute the maximum amount which is 20 per cent of your salary, then you will only pay income tax on the remaining balance of your salary which means that you will be taking home more and also having a better chance of living as comfortably as you are now when you’re retired,” he said.
Mr. Blagrove pointed out that another benefit of planning for retirement as a young person is that they can recover in the event of economic shocks.
“Market downturns are a part of the reality of investing. Although most pension plans invest in safe financial instruments that guarantee a return on your investment, there are times when your funds can be affected by turmoil in the market. Therefore, starting to plan for retirement in your 20s will ensure that in the event of a market downturn, there is time for your funds to recover,” he said.
“If you wait until later to start planning for retirement, and this happens, your savings could be badly affected. Also, by that time you may have added responsibilities such as a family, mortgage, car payments and other bills to take care of and so it becomes harder to start over which mean you may face retirement struggling to survive. Therefore, beginning as soon as you start working and gradually improving your contribution is beneficial for you,” he added.
Mr. Blagrove adds that retirement planning for young persons should also be encouraged since it is a part of financial planning.
“Retirement planning also encourages savings and discipline. Therefore, the benefits of planning for retirement from early are far-reaching. Also, it will give you the opportunity to enjoy your golden years without depending on the good will of others,” he said.
