Christine Charlemagne

ARTICLE SAMPLE – Financial Article written for First Citizens Investment Services Retirement Realities: Managing your hard earned funds Written by Christine Charlemagne As the popular adage goes, Retirement is your reward for a lifetime of hard work! Certainly, most of us dream of spending our retirement relaxing on Mediterranean cruises; travelling the world; spending time with family; doting on our grandchildren; enjoying outdoor gardening; or basking in the sun, in our sea-side condo, or a special place of our dreams. After all, retirement is meant to be a time of relaxation and enjoyment. However the reality is that if we do not adequately manage our retirement funds and income, living this dream may never be a reality. We must consider that at retirement, there is generally no longer a flow of steady income—for those of us fortunate enough to have one—and certainly not at the rate we grew accustomed to during our working years. Monthly pension will amount to a fraction of previous monthly earnings. It is with these harsh realities in mind that First Citizens Investment Services is honored to present you with some keen advice to help you manage your hand-earned funds, as you welcome your golden years. Turn your retirement assets into income • Generate Interest Income At retirement, most individuals would have accumulated some retirement savings, and/or would have received a lump sum retirement gratuity. Investing those funds in a higher-yielding fixed income account with a fixed return rate for the period is a good option to generate income, while preserving your principal (invested amount). Consider investing the sum of EC$100,000 in a 365-day fixed income investment which pays a return rate of 4.50% per annum. This will result in your investment earning EC$4,500 for the year, an average of EC$375.00 a month—depending on your retirement expenses, this amount can be used to cover your monthly food or utility bills. Alternatively, higher interest income opportunities like investing in longer-term treasury notes or government bonds can be considered. In most recent times, for example, we have seen five-year EC-dollar bonds of regional governments attracting returns of 6.50% per annum. This would translate to potential income of EC$6,500 a year, or EC$3,250 every six months, on your investment of EC$100,000. • Generate Rental Income At retirement, there is a high possibility you may be a home-owner. If this is the case, congratulations and bravo to you, however it may be worth your while to consider that while a house is an appreciating asset and certainly a good investment, the expenses associated with home-ownership may be excessive! Real estate taxes, house insurances, utilities, services, repairs and replacements are expenses which will certainly reduce your discretionary spending. Generating rental income is a good option to help offset your housing expenses; as such it may be worth exploring the possibility of renting a room, or renovating to create an apartment which can be rented out. If generating rental income is not a possibility, down-sizing to a smaller property may be another option to consider, as it allows you to not only reduce your housing expenses, but may also provide additional security and comfort in your golden years. Review your investment and savings Portfolio with a view to reducing risk Different life stages calls for different investment approaches. For instance, young individuals who are fresh out of college, entering the work force are generally considered to be in their wealth accumulation investment phase. In this phase the objective is to build savings and investments, such as investing towards home-ownership, building an emergency fund and savings towards children’s education. A wealth accumulation investment phase would most-likely consist of a greater percentage of equities (investment in shares), as these types of investments generally provide higher return opportunities, but are considered more risky investments. On the flip side, retirees are in the wealth preservation phase, which generally means risk avoidance and minimization as much as possible. With earnings now reduced, the objective of this phase is to safeguard the funds accumulated in earlier years, in order to sufficiently meet needs and wants during retirement. An important aspect of a wealth preservation investment portfolio is that there is usually a notable reduction in the percentage of funds invested in equities. Wealth preservation portfolios typically seek to reduce risk; as such equity investments are usually replaced with safer fixed income and short-term investments. The chart below shows a general rule of thumb for wealth preservation investment portfolio, for individuals living on retirement income, preserving wealth for 20 to 30 years. WEALTH PRESERVATION PORTFOLIO SAMPLE Understand the impact of age on expenses! At the base of managing retirement funds is the understanding that during retirement, although some costs go down, some key expenses are very likely to be amplified! Expenses such as healthcare and long-term care for yourselves or even your parents feature prominently among these. A Forbes magazine article states that that most individuals estimate their projected retirement costs at 75% less than the actual retirement costs. Understanding how your expenses would change during retirement is a key factor in managing your funds. It is therefore generally a good idea to work with a financial planner to gain a sense of how your expenses are likely to increase over the years and how to manage your income to better enjoy your retirement. Budget! Budget! Budget! There is no getting around it! Establishing and maintaining a budget is certainly an excellent way to manage funds! While we may have limited control over our investment results, especially if we invest in equity, we do usually have a level of control over how much of our money we spend, and what we spend it on. Creating a budget which outlines your core expenses (these expenses we cannot ignore) and your desired discretionary expenses (these expenses on things we want but do not need) will aid you in keeping track and managing your funds. It is also important to revisit your budget periodically to make sure your discretionary spending isn’t getting out of control that it absorbs the majority of your income. Watch out for over spending in your early retirement years According to Forbes magazine, spending too much early in retirement isn’t just the loss of that money, it also means missing out on the potential returns that money would have earned over the next 20 years! To limit this danger, retirees are urged to devise and stick to an effective budget and spending plan at the start of retirement, or immediately if budgeting is currently not a part of their planning process. Meanwhile, for those nearing retirement, a general strategy would be to plan for retirement at least ten years prior to retirement, by making projections on how much pension, retirement accounts, and social security will be, in order to gain an understanding of what your budget will be in retirement.