Retiring Poor
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With a burgeoning old age population, increasing inflation and dwindling government resources the threat of retiring poor is more ominous than ever before. Because it's intangible and some distance away, few prepare well for it. Are you in that category? Would your golden years be truly golden?
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Retiring Poor
- 1. Compiled by: Reginald Michael Alleyne
- 2. Are you financially ready to retire?
- 3. Do you want to live on … same amount of money you have been used to? more than you are used to? less than you are used to?
- 4. RETIREMENT income from where?
- 5. The T&T retail price index has quadrupled the past 25yrs. At this rate, a bag of goods that costs $100 today can be as much as $400 in the next 25 years. CBTT 2015 Most retirees didn’t cater for INFLATION…
- 6. What is the future value of OUR $$$? 1993 $1.00 2016 $2.50 1986 2016 $1.00 $5.00
- 7. The BURGEONING retiree population … Group retiring now
- 8. The INCREASING dependency ratio Age dependency ratio, old in T&T. Source: The World Bank
- 9. DEPLETING retirement income … Source: Securian Financial Group • Retirees do not know how long their retirement income will last • They face a delicate tradeoff between wanting to spend as much as possible without overdoing it and triggering old age poverty
- 10. What do statistics reveal … Source: Life Insurance and Market Research Association (LIMRA) • 24% of retirees work in retirement • 86% of pre-retirees have not ruled out working • 27% need extra income • 14% cannot afford to retire
- 11. Longevity causes retirement woes… Source: Society of Actuaries
- 12. Unexpected expenses of retirement … • Health & long term care • Help to other family members • Divorce • Fraud/theft
- 13. Living longer doesn’t mean living better Source: UN Population division 2015
- 14. Longevity introduces some concerns … Source: UN Dept. of Economic and Social Affairs “World Population Ageing 2015”.
- 15. Disconcerting statistics … Source: CSO and UN Population Division
- 16. Who will take care of the retirees? Source: ENAP International
- 17. Retirement is not CHEAP! Source: ENAP International
- 18. YOU say: “My company pension goh take care ah we!” … Central Bank disagrees Source: CBTT’s Financial Literacy Program • “While many employees do have some arrangements for receiving income during retirement, it is evident that these arrangements are usually woefully inadequate for the individual to maintain an appropriate standard of living during retirement.”
- 19. Source: CBTT’s Financial Literacy Program • “It is unreasonable to expect an employer to fully provide for an employee after he/she would have ended active service.” • “Pension arrangements are meant to assist the employee during the period of retirement, but the responsibility for making adequate provision for one’s post employment years, rests entirely with the individual.” YOU say: “My company pension goh take care ah we!” … Central Bank disagrees
- 20. How can we prevent the young man/woman of today from spending the income of the old man/woman whom he/she will become? 20 40 60 ? 240 240
- 21. 20 40 60 ? 240 240 How can we prevent the young man/woman of today from spending the income of the old man/woman whom he/she will become?
- 22. Why Annuities for Retirement income? • How much would you have to earn before-tax, to have a take-home of $50,000? (Assuming 25% tax: $66,666) • The entire $16,666 tax is unavailable to the income earner • Do you know of any other investment on the market that currently allows an income-earner to claim tax-breaks like an annuity does?
- 23. •Would you appreciate knowing whether you are ahead or behind in the retirement race? •Would you like to know how much you may need to contribute to ensure that you remain ahead? QUESTIONS?
- 24. How can we help you with your Retirement Risk Planning to avoid retiring poor? • By examining how many of the five sources of Retirement income (C.A.R.I.B.) are currently in place and determining what would be the future value of your retirement income
- 25. We assist you step-by-step by: 1. Establishing what is your desired Retirement income 2. Determining how inflation impacts on the future value of money 3. Quantifying what is the retirement gap 4. Making Recommendations
- 26. If you would like to discuss in more detail any of the preceding topics I can be contacted as follows: †Facebook †By Email at: rmalleyn1@gmail.com †LinkedIn: https://www.linkedin.com/in/reginaldmichaelalleyne/
Editor's Notes
- ICEBREAKERS: What is the most expensive bed in the world right now? Have you ever heard about the golden goose that laid the golden eggs? Are you familiar with P.O.T.W.T. (Principle of the water tank)? If you move to an area where there was an unreliable supply of water would you need more or less water tanks? We are in a race against four competitors, our obligation is to get to our customers before they do. Who are they? Death, Disability, Old Age and Critical Illness. What is your opinion of insurance agents? Crooks or Partners? If your car needed fixing but you had a bad experience with a mechanic would that deter you from getting the car fixed? You would still need a mechanic. Why do banks and lending agencies trust insurance? If you had a money making machine would you protect it? If it broke down would you like to be in a position to replace it? If you were a tight rope walker would you want a small or big safety net if you fell? How many gas tanks do you have at home? Two? Three? Why not one? If you were a parachute jumper what would be your options if mid-way through the descent you realized that you did not have a parachute? Do you know the five sources of retirement income (C.A.R.I.B.)?
- Even if inflation averages about 3% per year, the cost of living doubles in 23 years
- Even if inflation averages about 3% per year, the cost of living doubles in 23 years
- Age dependency ratio, old, is the ratio of older dependents--people older than 64--to the working-age population--those ages 15-64. Data are shown as the proportion of dependents per 100 working-age population.
- Age dependency ratio, old, is the ratio of older dependents--people older than 64--to the working-age population--those ages 15-64. Data are shown as the proportion of dependents per 100 working-age population.
- LIMRA – Life Insurance and Market Research Association
- Even if inflation averages about 3% per year, the cost of living doubles in 23 years
- The life expectancy of Trinbagonians at age 65 is increasing - from 12yrs in 1950 to an expected 16yrs that by the year 2050.
- In T&T it is expected that by 2050, there can be over a quarter million persons over the age of 65. Persons over 65 are expected to comprise 21% of the population by 2050, up from a mere 4% in 1950.
- In T&T it is expected that by 2050, there can be over a quarter million persons over the age of 65. Persons over 65 are expected to comprise 21% of the population by 2050, up from a mere 4% in 1950.
- The ability of the N.I.S. to sustain adequate income support in the future is questioned by the ratio of contributors to pensioners. By the year 2060, it is expected this ratio could be almost 1 to 1.
- The Ninth Actuarial Review of the National Insurance System revealed that expenditure on retirement is expected to be as much as TTD 66Bn by 2063 Total Expenditure will be 6.7% of GDP, up from 2.5%.
- Even if inflation averages about 3% per year, the cost of living doubles in 23 years
- Even if inflation averages about 3% per year, the cost of living doubles in 23 years
- Answer = $62,500
- Future Value of a Single Sum (lumpsum) E.g. $300K in fixed deposit, what would be the value in 30 years FV = PV(lumpsum) x FVSS (n,r) Future Value of an Annuity Factor (M, Q, ½ Y, Y) E.g. saving $300/month what would be the amount in 30 years FV = pmt (periodic) x FVa (n,r) Five variables to calculate FVSS & FVAF PV(c) = Present value (cost) N = number of years R = rate of return (RoR) or inflation rate FV(c) = Future value (cost) PMT = periodic payment (M, Q, ½ Y, Y) Example $250/month in UTC; n = 30 & r = 1% then FV = (250 x 12) x FVa (34.7849) = $104,355 $350/month in IPI; n = 30 & r = 2% then FV = (350 x 12) x FVa (40.5681) = $170,386 $400/month in CU (note: since shares accumulation is not based on compound interest but only on dividends the rate (r) is unknown so the FVSS has to be used which means that the inflation rate of 7% is calculated) N = FV = (400 x 12) x FVSS (7.6123) = $36,539 $4,000/month in rent (note: since rental income is not based on compound interest the rate (r) is unknown so the FVSS has to be used which means that the inflation rate of 7% is calculated) N = FV = (4,000 x 12) x FVSS (7.6123) = $365,390 then the monthly rental would be: 365,390/12 = $30,450 To calculate how much the person needs to contribute to an Annuity: Retirement Reserve (GAP)/FVa (n,r) = Retirement Income Deficit/Assumed Interest Rate FVa (n,r) where r = rate on the product (Lifestyle; IPI; Tophat) 500,000/0.01 FVa (30 x 2% for IPI) 50,000,000/40.5681 = 1,232,495 per year = 1,232,495/12 = $102,707