Dennise Williams
Contributor
Ignoring tax breaks during their working years and leaving family members with heavy death duties on assets left behind is the trend that characterizes retirement planning (or lack thereof) for most Jamaicans.
According to the Financial Services Commission, less than 10% of working Jamaicans have a retirement plan.
This lack of planning means that working adults are paying more in taxes on their salaries than they should. Small business owners are also leaving significant tax breaks on the table. The result? Jamaicans paying millions more in taxes over their working life than is required. According to Dino Hinds, director of Micro Financing Solutions, “Self employed persons should consider the option of contributing to a Individual Retirement Account or a IRA. These accounts are offered by most investment houses in Jamaica and will give the contributor the same tax benefits that a pooled pension plan gives.A long term savings (LSA) account is another option that self employed individuals should consider. These accounts are tax free on all interest earned as long as there are no withdrawal for a 5 year period. You do however get the option of being able to withdraw up to 75% of the interest earned in each calendar year. Savings are capped at 1 million per year.”
So for working adults, three options for retirement planning will save millions over their career. First, if one is employed they should contribute the maximum to the pension deduction which cuts their PAYE taxes. For self employed the IRA and the LSA also provide immediate tax savings while helping to plan for retirement.
Another option that attorney at law Robert Taylor and Hinds recommend is using insurance as a protective hedge in retirement planning.
Hinds notes, “Investment policies from life insurance companies are also another good option to save for the future. This option allows investors to save a small amount each month and earn the benefit of above average returns on their money.”
Taylor points out that insurance is part of an overall estate planning strategy that can help save millions in death duties and other estate taxes for the families.
“The first imperative of estate planning is having a valid will. With a will, you are able to ensure that your assets are administered and distributed according to your wishes. The Will must be properly drafted and executed to ensure that it cannot be held invalid and affect the disposition of gifts according to your wishes.”
Next Taylore explains, “With joint ownership of assets such as bank accounts, stocks and real estate there is no need for a formal transfer of assets upon death as the surviving party takes ownership of the asset with no need to pay estate taxes and other fees such as Attorneys costs and executor fees. For example, transfer tax on death is 1.5 percent of the value of real estate and shares as at the date of death. Apart from joint ownership persons may want to consider making inter vivos gifts, that is passing on or transferring property to an intended beneficiary during their lifetime.”
And finally, Taylor explains his take on insurance. “
By purchasing life insurance beneficiaries are protected from the huge cash outlay that may be required to cover death taxes and funeral expenses. Also, during a person’s life time, life insurance can provide cover for loss of income in the event of incapacitation which prevents a person from earning. It is advisable that the insurance policy name a beneficiary to minimize the payment of stamp duties.”
Now many persons plan to continue to work in their golden years to supplement their pension income. And so Dr. Carolyn Hayle of UWI notes that there are several pathways for retirees to earn money. She provides six options.
Option 1. Learn a skill you always wanted to learn. Then seek employment in that field or sell your outputs as a hobby.
Option 2. Tutoring. If you have a skill to impart offer your services. For example, GSAT, CSEC, CAPE, University tutorials, technical skills or mentoring. This income is seasonal and is based on the reputation of the provider.
Option 3. Customer service in a retail establishment. These have flexible hours and you get to meet people. There are lots of opportunities here.
Option 4: Try to continue to work for your current employer on a part-time basis — try to negotiate your health benefits.
Option 5. Assuming you are computer literate contact Financially Focused so that they teach you how to work on-line. This means you can work anywhere, at any time and for as many years as you want and for as much as you want.
Option 6. Conduct research for companies or work as a project manager.
And finally, if you are of the mind that savings alone will help you fund retirement after you have done all the work in being tax efficient and getting insurance, think again.
According to investment manager, Denise Marshall, there is still one more thing to do. “I can’t emphase just how important retirement planning is. EInvesting in the stock market for your retirement don’t mean a one time lump amount. Commit to investing 2-5% of your salary in the stock market each month.”
Marshall continues, “It’s important that you invest for your retirement instead of saving for your retirement particularly when you don’t have a lot of monies to begin with. There is strong possibility that if you save for your retirement you will out live your savings. A well diversified stock portfolio will outperform inflation and get you to achieving your goal.Lets look at a sample retirement stock portfolio:
-NCB – most profitable bank
-Scotia Group – 2nd most profitable banks
-Grace Kennedy – conglomerate
-Pjam – real estate & investment
-JSE
Marshall concludes, “To name a few, most of these stock are classfied as blue chip companies. These are companies that have stood the test of time and will be around to support your retirement income needs for years to come.”
