Whether you’re just entering the workforce, or you’re middle-aged and thinking about saving extra for your future, or your golden years are just around the corner, thinking about retirement and the rules and regulations that apply here in Bermuda can seem overwhelming.
Do I have enough saved for retirement? How much will I even need to retire? Is my beneficiary information up-to-date in case something happens to me? These are just a few of the frequently asked questions and conversations that are currently trending that should be taken into consideration.
While normal retirement age here in Bermuda is sixty-five years of age, there is also the option for early retirement at the age of fifty-five. However, as the National Pension Scheme (Occupational Pensions) Act only became mandatory in the year 2000, many people who are approaching retirement or who have recently retired may only have approximately twenty years’ worth of pension contributions saved. This may not be enough to retire early—the ability to do so will depend on their individual financial status.
But, other than the obvious—getting to leave the workforce earlier than most—what’s the real difference between early and normal retirement anyway? Well, at early retirement (age fifty-five), you’re entitled to 3% of your total pension balance per year. At normal retirement (age sixty-five), this figure more than doubles to 7% per year, which makes a sizeable difference: Say, for example, you have $200,000.00 in your pension account. If you retire early (at age fifty-five) you would receive approximately $6,000.00 per year from this account. But, if you retire at normal retirement age (at sixty-five years of age) you would receive approximately $14,000.00 per year instead.
Something else to keep in mind when comparing early and normal retirement is the recent change to the National Pension Scheme that allows retired persons to withdraw a lump sum of 25% from their pension balance; however, this only applies to those retirees who are sixty-five years of age and not fifty-five. Also, regardless of what age you are when you do retire, you have the option to drawdown monthly, quarterly, semi-annually, or annually from your pension account. Each of these options bears an associated fee that you should be sure to understand prior to choosing your drawdown frequency.
If the figures and fees mentioned above are surprising to you, you’re not alone—this is the unfortunate reality for many of Bermuda’s retirees. So, what can you do to plan better for your retirement? Well, if you’re able to set aside extra funds for yourself, then you should do so. Finding a healthy balance between being financially responsible while enjoying life and putting aside money for your future is something that you will not regret—after all, financial freedom at any age is the goal!
When it comes to setting aside those extra funds for yourself, a traditional savings account isn’t your only option. There are other ways to save and, although your money is safe in a regular savings account, it’s not exactly working for you while it’s in there. So, something I like to recommend to my retirement-minded clients is that they leave themselves a cushion in their savings account and invest the rest.
Life is not stagnant; choosing to invest your money in a product that allows you the flexibility to make contributions as and when it suits you is imperative because, when you choose to invest your money, you choose to give yourself the opportunity to earn interest and to be able to take advantage of any market swings. You work hard for your money; it should work just as hard for you.
When it comes to our finances, most of us have some kind of plan for them while we’re alive but what about once we’ve passed away? When you enroll in any kind of registered product—such as a pension or life plan—you must appoint a beneficiary i.e., someone who will receive the money or other benefits upon your death.
Beneficiaries don’t have to be related to you and you can list just one or many people as your beneficiaries, but if you wish to list someone under the age of eighteen, then you’ll also need to appoint a trustee for them. Careful consideration should be made when choosing a trustee for a young beneficiary as that person will receive the money or benefits on behalf of your beneficiary in the event that you pass away before he or she turns eighteen; you’re basically trusting that person to fulfill your wishes until your beneficiary is of age.
One final note on the matter of beneficiaries is that information provided within registered products overrides information provided within a last will and testament and will hold up in court. Therefore, it’s crucial to update your beneficiary information when life events such as marriage, divorce, birth of a child, death of a loved one, etc. occur so that everything is as it should be when the time comes.