Automating pension income for future investments is a surefire way to increase retirement income. (Picture: Pixabay)
For years, many employees have automated their retirement contributions through payroll deductions or standing orders. They have developed a habit of saving and investing regularly that continues into retirement to generate income streams.
A 2019 report from the National Institute on Retirement Security (NIRS), Washington, DC, USA, found that most Americans plan to stay in the workforce as long as possible or cut spending to ensure safety income during retirement. According to the report, more than 75% of American workers say they “lack the financial skills to manage their money in retirement.”
Recently, a retiree shared his retirement journey on how he successfully managed his retirement by automating his retirement income. He currently receives retirement income from four sources, including the National Insurance Scheme. One would have thought that his combined pension income would be enough to meet his retirement needs. The combined pension is approximately $130,000. He has spent his professional life as a civil servant working in different areas of the public sector. He had the foresight to recognize the need for the services of a financial advisor to guide his decision-making. Using a diversification strategy, this client has automated his retirement income by ensuring the funds are invested monthly when he re-enters the workforce at age 70. He plans to continue working as long as possible since he is now in relatively good health. while cherishing his new role of passing on his knowledge and skills to the younger generation.
Automating this retiree’s retirement funds for long-term investments and emergency needs gives him the security he needs and protection against the survival of his investments.
Benefits of Retirement Income Automation
Automating retirement income for savings and investing is simple and cost effective. The retiree gives instructions to implement the automation once, and the pension transfers go on autopilot. The client mentioned in this article benefits from the dollar cost averaging method since a portion of his pension payments are paid into a diversified fund of stocks and bonds. The dollar-cost averaging strategy of transferring monthly retirement income to purchase stocks in a managed fund ensures lower investment costs and higher long-term returns. Its investment benefits from capitalization and the value and growth of the fund increases more rapidly over time. The automation of retirement income offers retirees the possibility of living comfortably in retirement with the peace of mind that their investments will provide them with income when they need it most. Automation will also protect against market volatility that occurs from time to time as well as the negative impact of rising inflation. The retiree can rebalance their account as needed, as automation makes it easy to switch from one type of investment to another without hassle. The investment portfolio should be reviewed as needs and lifestyle may change. Retirees may have multiple automation systems in place, as funds may be invested in different institutions. Retirees can make withdrawals without fear of exhausting their resources too soon. It is ideal to have a separate fund in place for emergency needs. An automated system for funding the emergency account is important to ensure it is well resourced. Having an automated investment system does not prevent ad hoc or lump sum deposits into investment funds.
Automating pension income for future investments is a surefire way to increase retirement income. The paycheck will stop one day, but the bills never stop. According to the 2019 NIRS report, 79% of Americans have little investment knowledge and are unaware of the steps to take to have enough savings for retirement. Many Jamaicans face the same dilemma. Today, some people are not able to distinguish between saving and investing. Financial literacy is the key to peace of mind in retirement.
Grace G McLean is a Financial Advisor at BPM Financial Limited. Contact her at [email protected] and visit the website: www.bpmfinancial.com. She is also a podcaster for Living Above Self. Email him at [email protected]