LOUISE FAIRSAVE: Four sources of retirement funds

AS THE majority of workers in Barbados do not benefit from a pension plan offered by their employer, they have to provide for their own retirement.

For such a worker, if you are over 55 years old and beginning to think about the lazy days of retirement, you need to question if you can afford to retire. Indeed, if you had started early in your work life preparing for retirement, you may have a ready positive answer to this question.

Actually, all of us can afford to retire; the difference is for how long and at what standard of living. Some of us can retire quite comfortably for the next
30 years. Others may not be able to last a month, furthermore a full year.

Full retirement means that your income from gainful employment ends. You are forced to live on other sources of income. Today, we consider four such sources: pushing back the retirement clock and continuing to work or working part-time; rental property; cash or cash equivalents, and government bonds.

For those thinking of choosing to continue to work or to work part-time for a few hours a week, maintaining adequate physical and mental stamina and health are significant considerations. In addition, depending on the person’s expertise and experience, work may not be available in their area.

For retirees, there are usually lots of volunteer assignments available as against paid work. However, this option has worked well for some.

Owning rental property either free of debt, or where the rental income adequately exceeds the mortgage payments and other expenses, can be a solid source of supplemental income.

The drawback is that property rental tends to go through cycles; a property remaining unrented for an extended period could generate a cash flow crisis. In addition, real property may be difficult to convert to cash in short order when the situation demands. Maintaining the property at a reasonable cost can become a drag as the pensioner gets older.

A cash reserve for emergencies of about six to eight months’ living expenses is highly recommended for persons in this category. The nearer you move to retirement, the harder you should try to accumulate such a reserve fund.

With a substantial cash reserve, you may more likely be able to handle significant financial setbacks without having to liquidate longer-term investments. For a large enough cash reserve, most of the funds can be invested in ready cash equivalents like government savings bonds. Government savings bonds offer a reasonable return, yet can be converted to cash on any business day.

Government savings bonds do not generate cash income. They are sold through commercial banks at the face value and earn interest over the period that they are held up to a maximum of five years. They can be cashed at any commercial bank at any time for the purchase price plus the accumulated interest, where interest is earned on a half-yearly basis from the date of purchase.  

Since they can be purchased in varied denominations of $50, $100, $500,
$1 000 and 5 000, government saving bonds are attractive as they allow cash reserves to still earn a reasonable return.

• Louise Fairsave is a personal financial management adviser, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances. Email: [email protected].

This column is sponsored  by the Barbados Workers’ Union Co-op Credit Union Ltd.