As the world and medical science experience massive technological advancements, one statistic stands out, people are living longer. This would seem to be wonderful news, after all nobody wants to die, but are we prepared for longer life. Old age and long life while it can be desirous and even wonderful for mankind carries with it certain challenges which cannot be avoided. As with most of life’s challenges being financially able usually make it so much easier to live through these challenges. So again the question must be asked are you prepared, and since finances help ease the burden are you financially prepared?
To become financially prepared one need to invest in a solid retirement plan while you are active and earning an income. Simply put everyone need to invest now while they are earning an income so they will have an income when the can no longer earn.To do this one need to become a member of a pension plan.
If your company has a plan then you need to be a member of that plan. This is a no brainer since the company will be making a contribution on your behalf (usually somewhere between 5 to 10 percent of your gross earnings). The grouping that is usually left out though is the self employed and those persons employed to a company without a pension plan.This grouping however need not be left out anymore as any Jamaican resident (between the ages of 18 to 63) earning an income and not part of a pension plan can join an Individual Retirement Account (IRS.) This is an approved retirement plan which allows for individuals to invest in a tax free arrangement with the sole objective being to provide an income at retirement.
The benefits of investing in an IRS are tremendous; on the one hand you have the advantage of a professional fund manager handling your investment portfolio. In addition your investment is part of a larger pool of funds which allows for you to be invested across a well diversified class of assets which on an individual scale you may not have been able to do, the diversification also allows for better absorption of shocks to particulars which may have been disastrous to an individual. The access to better research information and greater knowledge of the markets are factors which cannot be discounted. In spite of all these however the greatest benefit is the taxtreatment of investments in an IRS.
Salaried investors in an IRS can do their investment via salary deduction, in this instance the IRS contribution comes out before any tax is applied. The result is that the contribution/investment is tax free in addition to which there is less salary to be taxed. To get a better understanding of the advantage of this tax treatment let me take you through a simple exercise;
Assume your pension amount to be $10,000.00
If you contribute to pension then the equation would be;
- Pension: $10,000
- Tax: $0
- Total invested: $10,000
If you don’t contribute to pension but decide to invest yourself then your equation could look something like this;
- Available for pension: $10,000
- Tax: $2,500
- Bal to invest: $7,500
You would then have to grow your investment by 33.3% just to get back to you pension amount.Now consider the impact of compounding of this over time the results can be tremendous.It should also be noted that for the life of the IRS the investment earnings are not taxed.This clearly shows that one can greatly improve the value of funds available to you at retirement and hence make the golden years a fantastic thing to look forward to.
In examining the foregoing the question that immediately comes to mind is how can one not have pension plan. It may well come down to lack of information, luckily Barita Investments has a cadre of knowledgeable friendly and customer focussed investment experts who are only too willing to assist.