Financial Guidance for Retirees
Retirement planning is a very important aspect of retirement that people tend to forget and often comes with dire consequences. Listed below are action points that can assist.
Sign up for Additional Voluntary Contribution (AVC)
AVC is a voluntary amount saved by contributors. AVC gives the contributor freedom to decide how much to save periodically (monthly/quarterly) based on his income. Contribution into AVC can only be made through the employer.
Guidelines governing withdrawals from Additional Voluntary Contributions are:
▣ Fifty (50%) of AVC contributions made by mandatory RSA contributions shall be available for withdrawal once in two years. However, tax on this category of AVC withdrawals will be paid only on investment income earned.
▣ Subsequently, withdrawal shall be on incremental contributions from the date of last withdrawal
▣ The outstanding balance of Fifty (50%) shall be used to enhance benefits at retirement.
▣ Foreign contributors shall be eligible to withdraw all the Voluntary Contributions in the RSA at the expiration of the contract of employment or relocation to their home country. The tax treatment for this category shall be based on both investment income and principal amount when withdrawal is less than five years from the date the voluntary contributions was made.
Choose Program Withdrawal at retirement
Programmed Withdrawal is a product offered by the Pension Fund Administrators for periodic payments (monthly/quarterly) to a retiree. It is a structured periodic payment based on the peculiarities of the retiree, the Retirement Savings Account balance is spread over the expected life span of the retiree while the funds remain in the custody and are managed by the Pension Fund Administrator. The benefits of programmed withdrawal over annuity include:
▣ Programmed Withdrawal serves as social security for retirees while annuity does not qualify as social security.
▣ Retirement benefits is in individual RSA account while Retirement benefits under annuity is in a pool of fund.
▣ The Retiree is guaranteed payment of monthly pension even when his/her account is depleted
▣ Retiree monthly pension is reviewed for enhancement from time to time under programmed withdrawal by the National Pension Commission, under annuity there is usually no incremental review of payment assured for life.
▣ The investment income earned per contributor is credited into the RSA balance of the retiree while the profit on annuity fund belongs to the insurance company.
▣ Annuity is guaranteed for only 10 years. If the Retiree dies after the guarantee period, beneficiaries are not entitled to the deceased balance in the Annuity pool. However, Programmed Withdrawal benefits the retirees as well as the next of kin, because the outstanding account The historical volatility and downside risk of each investment balance will be paid to the beneficiary upon retiree’s death.
Create a realistic budget
Most retirees will be on a fixed income, so it is important that an expense budget is created based on fixed income.
Evaluate your health care
Your choice of the right health management plan is extremely important. Consider discussing your options with an expert who can help navigate through these issues to make the appropriate choice. Routine medical check-ups with health provider is also vital.
Don’t spend the lump sum at retirement on having fun
Most people collect their lump sum at retirement to have fun. Perhaps to travel or buy a boat. After all, as you get older, you may be inclined to stay at home and won’t get a chance to spend the money on something fun. But the question is “what if you live to age 90?” You need to keep some resources in reserve so you don’t become a burden to your family.
Pay off debt
If possible, pay off all debts and do not create new ones. Bearing in mind that most people will be on a fixed income monthly.