Don’t Rely Solely on Social Security for Retirement Income

I recently met with a 65-year-old senior citizen who has no plans to retire in the foreseeable future because she does not have enough retirement funds.

When asked if she contributed to a pension plan, her answer was yes. She named the National Insurance Scheme (NIS) as her only pension. It is quite concerning to me that others like this elderly man have worked 40 years or more and depended solely on their Social Security retirement benefits for their hope of retirement income. According to this elderly woman, her priority while working was to own a home. I congratulated her on buying a house and paying off her mortgage.

Her main concern now is providing income for her old age. Both she and her husband continue to work, since he also does not have any pension income other than the NIS pension benefit. Delaying retirement is their only option. This option gives them more time to save for their golden years, rather than having to spend their savings on living expenses. Our society is aging and they are likely to live a long time in retirement, especially since they are currently in good health. Healthcare costs can wipe out their savings, and they are mindful of that fact.

Research shows that women have a longer life expectancy than men, so the above woman is not taking any risks at this stage of life. It’s better late than never to start her investing journey, and she sought financial advice on the best way to move forward. She plans to complete an extension to her home to generate rental income as another source of income for her retirement. This will not be easy as saving and investing your monthly income regularly requires huge sacrifices. At the same time, she was considering starting a home-based business as time is of the essence in increasing her funds to achieve her real estate goals. Recognizing that income streams in retirement were important to maintaining her standard of living, she was confident that her financial goals were achievable and the only time she was confident was now. Don’t rely solely on Social Security for retirement income, it’s not enough to provide you with a realistic monthly income. Ideally, retirement income should replace 70 to 80 percent of pre-retirement income. However, it is not “one size fits all.” Some retirees may need to replace 100 percent of their pre-retirement income to live comfortably in retirement due to lifestyle, life expectancy or financial need.

As illustrated in the case discussed today, relying solely on NIS pension benefits will not be enough to replace your income in retirement. A 2020 report from the National Institute on Retirement Security reported that “40 percent of older Americans rely solely on Social Security for retirement income.” Interestingly, only seven percent of retirees receive income from three sources. These sources are pensions, Social Security and savings. They are considered ideal for financial security. The report concluded that people with these sources of income are much less at risk of “poverty and economic hardship.” The study also found that social security plays a key role in reducing poverty among older people.

In Jamaica, there have been ongoing complaints that some employers are not complying with the government’s NIS contribution requirements. With unemployment falling in Jamaica, the number of NIS depositors should increase. But this may not be the case. The law stipulates that working persons aged 18 years or older must be NIS contributors. Self-employed persons are not exempt from paying tax. Social Security could become a financial crisis in the future, especially given the aging population, declining birth rates, and NIS compliance issues.

NIS pension benefits are paid at age 65.

Employees or employees should be made aware of the benefits of planning for retirement at an early age, preferably from their very first job. Financial literacy is more important now than ever before. The Ministry of Labor and Social Security should launch an aggressive campaign to educate the masses about the benefits of social security. The NIS pension benefit was not intended to replace the income of a working person. Employers, employees, the self-employed and the government all have a role to play in ensuring a livable income in retirement. The famous quote from the 35th President of the United States is still relevant today. He said, “If a free society cannot help the many poor, it cannot save the rich few.”

Grace J. McLean is a financial advisor and pensions specialist at BPM Financial Limited. Contact her at gmclean@bpmfinancial or visit her website: www.bpmfinancial.com. She is also a podcaster for Living Beyond Self. Email her at [email protected].