Op-Ed: “Calculadora de Retiro” the retirement readiness self-examination
One of the biggest fears faced by millions of consumers today is running out of money during retirement.
The cost of living in Puerto Rico has risen dramatically over the years and, most recently, extraordinary expenditures related to Hurricanes Irma and María have contributed to making it harder for retirees.
The main reason is that traditional sources of retirement income are fixed and there is a significant portion of the population that is fully dependent on Social Security and/or public or private defined benefit programs.
These traditional retirement sources face future pressures due to under-funding and changes in demographics, which could eventually affect payouts for individuals who have not attained retirement age.
Due to these constraints it is now more important than ever to be less dependent on these traditional programs and establish an individual savings strategy/plan to complement traditional methods.
As life expectancy continues to increase over time, it would be realistic to expect retirement income needs to last more than 20 years.
The “Calculadora de Retiro” is an easy to use tool that will provide a quick assessment of where you are in the retirement planning process. It was developed by Universal Life Insurance Company in an effort to help Puerto Ricans measure their retirement readiness.
The tool incorporates five easy questions which will provide a self-test to see first-hand how your current efforts convert to retirement income. All results are provided as a percentage of your desired retirement income.
One of the benefits within this tool is that it allows you to modify your responses to identify what are the changes necessary to achieve your retirement income goals. The tool takes into consideration your expected Social Security benefit based on the input provided.
The sooner you start to save for retirement, the easier it will be to achieve your retirement income goals. It is worthwhile to engage a financial services professional to guide you through the process in line with your future goals.
For example, those who have the opportunity to participate in a defined contribution plan such as a 401(k), its always recommended to do so, as the budget permits, since the contributions to these plans are made on a pre-tax basis.
For individuals who do not have access to a retirement plan, its always recommended that they start by contributing to an IRA or a Keogh Plan. In the same manner as defined contribution plans, IRA’s and Keogh Plans allow pre-tax contributions.
However, a common situation for consumers who open IRA’s is that they have diverse contracts, with different institutions, multiple renewal dates and in most cases minimal interest rates.
Its recommended to discuss with a financial services professional how IRA’s will contribute to achieving your Retirement Income Plans. Perhaps consolidating the IRA’s into a single instrument could help you increase your earnings and simplify managing your finances.
There are different types of IRA’s in the Puerto Rico market. These could be classified by fixed interest, indexed or variable.
- Fixed Interest IRA’s are the most common in Puerto Rico. These provide a guaranteed interested rate which increases the longer the term.
- Variable IRA’s provide exposure to the equity markets, which could provide the highest potential return, but with the risk of principal loss. These IRA’s could offer multiple investment options in line with customers risk tolerance.
- Indexed IRA’s provide limited participation in the equity markets through a maximum cap rate, while incorporating a principal protection component to the equation. This is the fastest growing segment over the last few years.
The vehicle that best suits you will be the one which is aligned with your retirement goals and risk tolerance.
The starting point should be to visit “calculadoraderetiro.com” to check out how you are doing so far.
The calculator will allow you to modify your inputs to see what changes are necessary to reach your desired retirement income outcome.
If you need further assistance throughout this process, contact your financial advisor to see how he/she can guide you through this journey.