- May 20, 2020
With job losses, reduced salaries, and other financial impacts of COVID-19, persons are looking for alternate means of income. Cognizant of this, and perhaps also the potential strain on the country’s Social Services, The Department of Labour and Pensions in the Cayman Islands recently released the National Pensions (Amendment) 2020. This amendment allows persons to access emergency funds from their private pension plans. Thousands have already started the process of accessing these funds; however, not all truly understand the risk that they are taking.
Fidelity Pension Plan Administrator, Carolee Crowley warns its members against withdrawing from their accounts if they do not absolutely need to. “Withdrawing from your pension plan leaves you with less money when you retire,” she said. “Remember, the money that you are putting into our pension plan is working for you. It is being invested to generate growth. Taking funds out of this investment account could significantly impact your returns. Here’s an example. Let’s say you withdraw $10,000 ahead of retirement and you do not pay this back into your pension plan. You still have about 30 years left in the workforce. If you would have been receiving a 7% average yearly return, you would be losing out on a return of $76,000 that your investment could have generated.”
Mrs. Crowley urged persons not to make decisions out of panic. “This crisis is a unique one for all of us,” she said. “However, before you decide to withdraw from your retirement savings, assess all your other options.”
Below are some recommendations to consider before withdrawing from your pension plan:
Reduce Expenses
Take a look at your current expenditure. How can you cut back? Perhaps you can delay non-essential projects like home improvement. Reduce frivolous consumer purchases and make reviewing and/ or implementing a budget and savings plan a critical part of your COVID-19 financial strategy.
Build Up Your Emergency Savings
If you haven’t taken a major hit to your income as a result of COVID-19, it’s not too late to put a few dollars aside just in case you do. Decide on an amount and automate the savings as a deduction from your salary. This automation does two things: it makes saving something you don’t have to think about and helps you to reduce social interaction by not having to physically go to the bank.
Weigh All Your Options
You may be tempted to borrow from your retirement to pay off high-interest debt, particularly if you are on a reduced income. Before you do, try reaching out to your bank on their response to the pandemic. There may be some ‘wiggle room’ as it relates to mortgage and credit card payments in the short term as well as some long-term concessions. The key here is not to wait until you are behind on your payments before you reach out. Be a step ahead by finding out what your options are.
Speak to a Professional
The most important thing is not to panic and make rushed decisions without knowing the facts. Speak with your financial advisor who can help. If you have questions on what to do about your pension or finances, reach out to us at cayinvest@rfgroup.com to talk about your financial options.