Our Pension Director, René Delmas, has been in the investing business for more than 30 years. He’s seen many happy stories unfold over that time as he’s helped thousands of pension plan participants save and invest for (and during) retirement. He recently distilled this experience into his very own list of “Top 10 Pension Pitfalls to Avoid”.

  1. There will never be a “perfect time” to start saving and investing for your future and there will always be some unusual demand on your time and money. So don’t delay – the best time to start is now. Start the regular monthly habit with whatever you can afford right now, today.
  2. As you earn more over the years, don’t forget to increase the monthly amount you’re saving and investing, too. Many pension plans will make this adjustment for you, but it’s up to you to keep an eye on your own overall programme over the years. Yes, spending a little more is nice, but saving more as you start to earn more is a big factor in how fast your savings grow.
  3. To help you sleep at night and keep emotions at bay during market ups and downs, keep at least three months’ salary saved in an account where you can get it instantly if needed. Don’t underestimate the importance of this flexibility, and the power of knowing you have it.
  4. There is no requirement to guess where the market is going next, so don’t bother trying. No one knows where it is going next, but over time it tends to go up along with underlying company earnings. Just save steadily and invest in good long-term assets, and then get on with life. Today’s news will become yesterday’s news all too soon.
  5. With the current tax regime in Barbados, it does not make sense to contribute new money into a Registered Retirement Savings Plan (RRSP), because you would be contributing after tax dollars now and at retirement your withdrawal would likely be subject to tax again. Until the double tax situation gets fixed, it’s better to simply invest new money directly in a regular mutual fund account where there is no tax at withdrawal.
  6. Pay yourself first. Ensure that your savings are sent automatically to a long-term investment account before you have a chance to spend them. It’s only human to vow to save and invest whatever is left over at the end of the month or the year, only to find that there isn’t anything left over at all.
  7. Remember there is no such thing as a risk-free investment with a high return. Like anything in life, making sensible investments requires doing at least a little homework to understand what’s going on. Owning well-valued long-term assets like stocks and bonds is one tried and true source of return, but the prices will almost certainly move up and down and there is always risk of a decline in value especially in the short term.
  8. If it sounds too good to be true, it probably is. When it comes to long-term investments, things tend to make sense. Taking risk sensibly means understanding where returns are coming from, what makes them possible, and what the risks might be. High guaranteed returns can be a reason to feel fearful, not excited. Remember that it’s OK to ask questions when your hard-earned money is being put at risk.
  9. Investments and life insurance are not the same thing. They can both contribute to your financial security, but it’s often best to think of them separately. Insurance protects you against specific risks, usually for a specific time. Investments, on the other hand, involve taking (sensible) risks over the long-term to earn a return.
  10. Don’t forget to enjoy life while saving for retirement. Achieving financial security during your working life and afterwards in retirement are important parts of life. The security can make so many other things in life possible, for you and your family. But the project is a marathon, not a sprint, and the journey should be as much fun as the destination. With some deliberate action and a little planning, we can all arrange to spend less than we earn, invest the surplus sensibly over many years, work towards financial security – and have a great time along the way.