My wife and I are both in our early 50s. Our two children will complete their university education in another year. We own our home and have limited investments. My wife is a member of a superannuation scheme but I do not have a formal pension arrangement. We have concluded that we must focus seriously on retirement from here on. What advice can you give us?

- AC

You are at a critical stage of your lives - perhaps the most critical. This stage of the life cycle is known as the establishment years, also called the core years or mid-career years. It is important because it marks the end of the accumulation period.

The next phase of your life is known as the pre-retirement years. In your case, it is less than five years away. Because it is so close to your retirement and you would have such a limited time to recover from any financial setbacks leading to your retirement, it is important that you take a more conservative approach to how you invest your retirement funds.

This period, lasting about ten years, is a period of consolidation. You want to ensure that your nest egg grows, not declines.

So, you and your wife have made a decision to focus on retirement preparation. That is a good place to start, husband and wife planning together. If you have not done so as yet, decide how you want to live in retirement.

If your families have a history of living to a ripe old age, chances are you may follow suit. Plan to live for a long time and prepare for it. The worst thing that could happen to you is that you outlive your resources.

inflation

If you desire to live as you do now, consider that it will cost significantly more than it does now. You know about inflation, I am sure. You are old enough to see how wicked it can be. Use current experiences as your guide.

Having started your family relatively early, you will not be burdened with the expense of assisting with educating your children when you should be preparing to live later without depending on them for support in the twilight of your lives.

How can you prepare for that latter phase of your lives?

If your wife is not contributing the maximum allowed to her superannuation scheme, it would be worthwhile to do so now. There are two benefits: The portion of her income that goes to the superannuation scheme is not subject to tax and it earns tax-free income in the fund.

It is not too late for you to put formal pension arrangements in place. You have not said what you do for a living, but I believe you do something.

It is likely that you may be able to use the individual retirement account facility as one tool for saving for your retirement income. When it becomes available, it will allow the same tax benefits I mentioned above.

Make sure you both have proper insurance in place to meet health-care expenses, including critical care. These are likely to increase the more you are blessed with long life. Protect yourselves against damage to or loss of your assets by putting adequate insurance in place.

With the children almost out of the way and you already owning your home, you should be able to increase your savings rate. Control your expenses so you can save more.

Get the most out of your interest-bearing investments. Seek good rates but save taxes too. The long-term savings account should appeal to you. You need some growth too. Remember inflation? Hedge against it. I recommend unit trusts or mutual funds that have a growth objective. That is safer than investing directly in stocks.

indirect hedge

Investing in foreign-currency-denominated mutual funds offers a hedge against devaluation of the Jamaican dollar and an indirect hedge against inflation.

If it does not seem that you will be able to have the quality retirement you desire from this distance, you may opt to pursue an investment policy that can give you a higher return - with more risk.

Consider ways to supplement your income perhaps by converting your hobbies into income-generating activities, not just now, but during retirement itself. Consider working part time in your retirement years, and if you are strong and healthy enough, you may even begin a new career.

All is not lost. Keep a level head and be disciplined as you approach retirement.

Send questions or comments to finviser.jm@gmail.com.

Investing in foreign-currency-denominated mutual funds offers a hedge against devaluation of the Jamaican dollar and an indirect hedge against inflation.