Are The Bahamians Planning For Retirement Accounting Essay

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In this day and age where the world has recently been impacted by an economic meltdown where does the issue of retirement lie in the programs of many? Is the focus on employment or retirement? In many countries around the world there seems to be a trend …..

Review of Literature

Retirement is no easy process unless you are properly planning. Willett (2008) states that it is not like a vacation where persons can simply spend time planning because they know exactly what their planning for and have immediate visualization of it. They know where and when they will go, they know for what period and what they will be doing. With retirement you need to know when you will begin retirement, what factors are important, what amount do you need to save and what sources of income you are going to rely on (Blakeley & Ribeiro 2008).

Retirement planning and retirement should be viewed as a process that takes place over a period of years (Hornstein & Wapner, 1985 as cited in Taylor-carter et al. 1997).

Financial education

Nowadays, more employees are being given the responsibility of managing their own retirement plans. They have to decide what amount to save, when to retire and how to manage the distribution and expenditure of retirement funds (Krajnak et al. 2008). This is why financial education has become so important because in order to successfully plan your retirement you need financial knowledge. Financial knowledge is gained as a result of the understanding of the information that has been provided on a topic or specified area. Financial knowledge has been described as an integral dimension of financial literacy, which is said to mean that an individual has the ability and confidence to use financial knowledge to make financial decisions (Huston 2010).

Financial education is usually provided to employees in many forms by employers. Such materials consist of workbooks, seminars, retirement projections, etc. It is thought by Olsen & Whitman (2007) that if educational materials are not improving retirement savings then the use of posters and electronic emails every now and again may boost the desire for employees to take action. In a study by Hershey & Mowen (2000) as cited in Krajnak et al. (2008) basic training programs were found to stimulate individuals' saving behavior and decision-making competencies. Training is usually more visual and hands on access to information.

Research by Mandell & Klein (2009), on a group of graduates from three high schools proved that the portion of the students that took a personal financial management course were no more financially literate, did not possess better financial behavior and no more savings oriented than those who did not take the course. However, research was limited because of a small sample size of 79 students. In another study it was found that students who participated in a college level financial education course were found to have higher levels of investment knowledge than those students who did not participate (Peng, Bartholomue, Fox & Cravener, 2007 as cited in Schuchardt et al. 2009).

Financial education can cover a wide range of topics, some of the topics include, basic investment terminology, principles of asset allocation, concepts of risk tolerance and retirement goal setting (Olsen & Whitman 2007). However, there are many persons who are not exposed to or utilizing this information because of lack of resources by their employer or for lack of access because they are victim to a minority group.

In a study involving the effects of financial education on the knowledge of low income persons it was found that after studying the persons before and after financial knowledge was increased substantially overall in five subject areas: predator lending practices, public and work related benefits, savings and investing, banking practices and credit use and interest rates (Zhan, Anderson & Scott 2006). Therefore they concluded that it is important to still provide low-income person with the knowledge and basic skills on saving strategies. By doing this there are no biases formed because of deficiencies in personal attributes.

Some researchers believe that it is unfortunate that those with lower incomes may be less likely to enroll in or have access to planning programs (Beck, 1984; Kasshau, 1974 as cited in Taylor-Carter, Cook, Weinberg 1997) because long term financial planning may be important for lower income and lower financial security workers (Taylor-Carter et al. 1997). Those with low financial knowledge may feel overwhelmed but would most likely benefit from improved financial information (Olsen & Whitman 2007). All workers should have access to financial education (retirement planning, saving and budgeting strategies, etc.).

There is still much more that needs to be done on the topic of financial education. Schuchardt et al. 2009 has studied existing research and have come to find that there is consistent evidence to prove that financial education leads to increases in financial knowledge and more positive changes in financial attitudes, motivation and planned behavior based on the following examples Lyons, 2005; Lyons, Palmer, Jayaratne & Scherpf, 2007. However, through this research the authors have also found gaps, these gaps include, lack of consistency in defining and measuring program success, challenges related to different methodology, data collection and analysis, delivery and timing of financial education, etc.

Financial elements

Many researchers believe that persons are not adequately prepared for retirement. One might believe that in today's world where there are so many legitimate people talking on the issue of retirement, along with the media coverage about the perilous state of retirement, more Americans would either have assets set aside or be saving funds for retirement (Joo & Grable 2005). Through their research they found that this was not the case. Americans are not saving enough for their retirement (Wiener & Doescher 2008).

In order to have sufficient funds for retirement several researchers have recommended and through existing research suggested the three pronged approach or the "three-legged stool" (Blakeley & Ribeiro 2008, Vernon 2009). This approach consists of personal savings, company pension plans/ employer sponsored benefits and government social security programmes.

However, Vernon (2009) has noted that because of a stressful environment the three legs of the stool are under pressure and cannot support the traditional retirement for many. He pointed out that personal savings is at an all time low; employers are reducing or eliminating traditional defined benefit and retiree medical plans and social security has long-term financial difficulties that may lead to cutbacks. If all of the above are insufficient then the inevitable combination of 1) working in retirement to make ends meet, 2) postponing retirement, 3) reducing living expenses before retirement to enable higher savings for retirement and 4) reducing living expenses during retirement. He refers to continued work as the "fourth leg".

Pension plans are usually used by employers for employee retirement purposes. Based on the articles gathered it has been found that the two most common types of retirement pension plans are the defined benefit (DB) pension plan and the defined contribution (DC) pension plan. Enrollment is one of the more basic features of pension plan, the two design types are the opt-in and the automatic enrollment.

In an opt-in plan, the default is non participation because employees get to indicate whether they want to be involved by most often submitting an enrollment form. In an automatic plan employees are by default account holders and to opt out they usually have to fill out some paperwork (Olsen & Whitman 2007). Olsen and Whitman found through existing research that the automatic enrollment plan increased participation and lowered discrepancies but the strategy is not all positive seeing that automatic enrollment produces a lower contribution rate than the opt-in plan.

Another tool used by some employers in their retirement savings programs is matching. This is when the make a contribution to the employees account based on the monies already invested up to a predetermined point (Olsen & Whitman 2007). In a study by Engelhardt and Kumar (2006) as cited in Olsen & Whitman (2007), there was some contradiction as they concluded that individuals do not react strongly to employer matching in terms of participation or contributions. However, they noted that their study was limited to the older workers and that younger workers might have a different response to employee matching.

Trewin and Curatola 2010 found that over the past two decades there has been a shift from DB plans to DC plans in companies of all sizes. They concluded that the reason the small and medium sized companies participated in this shift and adoption was due to Congressional intervention. This allows employers with 100 or fewer employees to provide retirement benefits to their employees by adopting a savings incentive match plan for employees (SIMPLE). This includes an IRA (investment retirement account) or a 401(k), which both are DC plans.

Some employees are provided with pension plans by their employers and some employees do not have this luxury provided to them. This is why these persons are being encouraged to save even more to their personal accounts and have to rely more on the government programme being provided for retirement. Saving out of current income is becoming increasingly necessary for retirement security, for helping renters become homeowners' excessive risk and for coping with emergencies (Yuh & Hanna 2010).

The traditional approach to retirement usually begins with an estimation of the client's income immediately prior to retirement (Basu 2005).

Individual factors

Issues with retirement

Work Cited

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Basu, S. (2005). Age Banding: A Model for Planning Retirement Needs. Financial Counseling & Planning, 16(1), 29-36. Retrieved from Academic Search Complete database.

BLAKELEY, J., & RIBEIRO, V. (2008). Are nurses prepared for retirement?. Journal of Nursing Management, 16(6), 744-752. doi:10.1111/j.1365-2834.2008.00916.x.

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Vernon, S. (2009). Retirement Planning for the Middle Class: Holistic Strategies Will Be Essential. Journal of Financial Service Professionals , p37 - 48

Wiener, J., Doescher, T. (2008). A Framework for Promoting Retirement Saving : The Journal of Consumer Affairs, Vol. 42, No. 2 p 137-164

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