Is the thought of full retirement in Bermuda on the way out? Are those close to the golden handshake just thinking of a `lifestyle' change, switching to work you'd really like to do, or will your active retirement really mean having to work, just to pay health insurance premiums?

According to Michael Sullivan in 50+ Communications Consulting, people in their 50s, 60s, and 70s are likely to be far healthier, more vigorous, and more physically able to work than in the past. And survey after survey (in the United States) has revealed that baby boomers do not expect to retire, nor do they want to. They aren't really worried about their lack of adequate retirement savings, because they don't actually plan to retire.

Are these ageing boomers off base? Not necessarily. Given that improvements in health, physical fitness, and nutrition are dramatic and ongoing, expectations of working past normal retirement age hold true for most. Indeed many in Bermuda are already working way beyond retirement age. And that means, for some, that savings accumulation - rather than distribution - is going to continue into the late ages 60s and even late 70s.

Those of you who have not reached the "golden years" have to understand something. Chronological age does not match cognitive age (the age people feel they are). Most older people see themselves as 15 years younger than their actual age, and I include myself here. For those who are concerned about having enough, this is a very good thing.

The Government of Bermuda has the same mindset, recently stating that the retirement age should be raised to 70, one assumes so that younger than springtime seniors can continue to accrue savings for later years. What is not readily apparent is the reaction of employers to this news. If such an Act should become law, will older workers be allowed to remain in employer health insurance pools? Will older workers be allowed to contribute to the Bermuda National Pension Scheme past the mandatory retirement age or distribution age?

Having said all that, Bermudian employees (of all ages) are now more than three years into accruing benefits under the Bermuda National Pension Scheme. Some would say they have accrued precious little, given the state of the markets until the last six months. And they have told me that they, regretfully, sold out of their negative equity positions during the end of the bear market, opting for safety, only to see equities, both large and small cap, take off this year.

On the other hand, those who had fairly conservative asset allocations with predominance of fixed income holdings when they started out in fiscal year 2000, have survived, indeed very well in some cases. However, they, too, are now chasing equity performance. Seeing recent local ads touting 30 percent returns for half a year only whets the appetite to be on the receiving end of large profits.

Are you better off moving your money around? Probably not. What is happening here is the proverbial mistake that small investors make, time and time again. First, even though many first-time investors state they know little about investments, they will try to time the markets - buying high and selling low when expectations for appreciation just don't pan out. Three and half years later, many seem to still not realise that this type of methodology is a fast track to constant frustration. It may be better to develop an asset allocation model and keep it going.

Revisit your Pension

Allocation Choices

Do you remember what you filled out when you initially chose your risk profile? People tend to be very exuberant when the markets are flying, stipulating that they want only aggressive choices; they want to make some real money! Were you unhappy with the negative performance of your pension? If so, do you know what to do to not replicate the same scenario in the future?

Revisit your time horizon: Risk diminishes over time, how much time do you have before your `real' retirement age?

Five years to go? You should be positioned for preservation of capital (shorter-term bonds, money market funds, and term deposits), but you still need a portion in equities. You are going to be in retirement a very long time, in some cases longer than your entire career. Equity historical performance out paces bonds.

Ten years to go? Your proportional investment position can carry more equities than a five-years to go employee. Typically, your last five to ten years are your best earning years; capitalise and save as much as you can.

Twenty Years to go or more? You can be more heavily invested in equities. This is your chance to accumulate a significant portion of your life savings. Practice savings consistency.

To thy self, be true. Each of you is an individual. Always keep in mind that your pension positions must be taken in context with your overall financial position. If it only represents ten percent of all your assets, you may be able to be more aggressive. On the other hand, if your pension represents 50 percent of your total asset holdings, you must invest very, very carefully.

Once you understand what kind of investor you really are, set up your asset allocations at the next opportunity to your correct risk tolerance. When equities soar, rebalance back to the correct percentage. Conversely, when bonds grow, do the same. Yes, I know, you hate to buy into what appear to be short-term loss positions. See example. But isn't that what investing is all about? Sell high, and buy low. Rebalancing is key to diversification, cushioning your portfolio from volatile swings, but generally producing better overall performance.

@EDITRULE:

Martha Harris Myron CPA CFPr is a Bermudian, a Certified Financial PlannerT(US license) practitioner and VP, Personal Financial Services at Bank of Bermuda. She holds a NASD Series 7 license, and formerly owned a US financial services practice meeting the needs of 400 individual and corporate clients. Confidential e-mail can be directed to marthamyronnorthrock.bm

The article expresses the opinion of the author alone, and not necessarily that of Bank of Bermuda. This article is for information purposes and does not constitute recommendations to buy or sell investment products or as a promotion for financial plans.