If you have worked all of your life in Bermuda, having entered industry employment at age 20 and you plan to cash out at the conventional age of 65, you've been accustomed to receiving a paycheque each week, or month for more than 45 years. The assumption, of course, is that you were gainfully and meaningfully employed most of that time in a rewarding cash-compensated productive way.

Suddenly, you are at the brink of retirement, and the life structure that you have become so totally comfortable with is about to change, radically. Your job and your old sense of identity is about to be retired, and you will have to work at developing a new you with an identity that is not linked to a career. That's the emotional side. Then there is the financial side, adjusting to life without that regular monthly compensation for a job well done. Clients report that even though they have other savings, it does not replicate the successful feeling of seeing regular earnings fill up the home coffers. This is a challenge for almost all retirees; it will continue to be, an abrupt adjustment to a lifestyle of managing our income generated by savings and investments within our domain, without a continued augmentation from traditional employment.

Retirement planners know statistically from actual interviews and related surveys that individuals handle this life transition - from one of a constant replenishing of the family purse to one of watching the family purse diminish - in different ways. Seen as a positive force for personal growth, some soon-to-be retirees plan carefully for a simpler lifestyle, knowing that they have reached the age of maturity where life is measured in experiences, not things. Others continue to work because they feel rewarded, they are at the top of their game, and they still want to contribute to the corporate world. The third group manages to continue the retirement party well past retirement, avoiding the problems or lacking the ability to cope with the new phase in their lives. We will explore this financial adaptation topic in the next article on retirement - Retirement Rules to Live By.

There are some options to simulating a pay cheque-like solution for the newly-retired, right within your own financial profile. Your pension distribution alternatives include the choice of a monthly payment - also known as an annuity. That's correct; it is already your earnings that have been deferred and invested over the years and with the conversion to an annuity, you will turn your pension into your retirement pay cheque.

Generally, when you make the decision to rationalise your pension, you will have a number of different annuity structures to choose from depending upon the Bermuda pension administrator that you choose to work with. You will need to be vested and within a certain age group while the amount that you will receive over time is a function of five things: market interest rate, market performance, your immediate or deferred need for the distribution, the amount of your pension, and your considered mortality.

Vesting - naturally, you can't think about cashing out your pension until you reach your early retirement age that in most Bermuda pension plans is age 55. Bermuda's pension rules are somewhat unique in this perspective, perhaps the financially wise implementers of the Bermuda National Pension Scheme truly understood that allowing employees to cash out their pensions early was ultimately self-defeating. Unfortunately, there is a small vesting issue at the beginning of an employment contract where you may not be pension vested for up to two years. If you leave the job or are terminated prior to that time frame, you may lose some or all of that accumulation.

Market interest rate - an annuity is a contract between you and your Bermuda insurer. Essentially, the insurer will receive a sum of money from you, agree to pay the prevailing interest at the time the annuity is established and pay out a monthly sum to include a portion of your principal and some interest. The amounts are calculated and fixed at the beginning of the contract. Thus, each month the amount will be same for the life of the contract. If you are able to purchase an inflation indexed annuity, your beginning payments will be lower that those in later years. If you choose a five-year payment option, those monthly payments will be higher than the 10-year option. Tack on a payment for your spouse, if you should pass prematurely, and the monthly payment will differ yet again. There is no increase in appreciation, once your pension is converted to an annuity. Clients often find it daunting to make decisions regarding the best annuity option for them (and their beneficiaries). Example: it helps to think of an annuity as a return of your investment capital. You have $36,000 and choose a three-year annuity. The market interest rate is four percent. Each month for 36 months you will receive $1,000 plus a piece of that four percent interest minus the cost of guaranteeing and managing your annuity by the insurer. It is to your advantage to convert to an annuity in a high interest rate environment, but life circumstances do not always lend themselves to perfect planning.

Flexible endings - immediate or a deferred pension distributions are structured on a very flexible basis. You do not have to "take" your pension at retirement age, if you don't want to, don't need to, or you are still working. You can keep your pension fully invested for a number of years after you officially retire. At some point, there is an age cut-off that appears to vary according to the pension administrator/insurer's interpretation of anywhere from 70 or somewhat higher where a decision to distribute via an annuity or a direct payment option will be implemented.

Market performance means keeping some control (for a while). If you are comfortable with market investment cycles and the performance of your pension administrator's portfolio manager, this option will allow your investments to appreciate through one or more market cycles.

You have the responsibility, however, to keep an eye on the investment performance, so that you can pick (with the help of your pension advisor) an optimum time to convert to a fixed annuity.

Once that decision is made, you will cede control of your pension to the pension administrator who will provide you with a fixed payment for the rest of your life.

Next article, we discuss the annuity and direct payment options in depth. What are those options?

Life, life with cash refund, direct payment options and combinations including should you take your voluntary contribution in a lump sum?

Martha Harris Myron, CPA, CFP(US) TEP (UK) JP- Bermuda is an international Certified Financial Planner practitioner. She specialises in independent fee-only cross-border tax, estate, investment, and strategic retirement planning services for Bermuda residents with cross-border and multi-national connections, internationally mobile people and US citizens living abroad. For more information, e-mail martha.myron@gmail.com">martha.myron@gmail.com or call 735-4720.