Retirement planning is about putting in place a plan to secure your financial future and planning how to manage your transition from active work to retirement. Your retirement planning starts when you estimate how much money you will need for retirement and at what age you want to retire.
Ideally, retirement planning should start right after school so the prospective retiree can have in place enough funds for retirement. On the average, however, most people assume retirement is farther than it actually is. This assumption causes them to fail to plan towards retirement irrespective of how much they earn.
Some others also postpone retirement planning because they believe they would continue to earn more money as their career progresses and at retirement, they would be fine. This assumption is not entirely the case; truth is that everyone expects to see so much progress in life as they age but life is not a straight line where things should fall in place like you wish.
There are ups and downs along the way that can bring you to ground zero even from the top in your career. So the earlier you start planning your retirement, the better. This article would touch on the realities of the Ghanaian graduate, why you should plan your retirement now, the three tier pension schemes, how to identify risky investments, and what asset classes can help you build wealth towards retirement.
Realities of Ghanaian graduates
Averagely, most people complete graduate school around 25 to 28 years in Ghana. They complete the compulsory National Service for one year. Then the hustle to get a permanent job begins. Some find jobs immediately with relatively good salaries but others have to hustle with “contract jobs” for years before they can get a permanent job. This implies that most Ghanaian youths get good jobs after 30 years when they are halfway to pension aka retirement.
The moment you get a good job, the next thing to think about is marriage, buying a car and acquiring a landed property mostly financed by loans. After marriage, when you begin to bear children, then your expenditure goes up.
Dependency syndrome in African societies
Due to poverty in Africa, most family members depend on the few working class, whether or not they are close. Once a relative supports you with some money when you are schooling, you might be indebted to them when you start working. In other words, you are their investment so they must automatically get returns on you.
The need for postgraduate education
Postgraduate education is very critical now than ever. A good blend of experience and postgraduate education can propel some progress in your career development. The average cost of postgraduate degree in Ghana is between GH¢20,000.00 and GH¢30,000 or more depending on the institution. Family life, family dependency, and high cost of personal career development is enough to prevent good savings habits in people if conscious efforts are not in place to invest towards retirement.
Why should you plan your retirement now?
- For financial independence at pension
- For comfortable retirement
- For peace of mind
- For medical bill payment (At old age your major organs begin to deteriorate so you will spend more on medical bills)
- To leave an inheritance for your children
Facts about pensions in Ghana
Retirement age in Ghana is 60 and voluntary retirement is a personal decision mostly taken by those who can afford to live comfortably because they have accumulated enough money for a comfortable pension.
The National Pensions Regulatory Authority (NPRA) through Act 766 in 2008 established a three-tier pension scheme. Tier 1 is managed by SSNIT. It is mandatory and employers are expected to pay 13% for and on behalf of their employees. Tier 2 is also mandatory and fully funded and privately managed by fund managers, and employers are expected to contribute 5.5% of employees’ basic salary. Tier 3 is a savings scheme and it is not mandatory. Contributors are allowed to contribute up to 35% into tier three and it is tax-free. Employees can lobby their employers to sign them up for tier 3 pension schemes. Withdrawals before 10 years would attract 15% penalty.
In the current pension regime, upon retirement, SSNIT would pay you your monthly pension stipend. Tier 2 would give you a lump sum upon retirement or a lump sum would be paid to your beneficiaries if you die before retirement.
When can I start planning my retirement?
A Kenyan proverb says the best time to invest was 20 years ago and the second best time is now. So start planning today. All the realities of the Ghanaian graduate enumerated above suggest that you need to plan your retirement before it comes to you when you are less prepared.
There are a thousand and one excuses or reasons why your salary is not enough to even meet your current expenditure. But drop the excuses and start planning. Once there is a plan towards retirement, you can easily adjust your expenditure and give priority to retirement planning.
Who can help me plan?
Any licensed investment banking firm by the Securities and Exchange Commission can assist you develop an investment portfolio towards retirement based on your investment objective and your risk profile as well as your investment time horizon.
Any licensed dealing member of the Ghana Stock Exchange can help you plan and acquire some equities listed on the Ghana Stock Exchange to help you build enough financial assets that can be traded easily to provide liquidity for you when you retire.
What asset classes can you invest in?
- Fixed deposits
- Fixed income investments
- Collective investment schemes
- Landed properties
- Businesses, etc.
How to grow your money towards retirement
- Determine how much money you want to go home with
- At what age do you want to voluntarily retire
- Start investing
- Invest consistently
- Take calculated risk
- Monitor your investment
- Rebalance your portfolio if need be and when market conditions change
How to identify risk investments
Given the current happenings in the banking and finance sector in Ghana, it is not enough investing towards retirement. You need to avoid placing your hard earned funds in risky investment schemes that would lead to regret. Investment is highly recommended but you need to invest right. This is how to spot risky investment.
- When the product is complex
- When the returns are supernormal; i.e., they are too good to be true
- When the investment service provider is not licensed
Finally, inasmuch as you are working hard and accumulating wealth for retirement, you need to take care of yourself so you can have a meaningful life. Eat healthily, exercise, drink enough water, minimise intake of alcohol and drugs; if possible, avoid them. Have regular check-up to help you discover any hidden sicknesses and work on them before they become chronic.
Take advantage of your health insurance policy of your employer to run a thorough medical check on yourself to identify if there is any deterioration of any major organ or risk factors that needs to be worked on. Health is wealth. Protect it.
Above all live at peace with everyone and your good self. Take it easy on yourself. Count your blessings daily and remain positive. Cheers!
With all these in place, your planning towards retirement would yield the needed fruits.
>>>the writer is author of these books: Start Right: A Guide to Financial Investments in Ghana, Overcoming Infertility: What to do When Childbirth Delays, Contemporary Parenting, and Stepping up Your Life. She can be reached on [email protected].
Disclaimer: Views expressed in this article are the personal views of the author and does not reflect the views of the organization she works for.