A Better Tomorrow with People’s Pension
Young and middle-aged people are busy starting careers, families, paying off mortgages, educational expenses, putting up their own houses, or saving up for their kid’s future educational expenses, among others. They will therefore relegate old age retirement to the background, because, after all, retirement may be several decades away. Others also consider their children and relatives as their “retirement income” and as such make no deliberate attempts to plan towards retirement.
The plain reality though is that life goes by very fast, and every birthday is a reminder that you are a year closer to your retirement. Thus, every year you postpone planning for retirement means depriving yourself of essential funds you will need to live comfortably and enjoy your golden years.
Preparing for your old age retirement early, immediately you receive your first appointment letter, is a wise step to take, not only from a financial angle but also from a social, health, and psychological one. For many, there are about five stages, regardless of financial preparedness that they will go through. Described as a leap of faith after several decades of routine, it may trigger feelings of excitement and liberation as well as fear and anxiety, and therefore being socially and psychologically prepared for it is crucial.
In the maiden edition of this monthly column, dubbed, “A Better Tomorrow” though, we will focus on financial planning towards retirement. A subsequent edition will look at the health, social and psychological aspects in detail.
Adequate financial preparation towards retirement is an essential part of personal financial planning. However, it is that bit of financial planning that is always relegated to the background. This is mainly because most people do not consider it a priority, particularly when they are young or very early on in their work-life due to the many financial obligations they may be saddled with at that stage.
Someone may wonder why retirement planning is even an issue in the first place as there are the statutory pension deductions, i.e., Tiers 1 and 2 that they are contributing to religiously and which should suffice once they retire. The simple response to this is that the statutory deductions give you your basic universal retirement income. This, in most cases, maybe lesser than what you lived on whilst in active work and may therefore be inadequate during your retirement. This could be because of an increase in expenditure, especially when ill health comes to play in old age. Therefore, to at least maintain the same level of income during retirement, there is the need to have an additional pension fund as a top-up and that is where a personal pension plan becomes a necessity and not an option.
Personal retirement planning gives direction and focus for your retirement goals and tells you how long you need to be able to meet them.
WHY RETIREMENT PLANNING IS IMPORTANT
Breakdown of the Nuclear Family System
The family system as we used to know it some years back is not the same anymore. Modernity and rural-urban migration have all had their effects on the extended family system and people are increasingly concerned and focused on their nuclear families. It is therefore no more prudent for one’s relatives or even children to be considered as one’s pension.
It is a bit unfair to depend on your children, family, friends, or anyone to take care of you during retirement. They have their responsibilities to deal with and adding your burdens won’t exactly make them happy. Your goal should rather be to be very financially sound during retirement so that you would be able to help them when they are in a fix. Making things worse for them should not be a consideration no matter what.
Best Time to Fulfil Life’s Aspirations
Let us face it, retirement is an end to the daily struggle for the salaried worker. For many hard-working professionals, it marks the end of many decades of spending 8-10hours every day at work. It should therefore be that time in your life when you get to check off most of the items on your wish list. Retirement is the perfect time to travel to all those amazing places you dreamed of, volunteer at that orphanage, start that leisure business or simply curl up in your lazy chair for most of the weekday or stay active having a blissful time with your grandchildren.
However, getting the most out of all these boils down to adequate retirement planning as it will make you so financially independent that you will not even notice that there is no incoming monthly salary. You will get to enjoy that blissful period of your life just as it is meant to be!
A decline in Health and Increase in Medical Cost
Growing old for most people comes with a decline in their health and new health problems; an obvious downside to aging. What that simply means is that medical expenses post-retirement can take a toll on your finances. That is why it is important to have money available to take care of your health expenses. A proper retirement plan can guarantee that. With a large retirement fund or kitty, your health and any medical emergencies, post-retirement will be well catered for and you will never have to panic about it.
Enjoy Tax benefits
Retirement planning also helps in tax saving. In Ghana, a formal worker has a non-taxable income of 35% once the funds will go into their pension. The statutory deductions (Tier 1 and Tier 2) make up 18.5% of this, leaving a whooping 16.5% which can be put into one’s (Tier 3) provident and personal pension scheme funds or entirely into a personal pension scheme fund. What this essentially means is that enough money can be saved from Personal Income Tax-PAYE, towards one’s retirement if one wants to.
Average Life Expectancy Continues Rising
According to the World Health Organisation, global life expectancy has increased by more than 6 years between 2000 and 2019 – from 66.8 years in 2000 to 73.4 years in 2019. This is a great reason to kickstart retirement planning and saving early as you are likely to live longer than ever before and as such will need substantial retirement funds to live on. A key tip to bear in mind when planning is, do not plan for an average life expectancy, rather plan for more so your retirement funds can last your entire lifespan! Who knows you may be lucky to live a whole lot longer.
STEPS TO RETIREMENT PLANNING
Start Early
It is strongly recommended that retirement planning starts with your first paycheck-whether you are employed or self-employed. If you are young, you might be tempted to think that retirement is far off; however, starting early means having the complete benefit of compounding interest on your side. In the end, it pays off as you will be very comfortable during retirement.
Take Stock of Your Current Financial Situation
Knowing your current financial situation is a key determinant when setting your retirement goal, this is because your financial situation will vary with age. In your early 20s, your financial goals will certainly be different from when you are between 25-35 years. Having a good idea of your financial situation at different times will therefore enable you to decide how much, how often, and how long you will need to save towards your goal.
Set Your Retirement Goals
Start by calculating how much money you will need; a pension calculator like the one that People’s Pension uses in helping clients set their retirement goals can help you do that. To make the goal achievable and to help you stay consistent towards it, it is ideal to segment it into short, medium, and long term.
Stay Committed to Your Retirement Goal
The final step and perhaps the most important step in the retirement planning process is to stay committed. Without commitment, it will remain just that, a goal. Keep the mental picture of your retirement in your mind all the time and take that action to bring the vision of your future self into focus.
RETIREMENT PLANNING WITH PEOPLE’S PENSION
People’s Pension, a private pension company duly licensed by the National Pensions Regulatory Authority (NPRA) is focused on ensuring that every Ghanaian worker has a better tomorrow. It does this by offering flexible digitally-driven pension products to drive financial inclusion and help workers conveniently secure their retirement income for a better tomorrow.
Our flagship product, the PPT Personal Pension Scheme is designed to provide additional funds for formal sector workers who want to enhance their retirement benefits and enable informal sector workers the opportunity to also save towards their retirement.
With a vision to successfully reduce old-age poverty in Ghana, we also manage Occupational Pension Schemes, Group Personal Pension Schemes, Provident funds, Employer-Sponsored schemes, and offer retirement advisory services.
There is certainly a product for any individual, group, or institution that is seeking the right solution for retirement planning and we will delve into the details of each of them in the subsequent editions. Our aim is for everyone to have financial freedom now and particularly in the future to be able to live comfortable and stress-free lives.
Conclusion
A retirement plan that works for Mr. A may not work for Mr. B, this is because each person’s situation is unique and will need a specific solution. The best news also is that it is never too late or too early to plan for retirement. So, now that you know the importance of retirement planning, get in touch with us (our contact is below) and let us help you develop a retirement plan right away!
About the Column and Author.
The column, “A Better Tomorrow” is a retirement-focused monthly publication written by People’s Pension, a leading and licensed corporate trustee. The aim is to provide relevant pension and retirement planning education, information, and tips to enable Ghanaian workers to prepare adequately for life after retirement.
We also aim to make retirement planning and saving easy, fast and secured for you by providing you with tailored and digitally driven pension products that will enable you to transition seamlessly from work life to retirement. We believe that everyone deserves a better tomorrow, and we work tirelessly to ensure that.
Dial *789*111# to register for your pension plan or call us on 0302738242, you can also send a mail at [email protected].
