Retirement planning now – II
Retirement planning is simply defining your pension income for ‘tomorrow’ with deliberate actions and decisions necessary to achieve same. In many developing economies, pension is dreaded by many. In the case of Ghana, research indicates that only 2 out of every 100 Ghanaians retire financially comfortable at age 60. 23 out of each 100 retiring population must continue working even after age 60 in order to survive, and the remaining 75 will have to depend on SSNIT (Social Security and National Insurance Trust), charity or family in order to make ends meet. Every African worker deserves a comfortable and financially rewarding retirement. The good news is that this goal is achievable with Retirement planning while in active service.
Retirement planning includes identifying expected income sources during retirement (e.g., income from SSNIT pension, Provident funds, Personal Pension, Personal Investments, etc.) estimating expenses (rent, utility, food, transport, health etch) and implementing a consistent savings/investment programme for your defined pension goals. Retirement planning is ideally a life-long process. You can start at any time, but it works best if you factor it into your financial planning from day-one of your first paycheck. That is the best way to ensure a financially comfortable, secure, safe and fun-filled retirement.
Stages of Retirement Planning
Below are some guidelines for successful retirement planning at different stages of your working/career life; Young Adulthood, Early Mid-life and Later Mid-life.
Young Adulthood: Ages 21 – 35
Young adults at the very early stages of their career life may not have a lot of money to invest, but they do have a lot of time (from age 21 – 60) to let their investments work for them. That is a critical and valuable piece of retirement savings, particularly if they will be consistent with same, leveraging the principle of compound interest. Compound interest allows interest to earn interest; and the more time you have, the more interest you will earn.
For instance, if you can only put aside GH¢50 monthly, it will be worth three times more if you invest it at say age 25, than if you wait to start investing at age 45 – thanks to the joys of compounding. In essence, you might be able to invest more money in the future, but you will never be able to make up for the lost time. That explains why it is important to start saving/investing toward your retirement from day-one of your first job.
Early Mid-life: Ages 36 – 50
Early mid-life tends to bring a number of financial strains, including mortgages, student loans, insurance premiums etc. However, it is critical to continue saving at this stage of retirement planning. The combination of earning more money and the time you still have to invest and earn interest makes these years some of the best for aggressive saving.
Later Mid-life: Ages 50 – 65
As you age, your investment accounts should become more conservative. While time is running out to save for people at this stage of retirement planning, there are a few advantages. Higher wages and potentially having some of the aforementioned expenses (mortgages, student loans, credit card debt, etc.) paid-off by this time can leave you with more disposable income to invest.
Next Step – Exploring the 7 Retirement Planning Keys
- Decide when you want to retire from active service
- Determine your desired monthly retirement income in today’s present value
- Estimate your projected income that will be available to you in retirement (from SSNIT, Tiers 1&2, your personal investments et al)
- Estimate the number of years you will likely spend in retirement until, say, age 90
- Take the FLF AFRICA Financial Wellness Barometer to determine how much you will need to fund your desired financially independent retirement
- Start saving and investing every month toward this desired retirement income goal immediately
- Decide to monitor your investment yield as often as possible. And do well not to withdraw until you are ready to go on retirement
In case you feel ill-prepared after exploring the 7 retirement planning keys above, talk to your Pensions Advisor for help.