You don't have to live your last days on a park bench: plan for your retirement
By James Abola
Retirement is that time when you should be enjoying more leisure time than stress time, if you continue working it could be as a part time consultant. You may even choose to volunteer for a worthwhile cause. This ideal picture of retirement is only possible if you have actually planned for retirement ahead of time. The prospect of a comfortable retirement is like the proverbial carrot dangling in front of us, encouraging us to keep going in hopes of a future reward. The only difference is that, unlike the carrot that is always just too far away to reach, a comfortable retirement is actually attainable.
While this is encouraging, achieving your retirement goals will not happen automatically. As with most other things, the two key things that you need to do are to plan ahead and to follow through with your plan. Unfortunately, there is no retirement planning resource that will provide you with the self-discipline and self-motivation you need to achieve your retirement goals. Only you can determine how important retirement is to you and what you are willing to sacrifice to achieve it.
The most obvious reason for retirement planning is that most jobs have a retirement age usually between 55 to 60 years. The employment landscape has changed a lot in the last 2 decades. Few employers now offer permanent and pensionable jobs, most jobs are on contract. It is also more common now for people to either be retrenched or retired early. For folks who get children late, retirement may come when you still have to pay college tuition.
Most people however do not plan for retirement, believing that social security or other plans put in place by their employees shall suffice. The reality is however very different: social security and pensions can fully cover your retirement needs. In the best case scenario social security and pensions only provide a thin cushion for retirement. This cushion is actually becoming thinner all the time.
Recently the papers carried a pitiful picture of former workers of East African Community lining for their pension outside an office in Tanzania some 20 years after the collapse of the body. This picture is a stark reminder of one fact – it is not wise to solely stake your retirement on your employer’s pension scheme.
Another illusion held about retirement is the belief that the cost of living is lower during retirement than during one’s working life. The truth is that what declines during retirement is your income. With a decline in income it actually becomes harder to attain the things you need for life.
For most indigenous East Africans, financial planning is just never thought about or even mentioned. But given that we are living in a more and more monetised environment we need to embrace personal financial planning in order to be better prepared for retirement.
The heart of retirement planning has to do with savings and investments. It is never too early to start planning for retirement. The earlier you start saving for retirement the less money you will need to put aside to meet your retirement goal. Take an example of a person who wants to have savings worth Shs100,000,000 by the time they are 65 years. Assuming an interest rate of 8% per year, if this person started saving at the age of 20 they only need to save Shs 239,000 a year. If they wait until the age of 30 then the saving has to increase to Shs 534,000 by age 40 they will need to set aside Shs 1,251,000 a year. You can see that the amount of money needed to meet a retirement goal doubles every 10 years that passes without you beginning to save for retirement. If the interest rate falls below 8% then the amount saved has to increase all the more.
Much as saving is important for retirement planning it is not sufficient. Your savings should attract returns along the way. If you stuffed cash under a pillow or in a tin buried under a tree you may be saving. The problem with that kind of saving is that it is not bringing returns but actually loosing value. By January 2005 you needed only Shs 1,500 to buy a litre of petrol compared to Shs 2200 in September 2005. If you had put Shs 1500 under your pillow in January and pulled out the same amount eight months later it would purchase only 53% of the fuel you would have got in January.
The writer provides financial knowledge to individuals and businesses and can be reached on +256712472109
Retirement is that time when you should be enjoying more leisure time than stress time, if you continue working it could be as a part time consultant. You may even choose to volunteer for a worthwhile cause. This ideal picture of retirement is only possible if you have actually planned for retirement ahead of time. The prospect of a comfortable retirement is like the proverbial carrot dangling in front of us, encouraging us to keep going in hopes of a future reward. The only difference is that, unlike the carrot that is always just too far away to reach, a comfortable retirement is actually attainable.
While this is encouraging, achieving your retirement goals will not happen automatically. As with most other things, the two key things that you need to do are to plan ahead and to follow through with your plan. Unfortunately, there is no retirement planning resource that will provide you with the self-discipline and self-motivation you need to achieve your retirement goals. Only you can determine how important retirement is to you and what you are willing to sacrifice to achieve it.
The most obvious reason for retirement planning is that most jobs have a retirement age usually between 55 to 60 years. The employment landscape has changed a lot in the last 2 decades. Few employers now offer permanent and pensionable jobs, most jobs are on contract. It is also more common now for people to either be retrenched or retired early. For folks who get children late, retirement may come when you still have to pay college tuition.
Most people however do not plan for retirement, believing that social security or other plans put in place by their employees shall suffice. The reality is however very different: social security and pensions can fully cover your retirement needs. In the best case scenario social security and pensions only provide a thin cushion for retirement. This cushion is actually becoming thinner all the time.
Recently the papers carried a pitiful picture of former workers of East African Community lining for their pension outside an office in Tanzania some 20 years after the collapse of the body. This picture is a stark reminder of one fact – it is not wise to solely stake your retirement on your employer’s pension scheme.
Another illusion held about retirement is the belief that the cost of living is lower during retirement than during one’s working life. The truth is that what declines during retirement is your income. With a decline in income it actually becomes harder to attain the things you need for life.
For most indigenous East Africans, financial planning is just never thought about or even mentioned. But given that we are living in a more and more monetised environment we need to embrace personal financial planning in order to be better prepared for retirement.
The heart of retirement planning has to do with savings and investments. It is never too early to start planning for retirement. The earlier you start saving for retirement the less money you will need to put aside to meet your retirement goal. Take an example of a person who wants to have savings worth Shs100,000,000 by the time they are 65 years. Assuming an interest rate of 8% per year, if this person started saving at the age of 20 they only need to save Shs 239,000 a year. If they wait until the age of 30 then the saving has to increase to Shs 534,000 by age 40 they will need to set aside Shs 1,251,000 a year. You can see that the amount of money needed to meet a retirement goal doubles every 10 years that passes without you beginning to save for retirement. If the interest rate falls below 8% then the amount saved has to increase all the more.
Much as saving is important for retirement planning it is not sufficient. Your savings should attract returns along the way. If you stuffed cash under a pillow or in a tin buried under a tree you may be saving. The problem with that kind of saving is that it is not bringing returns but actually loosing value. By January 2005 you needed only Shs 1,500 to buy a litre of petrol compared to Shs 2200 in September 2005. If you had put Shs 1500 under your pillow in January and pulled out the same amount eight months later it would purchase only 53% of the fuel you would have got in January.
The writer provides financial knowledge to individuals and businesses and can be reached on +256712472109
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