By Joy Kareko
When conversations on good financial management are brought up, retirement is mentioned so casually indicating that it is not as urgent or as important compared to other financial aspects.
While it is a reality that most millennials satisfy only their immediate needs because of lack of money for future plans and investments, it is also a fact that millennials believe in the YOLO (you only live once) slogan so much so that all they have to restrict themselves to is working hard, enjoying life and globe-trotting. Hardly do they ever think about retirement yet it is cast on stone.
Failure to save is to purport indirectly that one will die before they hit retirement age and that they are not responsible even for their kin’s education, healthcare and heritage.
No matter how young and vibrant one is, a time comes when they are no longer considered fit enough for their only source of livelihood. It is impossible for individuals to be as efficient and productive in retirement as they used to be. This is when a relationship with doctors thrives because one has to be in and out of hospital more often than desired.
Since it is impossible to save retirement money in a bank and resist the temptation to retrieve it when broke, there are simple strategies one can employ to prepare adequately for retirement.
Make it a deliberate decision to save for retirement.
Once the decision to save for retirement is made intentional, saving towards that course ceases to appear complex. It is not different from setting money aside to purchase a car. Consider opening a personal pension account with a company that manages pension if you do not have one and place a standing order with your bank.
Put in more money as additional voluntary contributions.
Many employees only save for retirement because their employer has a pension scheme to which they contribute based on a percentage of earnings. Others save as fixed amount.
If you have an existing retirement plan, consider saving more through additional voluntary contributions to make savings adequate. But how adequate is adequate? Through a simple projection, one is able to estimate how much they will be having in retirement.
For instance, if you currently contribute KSh 36,000 per year at a 10 per cent interest rate, the money will have accumulated to approximately KSh 220,000 at the end of 5 years. If you save consistently for 10 years, then the same will be KSh 574,000. This is because of interest earned and then compounded over time.
If you find therefore that saving Shs6,000 per month will give you only about a million in 10 years, you can consider escalating those savings periodically so that at the end of those 10 years, you will have a substantial retirement nest that will replace your income up to 75% per month. Stated otherwise, if your salary is KSh 40,000, aim to save about KSh 3,000,000 to give you an estimated salary of KSh 30,000 to KSh 35,000 per month.
This concept should equally apply to your personal life including personal projects which will go a long way in saving you the trouble of getting expensive loans.
Plan your life.
Make periodic and measurable goals for your personal life and evaluate them often to see your progress. Make a deliberate decision to save say KSh 300,000 in the next 3 years towards a particular project. In order to accomplish this overall goal, do a backward breakdown to determine the figure you will need to save every month.
Your pension savings plan is not your emergency fund.
Instead of pulling out your retirement savings for emergencies, consider setting aside an emergency fund that will cushion you during tough economic times or when a family member is unwell. When you keep accessing funds meant for your retirement, you lose out on the income that would have been earned on the funds. This can be compared to building a house only to get to the walls and tear the whole building apart in order to start again. Chances that the house will be up again in a few months are minimal.
Utilize your cash lump sum well.
Often, when given your retirement funds as a lump sum, chances are that taking the full amount home will have you broke within 8 to 10 months. Research shows that 70 per cent of businesses done by people at age 60 fail.
Use part of your cash lump sum to either purchase an annuity or an income drawdown fund to ensure that you have periodic payments every month just like a salary. This will act as a good fall back plan when that business fails.