This article seeks to highlight six must-know facts about retirement planning for the actively working either as employed or self-employed.
Knowledge is Key
The one reason why people struggle financially in retirement is lack of knowledge on the subject. As a test on you, how much of pensions do you know? Most peoples’ knowledge starts and end at contributing into a scheme and making withdrawals when they see the fund has accumulated. Begin to learn about pensions. Learn about your options, your responsibilities and monitoring among others. You are not required to be an expert but have some relevant baseline knowledge. Take my columns and sessions seriously, likewise other credible ones you may find elsewhere. You are most likely to do the right things if you know what to do, not how much you have.
Time is an Asset (for the younger population)
Retirement Planning starts when your career begins. This includes the national service level (for Ghanaians). There are no hard and fuss rules about the age to start planning for your retirement. The Ghana pensions law however allows a person from age 15 to start contributing into a pension scheme. The reason is that accumulating funds for the last phase of our lives requires a long time, in fact decades. Its about time not how much you have. Therefore, from today remember that in planning for your financial future, time is of essence and an asset. The time ahead of you is an asset, use it to your advantage by starting of early. Retirement planning is for the younger working population, it is retirement which is for the older working population.
You have a Responsibility
Gone are the days when companies provided good pension for their staff. That phenomenon ended in the 90s. Governments around the world are scratching their heads on how to take care of their pensioners. Their solution however is to motivate individuals to ‘carry their own burdens’. You have a part to play to ensure that your contributions are being paid, your funds are performing well, checking your statements and are following up on your pension transfers among others. You need to seek advice, and truly we are in an era where you need to seek advice for your plans and investments.
Not every asset can provide Pension
We may have other plans in the form of investments and other assets. They may provide some form of returns. However, every investment has an objective it fulfills. For instance, savings is required to give low barrier access to finance for short term needs. A mutual fund investment is supposed to give returns for mid to long term objectives. Investment for pensions should have the features to live and last long enough to take care of you. If you use savings as your pensions option, it is likely you are losing out a great return and fund accumulation potential.
A Multi-Pillar Pension is Ideal
The recommended structure for adequate retirement income is a multi-pillar system. This is the system where you have more than one avenue for retirement income. The World Bank has recommended a 5-pillar system. In Ghana we have a 3-pillar system which we call the 3-tier scheme. Two schemes are mandatory but one (3rd tier) is voluntary. To benefit fully from the 3-tier scheme you need to take advantage of the voluntary scheme and allow it to grow to maturity. Only withdraw from the 3rd tier when ultimately necessary. Apart from the 3-tier you can also take on personal pension/group personal schemes an also structure other investments/businesses to make them suitable for providing for long term financial needs.
Every Option has a Risk
You may a have multi-pillar investment meant for your financial needs and ultimately for the future. Understand that every pillar (or option) has its own benefits and risk. In investment parlance, you would usually hear low risk, low returns and vice versa. It means the higher the potential for an asset to give higher returns the higher the probability of loss. Whatever the options (which form the multi-pillar) are, do a longevity risk analysis. This would help to get an idea the events that can affect the existence of the asset or its benefits. This is one major reason why the multi-pillar system is important in case one pillar fails to yield its benefits.
Great you know these six must-knows of retirement planning. These may not be all but for these ones you know today, put them in action.
Yaw is the lead consultant for M-DoZ Consulting & Retirement Advisory. For group and corporate sessions contact him on 0248590955