Do not delay your retirement planning • Enterprise Trustees MD advises
Available data suggests that one out of every two adults (49%) retire from work with no personal retirement savings.
The question, therefore, is why people neglect their financial future until it’s almost too late.
Advertisement
Have you estimated how much you will need to continue living comfortably for 20 years after retiring from work?
Helping break down this topic, the Host of the Springboard Your Virtual University, Rev. Albert Ocran, caught up with the Managing Director of Enterprise Trustees, Joseph Ampofo, who took listeners through how they could secure their financial future.
Mr Ampofo said financial security was the engine that drove human behaviour and lives; and without that, there was nothing anybody could do.
He said the current challenges of the economy were due to finances and the lack of resources, which emphasised the importance of financial security.
“Everything boils down to resources and having the financial muscle to do what you need to do,” he stated.
Unpreparedness
On why people usually defered discussions on their financial future at the early stages of their lives, Mr Ampofo said that was due to the fact that individuals generally had a consumption culture and did not take savings seriously.
He said young people often craved for things to show off and keep spending until they were close to retirement.
Other Trending Stories
“Everything boils down to having a savings culture and quite clearly, we like to consume and like to be able to spend whatever it is that comes within reach.
“So by the time we realise that our resources no longer exist or are coming to their tail end, then we begin to ask ourselves what we will do next. Probably by that time, you will be left with just a few more years to go on retirement and quite late,” he stated.
He said young people usually allowed their taste and wants to override their needs which later created problems for them.
Knowledge gap
Mr Ampofo also pointed out that the lack of adequate information could also be the reason why people did not plan sufficiently for their retirement.
“You will realise that the formal sector, largely to some extent, because of the mandatory pension scheme, there is some cushioning to some extent. So people will retire on their Tier 1 benefits and also have the Tier 2 as well and that gives them the sense that they have been preparing for retirement.
“But when you start utilising that money to live on, then you realise that it is probably not enough,” he explained.
He said some people had misconceptions about the Tier 1 and thought it would be enough to take care of their retirement needs, which was usually not the case.
“Tier 1 is not 100 per cent insurance. When you get to retirement age, the insurance from the Tier 1 covers at most 60 per cent of the best salary that you were earning,” he noted.
He said retirees, however, needed about 75-80 per cent of their income to survive.
11 Points from Mr Ampofo
1. Personal pension: You can take a voluntary personal pension policy (tax-free) to cushion your costs. There are bills paid by your company that you may have to pay yourself when you retire. Inflation also devalues your money.
2. Key planning questions: a. What do I want my financial plan to achieve in the short, medium and long term? b. How much do I have? Deduct loans and other obligations from your salary to get your net financial position.
c. What do I need to do? E.g., change of spending pattern.
3. Contingencies: Draw a budget and provide for contingencies. Use salary increments to support unexpected bills that come up. Escalate your contribution and don’t channel it into consumption.
4. Be consistent: Building your financial future is not a periodic commitment. Be consistent and make a monthly contribution.
5. Protection: Use various insurance solutions to protect yourself against contingencies like fire, funeral or loss of life. Property insurance premium is often less than one per cent and is non-negotiable. Insurance is not a fancy thing. It’s a protection of your savings.
6. Choosing policies: A friend changed a motor policy from comprehensive to third party and walked away laughing at the savings he had made, only to call me at 7 p.m. and report an accident. What saved him was that his comprehensive policy was still valid till midnight that day.
7. Informal sector: A tailor, mechanic, chef or informal sector player can dial *714*333# to set up his/her personal pension account. They can also download The Enterprise Advantage App. They can top up via momo and get statements digitally. The savings on transport money can be added to their account.
8. Long-term focus: Pension funds are not like an ATM. There are withdrawal considerations in place to help you build long-term funding without getting easy access to dissipate your investment.
9. Consistency advantage: When you stay on course and refuse to draw down, your contributions will end up being only 40-55 per cent of your total value with the rest being interest you’ve earned.
10. Formal sector workers: Tier 1 and 2 are compulsory for the formal sector. Ensure that your company has a provident fund (tier 3). If not, start one for yourself. Only one per cent of people whose benefits we’ve paid seem to be taking advantage of Tier 3.
11. Flexibility and time: There is nothing like defaulting on a personal pension fund. You can contribute every day if you want. The younger you are, the more time you have, and the bigger the benefit you have from investing. Start early or, better still, start now.