Retirement planning is all about managing your money so that you can make the most of your retirement years, at the same time accumulating wealth.
A recent survey carried out by T. Rowe Price, an American publicly owned global asset management firm, revealed that most people retire by the age of 60 to 65 years. However, millennials say that they would wish to retire much earlier than 65 years. Even with young people looking forward to retiring early in life, a good number is reluctant to start contributing to retirement much earlier. The survey further states that only one in every five millennial contributes at least 15 percent of their income towards retirement.
Saving for retirement should be an essential aspect of everyone’s life, and this is why young people need to cultivate a saving habit as early as when they secure their first income irrespective of what job they find themselves in.
The young people at the age brackets of 20’s and 30’s are full of beautiful energies and can attract income generating opportunities. Sadly, the last of their priorities is saving for retirement or any investments due to other short term competing for needs, thus making it a bit financially strenuous to accumulate adequate and sustainable wealth at their old age. It takes a deliberate goal setting to begin a foundation of savings for a great retirement.
What the youth need to know is that the sooner one starts saving, the more the retirement pot, which can give greater flexibility of choices in old age.
So why should young people start saving for retirement early:
Financial freedom
Did you know that at retirement age, you will need an estimate of 70% of your last employment income to sustain your living in retirement? Currently, the industry statistics in Kenya show that a majority of people saving up for retirement can only afford a ratio of 20-23% of their salary, which means low adequacy, greater dependency and poses a longevity risk. Therefore, to enjoy financial freedom, one needs to start planning early.
Increased old-age poverty
Statistics from the National Bureau of Statistics show that 52 percent of older people in Kenya are living in poverty, even after working for half their lives. Saving from an early age will, therefore, avert the chance of being a burden to family and society.
Secures the future of your beneficiaries
One of the reasons why young people shy away from retirement is the question of what if I die before I retire? Rather than what if I live longer to 100 years? Retirement funds can be transferred to a trust fund for beneficiaries in case of early death, but in extended old age, one’s future is secured.
Presents more investment opportunities
Having a retirement fund enables one’s contributions to be invested by professions to generate a return, which increases the savings pot; therefore, the more funds one has in the retirement kitty, the more investment opportunities to be explored, leading to more income.
Tax advantages
Retirement benefits schemes are very efficient tax savings vehicles that allow tax-free accumulation of members’ benefits. Simply put, contributions made to a registered retirement arrangement are exempt from the pay-as-you-earn (PAYE) tax. The investment income earned by the fund is also tax-exempt.
In the current day and age, one does not need to go all the way to a bank to access money. The same goes for saving for retirement. At the convenience of a mobile phone, one can save as little as they can daily to secure their future.
In summary, early retirement planning makes a strong foundation for life after one’s career and forms a good habit of saving and financial literacy. Those who begin to invest in their pension in their ages 20’s can become much adept in managing their finances throughout their 30’s and 40’s. Once you have started to manage your spending and investing, it is hard to ignore the importance of it.
Please do not wait till it is too late, save now, and enjoy later.
The Author, Godwin K. Simba, is the Executive Director, Strategy and Product Development at Octagon Africa
