Retirement planning is the process of determining pension income goals and the actions and decisions necessary to achieve those goals. In many developing economies, Retirement is dreaded by many. In the case of Ghana and some African Countries, only 2 people out of every 100 retire financially independent at age 60. The good news is that every African worker deserves a good retirement income and this goal is achievable with deliberate Retirement planning while in active service.
Retirement planning includes identifying sources of income, estimating expenses, implementing a savings program, and managing assets and risk. Future cash flows are estimated to determine if the retirement income goal will be achieved.
Retirement planning is ideally a life-long process. You can start at any time, but it works best if you factor it into your financial planning from day one of your first paycheck. That’s the best way to ensure a financially comfortable, secure, safe -and fun-retirement.
Retirement Planning Keys #
- Determine your desired retirement income in today’s present value
- Estimate projected income that will be available to you in retirement
- Decide when you want to retire
- Estimate the number of years you will likely spend in retirement until say age 90
- Take the FLF Africa Financial Wellness Barometer to determine how much you will need to fund your desired financially independent retirement
- Start saving and investing every month toward this desired retirement goal immediately
- Decide to monitor your investment yield as often as possible. And do well not to withdraw until you are ready to go on retirement
Stages of Retirement Planning #
Below are some guidelines for successful retirement planning at different stages of your life.
Young Adulthood (ages 21–35) #
Those embarking on adult life may not have a lot of money free to invest, but they do have time to let investments mature, which is a critical and valuable piece of retirement savings. This is because of the principle of compound interest. Compound interest allows interest to earn interest, and the more time you have, the more interest you will earn. Even if you can only put aside $50 a month, it will be worth three times more if you invest it at age 25 than if you wait to start investing at age 45, thanks to the joys of compounding. You might be able to invest more money in the future, but you’ll never be able to make up for the lost time.
Early Midlife (36–50) #
Early midlife tends to bring a number of financial strains, including mortgages, student loans, insurance premiums, and credit card debt. However, it’s critical to continue saving at this stage of retirement planning. The combination of earning more money and the time you still have to invest and earn interest makes these years some of the best for aggressive savings.
Later Midlife (50–65) #
As you age, your investment accounts should become more conservative. While time is running out to save for people at this stage of retirement planning, there are a few advantages. Higher wages and potentially having some of the aforementioned expenses (mortgages, student loans, credit card debt, etc.) paid off by this time can leave you with more disposable income to invest.
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