By Audrey Mwala
A study done in America about people readiness to retire indicated that 90% of people prefer to work for life and never retire. A true story is told of a man in Blantyre who collapsed upon receiving a retirement letter and died, another man had his Blood pressure shot up and died later. Just recently one man received notice from the HR manager that he should get ready his retirement date is close, he didn’t take the message well, he left the office in anger and never came back saying that people don’t want him. One man told me that by telling his colleagues to go on retirement when their days were due he has created a lot of enemies at his workplace. When he meets old colleagues in town they don’t talk to him seeing him as an evil person. I heard of a man who worked as the head of an academic institution but went back to ask for a job as a teacher just to get by.
What an irony when one should look at retirement as the time when one has labored for years should look forward to a time to rest and comfortably live on accumulated savings over the working life. Retirement should be a happy time, you don’t have to stress about going to work and yet you get an income.
But if this is the case then why would people be petrified of retiring? It’s because the majority of people are scared of going on retirement because they are not prepared financially, physiologically and even technically.
How great it would have been for people to remember that whether one has a full time or part time job or indeed managing their own personal or family business, all of us will retire at some point.
People are generally scared on retirement because it entails the end of regular inflow of funds into one’s bank account. Just the mere thought imminent dry spell scares most people like a monster, scaring most people to death. A lot of people get to retirement age when they have not yet set their house in order.
At this stage most of them still have debts, are still in the process of buying or building a house, have huge education bills to pay for our children and all this needs a steady source of income. As a result most people seek for opportunities to be given an employment extension for a few more years hoping that they will be able to achieve the financial security that they have failed to achieve in their entire working life. It’s very questionable that if one has failed to plan all these past years will an extra three years make up for what one should have done in the past 30 years? In the haste to catch up, most people make mistakes, some get to a point of getting into new debts hoping to establish their new life with this debt. Sometimes risking the little assets that they have acquired thus far and they end up worse off than before. There are some people who actually indulge in unethical behavior in an attempt to generate as much quick money as they can. All this comes because the majority of us have no retirement plan on how to generate income to sustain our lives during their retirement.
It’s so amazing that most of us know that we will retire by a certain date, but we do nothing at all to decide on what we will be doing after retirement, we wait until the retirement date comes and start wondering what we should be doing next. But planning for retirement activity should happen well before the dawn of the retirement date.
Some people have no house of their own, they live in institutional houses and suddenly when their retirement age comes, they now start the process of building a house, this usually does not work very well most the people fail to complete such houses, the retirement package the money usually runs out before the project is completed. The best time to engage into such huge projects is when you are energetic and you have a sure steady source of funds. There is a lot of stress that retired people experience unfortunately it gets to a point of causing health problems to some people. The lack of money, loss of friends, idleness, loss of prestige, power and identity, disappear overnight when one losses their position are great ingredients to depression and the body easily gives in to stress.
It’s therefore extremely important that we should plan for retirement well in advance. The planning should be both psychologically, financially and physically.
A word to Employers
Beyond the mandatory minimum pension contribution of 10% organisations have a duty to help their employees to plan for retirement very well. The help should come from not only contributing for their pension but also by providing them with trainings opportunities for personal financial management skills and including retirement planning skills. Sadly few organizations and individuals prepare for this, leading to reduced productivity in the final years at work, lack of focus, poor health and early death in retirement. Retirement is one of the biggest lifestyle changes an employee will face. Due to rising longevity, it is becoming increasingly important that staff prepare effectively for retirement, both financially and in terms of lifestyle provision. Providing assistance to help employees plan for this transition is an important aspect of support staff during their time within an organization to help them make more informed decisions for a more secure and rewarding retirement. Since most employees including those in finance lack retirement planning skills it’s the duty of the employer to prepare their older staff for a happy life in retirement since retirees live miserably and pass on shortly after retirement from active work life. Research also shows that this happens simply because potential retirees are rarely prepared for their retirement.
When to start planning
Planning for retirement is a combination of long term, medium term as well as short term initiatives. The longer one prepares for retirement the easier and less stressful it becomes. When you start planning early you don’t have to invest as much money at once as would be the case when you start your retirement investing late in life. When you start investing early you will accumulate more retirement funds than someone who started late in life.
Long term planning – On the day when one starts their working life, retirement planning should already kick in at this early point in life. The good news is that employers are legally bound to provide for pension contributions for all employees. Where an employer has more than five employees, the employer shall provide pension for those employees. The employee is also mandated to contribute. The minimum contribution is 10% of employee’s salary by the employer; and a minimum of 5% by the employee. In addition to these pension contributions one can elect to top up with and additional amount over the contributions mandatory contributions. This will help to increase the amount of money that one will receive during retirement. In addition, one can buy a separate insurance policy that will deduct a small amount of money every month but after a whole working life, it will be all smiles to cash this cheque upon reaching retirement age. Self-employed people can also contribute money every month towards retirement. At this point most people don’t have a lot of money, they are trying to establish themselves in life they spend a lot of money to procure basic capex necessities of life and they struggle to raise additional revenue that could be put into a wide range of investments. Sometimes people get some unplanned money, it could be a bonus or anything. It will be prudent to invest part of that money in one off investment products like shares and watch them grow. In addition some people have talents which could be used to generate money for retirement. Cultivate those talents and plan to turn them into retirement money.
Medium term planning – This is the stage between 40 to 55 years. This is the time when most people have settled down, basic needs have been provided for most people have advanced in their career life and disposable income is relatively higher. At this point one should plan to invest in different assets such as real estate, commercial papers, shares and more insurance policies those with a high pay out amount at the end. One should also start thinking of investing in some business enterprise. It’s possible to run a small business operation while still holding to a full time job. This would be a great fallback position not only for retirement but also in the event of a sudden loss of a job. In fact if the business is viable you can actually leave your employment and focus on running your business. This is the most important phase for one to plan for their retirement. Anyone who fails to invest for their retirement at this stage has completely failed to plan for their retirement. After this phase it’s not easy for someone who has never done anything for their retirement to do anything substantial. There are a few exceptions of course but overall don’t miss your best time to plan. Use this window to invest for your future as much as possible.
Short term planning – This is the sunset phase of life. Most people retire between 55 and 65. During this phase those who are still engaged in active business or employment can still invest for their retirement but should be very careful not to invest in risky assets. All efforts should be taken to guard against loss of anything that they have worked hard for in their active phase of life. Planning for retirement here should involve investing in short term assets like money market instruments such as treasury bills, clearing all debts, and changing lifestyle to reduce monthly overheads. It’s very dangerous to go on retirement while you still have debts. The likely consequence is that one will lose their hard earned assets owing to failure to service debts. Our lifestyles should be comfortably supported by our income. Retirement often means a significantly reduced inflow of income so it’s important that as one approached retirement there should be a deliberate attempt to trim down on outflows to avoid a system shock. At this age if one has been unable to build or buy a house of their dream it is a mistake to do so at this stage expect for the very few who may have very large savings. But generally this is a time to settle for just a basic accommodation something that one can buy in cash or build and complete in full. Many times people underestimate the full cost of construction they get excited with the lump sum money that one gets at retirement and they start building a mansion. Often times these mansions are never completed. The money runs out midway. Sadly a number of people leave uncompleted houses behind. If you need to build go for something small and basic, complete it and then live in peace.
Retirement Benefits
Pension funds can be accessed upon retirement i.e, when the member has reached retirement age or the member has retired on the basis of long years of service i.e. 20 years of continuous service under the same employer, or when one has ceased from their personal business activities, when one dies or when one has ill health. A member who is about to leave or has left Malawi permanently is also entitled to access their pension benefits
Upon retirement a lump sum about 40% of the value of their pension fund is received by the retired employee. This amount is exempted from tax. In addition the employee will receive annuities but it’s usually a small amount so if one wants to maintain their standard of living it’s important to have plans today on how supplement this money with other incomes sources.
If well planned retirement can be a happy time where one can rest and also volunteer to help in some activities just to keep the mind engaged not really for the sake of earning a living. So plan and retire happy.
Best time to retire
The best time to retire is as early as possible. Don’t wait to be chased away because of age. Take charge, be the one to say good bye. You can retire early when you have worked for more than 20 years at the same institution even when you have not reached retirement age.
It is more than money
Planning for a happy retirement goes beyond money. You need to plan for key essentials such as health, your working space, friends, family, a home, mobility, activity. Don’t be sacred of retirement look forward to retirement! For a full training about retirement planning contact Sycamore Consult Limited at +265991388779 or info@sycamoreconsult.org, www.sycamoreconsult.org