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Opinion - Retirement planning at every career stage

2020-08-14  Staff Reporter

Opinion - Retirement planning at every career stage

Thembi Kandanga

Life has many important milestones; graduation, marriage, children, buying a house and soon enough retirement. There’s no getting around it, retirement is a big deal and despite the life-changing magnitude of this event, it’s something that many of us leave to the last minute.  
Think of how you would like to spend your retirement years, what kind of lifestyle do you want to lead? Do you plan to travel the world? Do you have plans to start a small business? Will you have paid off your mortgage? Will you have kids in school you need to support?
Knowing exactly how much to save is difficult to determine. Most financial planners recommend being able to replace at least 75% of your income for each of your retirement years. For example, if in your final year of working you are earning N$750 000 per annum you need to be able to earn N$525 000 per annum from your retirement savings. 

Here are a few aspects to consider when trying to determine how much money you will need in your golden years. What age will you retire? The earlier you retire the more money you will need to have accumulated. According to the World Health Organisation, life expectancy in Namibia is 63.7 years. However, this number is rising and people are increasingly living longer.  
How long will you live after retirement? Research has shown that women live longer than men. This is a significant factor that women must include in their planning. Your retirement savings have to sustain you for about 10-15 years after retirement. Imagine having to consistently earn an income of N$525 000 per year for 10-15 years from just your savings? That’s a minimum of N$5 250 000 in retirement savings that you must have (not taking into account the effects of inflation and assuming no yearly increase in income).
What annual living expenses will you have? Your medical aid costs will increase as you get older, this is due to the likelihood of greater healthcare needs in your retirement years.
Depending on where you are in your career, retirement planning will look different for everyone.  Consider the below life stages to help you plan.

Early – career stage
Planning for a distant retirement at this stage of life is difficult and is not viewed as a financial priority by most people. Adults in their 20s to early 30s typically fall in this stage and are more likely to have many demands on a modest salary. Some may be paying off student loans, rent or saving a deposit for a car deposit. Realistically you might not be able to make much progress in saving for retirement at this stage. This is understandable, as long as you are contributing at least 15% (7.5% your contribution, 7.5% employer contribution) of your income to an employer pension fund. 
The most valuable asset you have is time and the earlier you commit to building good saving habits the longer you will have compounding working for you.
Get through these early years without ruining your financial health by accumulating too much high interest debt and you can call it a success. 

Mid-career stage
This period happens in the late 30s to early 40s; after the many demands on your salary start to ease up and you are earning more you should make retirement planning a priority and increase your saving efforts. Now is the time to create a detailed financial plan that is focused on retirement. Look at what you’ve saved so far and what you expect to save until retirement to see if you are on track. This is where most people notice a shortfall in their expected savings and what they actually need to sustain their lives past retirement. To help fix this shortfall, increase your pension contributions, supplement your company pension with a retirement annuity and discretionary savings such as unit trust accounts and stock portfolios.
End-career stage
This is the final stretch in your retirement planning journey, typically between the ages of 55 to 65, and you should have a clear picture of your life after retirement. Plan to pay off all major debts such as houses and cars, understand the importance of income-generating assets in your investment portfolio and estimate your living expenses and focus on estate planning.

Undoubtedly retirement planning is not a one-time event, but rather a career long journey that can offer peace of mind when done right. Every stage is characterised by different life events – you go from building wealth to preserving and increasing wealth and lastly to living off your wealth. 

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2020-08-14  Staff Reporter

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