Prosperity Guidance by Richmond Kwame Frimpong
In Africa, and specifically in Ghana, retirement planning is a crucial aspect of financial well-being for every worker. The journey towards a comfortable and financially rewarding retirement can be effectively navigated by leveraging the stages of early adulthood, early mid-life, and later mid-life.
**Early Adulthood (roughly ages 20-35)**
This stage is the perfect time to prioritize early investment and retirement planning. Ghanaian experts emphasize the importance of starting early to build a strong foundation for financial independence later in life. Despite irregular income, financial discipline is key. Young adults should focus on meeting basic needs while acquiring new skills or experiences that can enhance future earnings. Additionally, life insurance and savings should be started early to benefit from lower premiums and the power of compound growth over time.
**Early Mid-Life (approximately ages 36-50)**
During mid-career, individuals often face peak earning years alongside increasing expenses such as mortgages, children’s education, or care for aging parents. This stage is critical for scaling up both financial planning and insurance coverage to protect these assets and responsibilities. Career progression and health management are also essential to extend productive work years, thereby enhancing long-term savings and income stability. Retirement goals and contributions should be reassessed, and contributions to retirement funds increased.
**Later Mid-Life (about ages 51-65)**
The focus in later mid-life shifts towards preserving accumulated wealth, generating a reliable retirement income, and estate planning. Encouraging workplaces to support older workers through healthy environments and flexible work arrangements enables longer working lives, which benefits retirement savings and financial security. Life insurance can cover final expenses and provide liquidity for estate taxes, preventing forced asset sales and supplementing retirement income through policies with cash value.
**Contextual Considerations in Ghana and Africa**
Financial planning must consider cultural and financial interdependence, such as 'black tax' and extended family obligations common in Ghana, where adult children often support relatives. Early awareness and education are crucial, with national advice in Ghana encouraging prioritizing retirement planning early to build independence and reduce future dependency on the extended family or government pensions. Financial planning should also emphasize discipline, skill acquisition, and incremental saving even without a steady income due to income instability.
**The Retirement Planning Process**
1. Decide when you want to retire from active service. 2. Determine your desired monthly retirement income in today's present value. 3. Estimate your projected income that will be available to you in retirement, including from SSNIT, Tiers 1&2, and personal investments. 4. Estimate the number of years you will likely spend in retirement until, say, age 90. 5. Take the FLF AFRICA Financial Wellness Barometer to determine how much you will need to fund your desired financially independent retirement. 6. Start saving and investing every month towards this desired retirement income goal immediately. 7. Decide to monitor your investment yield as often as possible, and avoid withdrawing until you are ready to retire.
If you feel ill-prepared after exploring the 7 retirement planning keys, seek help from a Pensions Advisor. It is important to remember that retirement planning is ideally a lifelong process and works best when factored into financial planning from the first paycheck.
In Ghana, only 2 out of every 100 Ghanaians retire financially comfortable at age 60. The remaining 75 will depend on SSNIT, charity, or family to make ends meet. Early mid-life (ages 36 - 50) is a critical stage for retirement planning, with financial strains such as mortgages and student loans, but it is also a good time for aggressive saving due to higher earnings and more time to invest. In later mid-life (ages 50 - 65), investment accounts should become more conservative, as time is running out for saving.
Compound interest, which allows interest to earn interest, is beneficial for young adults saving for retirement. Young adults, aged 21-35, have a lot of time to let investments work for them, which is critical for retirement savings. Retirement planning involves defining pension income for the future and taking deliberate actions to achieve it.
By following these guidelines and tailoring retirement planning to each life stage, Africans can create sustainable retirement security and ensure a comfortable and financially rewarding retirement.
- In the early adulthood phase, individuals should start early investment and retirement planning, focusing on acquiring life insurance and savings for the benefits of lower premiums and compound growth over time.
- During early mid-life, it's crucial to increase financial planning and insurance coverage, scale up retirement contributions, and consider career progression and health management for a stable retirement income.
- In later mid-life, the priority should be preserving wealth, generating a reliable retirement income, and estate planning, while also taking advantage of compound interest and workplace support for longer working lives.
