Personal Finance

Debunking the common myths about retirement

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Perhaps, the biggest myth of all is that young people perceive retirement as a faraway affair and believe that they still have time. PHOTO | POOL

Summary

  • Perhaps, the biggest myth of all is that young people perceive retirement as a faraway affair and believe that they still have time.
  • It is, without a doubt, virtuous for your children to care for their ageing parent particularly in the African context. However, this should not be your sole plan going into retirement.
  • Another retirement myth is that the retirees’ expenses will be lower than what they spent during their working years. Post-retirement medical needs will require a better financial fallback position.

To some, retirement spurs vacationing thoughts at a beach in Seychelles or golfing with grandkids. Yet to some, it is a forbidden R-word. This diversity is partly driven by several common myths and misconceptions about retirement that have invaded our collective awareness. Correcting them can help you feel more confident in the preparation for the golden years.


#1: A LONG WAY BEFORE I RETIRE

Perhaps, the biggest myth of all is that young people perceive retirement as a faraway affair. They believe that they still have time. They shelve the plans and think, “I will start later when I am a bit older, earning more money.”


REALITY: THE CLOCK IS TICKING

Saving for retirement is a habit which you need to nurture even when your means are limited. If your income rises, you will have developed the right habits to put more into your retirement kitty. In addition, from whatever you can save now, you will benefit from compound interest on it no matter how small. For example, if a 26-year-old started investing Sh5,000 per month (assuming a 5percent return), by the time they turned 40, they would have a reserve worth Sh1,185,817. Assuming they have a better income at 40 and increase their contribution to Sh30,000 a month, they would end up with a nest egg of Sh15,050,069 at 60. But if they had waited until 40 to start saving Sh30,000 a month, even with the same rate of return, they would end up with Sh11,903,743 at 60- a significant difference. You are young but old enough to plan for your old age.

The above reality is also fixated on retirement being defined as either normal or early. Ill-health retirement is also a possibility which many people don’t consider in their retirement planning journey.

This type has neither respect for age, contract, dreams nor does it consider your level of preparedness. It can come knocking at any time. One can become incapacitated on health grounds either as a result of illness or after an accident such that they cannot continue with their normal work. In the event of such, the employer will be forced to release you on the grounds of ill-health retirement. Are you prepared for such an eventuality?

#2: CHILDREN WILL TAKE CARE OF ME

Parents go out of their way in spending money on their children hoping that the children will take care of them when they grow old.

REALITY:

It is, without a doubt, virtuous for your children to care for their ageing parent particularly in the African context. However, this should not be your sole plan going into retirement.

A recent research conducted by Enwealth Financial Services and Strathmore University on The Effects Covid-19 on the Financial and General Wellbeing of Retirees in Kenya, showed a case of tables turning. Since the onset of the pandemic, elderly parents have had to financially support their adult children who had lost their sources of income.

That said, taking your children as your retirement plan can result in a burdensome relationship and some stressful golden years ahead too.

#3: I WON’T NEED A LOT OF MONEY

Another retirement myth is that the retirees’ expenses will be lower than what they spent during their working years. Others believe that they will be okay without some of the comforts that they have grown into.

REALITY:

It is true that upon retirement, retirees no longer incur some work-related expenses and they will do away with some deductions on their pay such as pension contribution. Those that have built a rural home will relocate thus reducing city-related expenses such as rent, high cost of food and more. At this age, many retirees will be more socially active. Thus, it is unlikely that these ‘savings’ won’t be consumed by travel, entertainment, leisure, gifting, social engagements and the likes. Furthermore, when planning for retirement, individuals aim at maintaining their current lifestyle instead of compromising. It is therefore advisable to be strategic and dedicated when saving to achieve this goal. Our bodies grow frail with age and hence we become more susceptible to medical challenges. Our post-retirement medical needs will require a better financial fallback position.


#4: EMPLOYER HAS NO SCHEME

For different reasons, some employers are yet to set up a pension scheme for their employees. Coupled with self-employed folks, this leads them to think that they cannot save in a pension fund and enjoy the benefits such as tax reliefs.

REALITY:

The pension industry has grown tremendously over the past years. Pension products meant for individuals who are not registered in occupational retirement benefit schemes are now available. These schemes are called individual pension schemes and a good example is the Enwealth Personal Pension Plan.

This scheme allows individuals to contribute to build their retirement fund. With oversight from the Retirement Benefits Authority (RBA), it is one of the most secure form of savings.

An individual pension scheme is a perfect way to save for pension especially when your employer has not set up a scheme or you are self-employed. One can also use this scheme as a consolidating pot for any deferred retirement savings they may have left locked in past previous employer schemes. Retirement is a Journey, be the driver!