This archive report was first published on 28 August 2021.
As the saying goes, 'the best time to start saving for retirement is the moment you earn your first income.' However, life often gets in the way, and many people only begin saving later in their careers, when their income is more stable.
According to Rose Ellah Ngari, Founder and CEO of Vasili Africa, the disadvantage of starting late is that you're years behind those who began their retirement funds earlier. Additionally, even though people in their 40s and 50s tend to have a larger disposable income, they often have more financial obligations, reducing the amount they can set aside for retirement.
So, what should a middle-aged person who has just started saving for a comfortable retirement do to maximize their earnings? The rule of thumb is to save at least the equivalent of your salary by 30, three times by 40, six times by 50, eight times by 60, and 10 times by 67, every year.
However, saving for retirement is not a one-size-fits-all approach. It's essential to consider your income versus your expenditure, or your budget. While budgeting, try using the following formula: With gross earnings of about Sh100,000 per month, you only have to budget with about Sh65,000 after tax and statutory deductions.
Up and above what you've contributed for social security (NSSF), budget for at least five to 10 per cent of your take-home income to save for retirement. One can begin by saving monthly in a recognized pension scheme, which will allow you to capitalize on the tax reliefs that the government offers.
Those who are employed have the added benefit of their employer matching their contributions. Second, you should work aggressively towards getting rid of debt. Repayments plus the interest on uncleared debt can impede saving over the long term.
Third, adding high-interest earning investments to your portfolio will optimize retirement earnings. Through this and the magic of compounding interest, you'll be able to hit your savings targets much sooner.
A late start does not mean it's impossible to save for retirement later in life. By saving diligently through a recognized scheme, eliminating debt aggressively, and chasing high-interest investments, you can catch up quickly and be able to afford the kind of post-retirement lifestyle you want.
For one to live the kind of future they desire in retirement, there must be deliberate efforts towards creating the same. This calls for personal discipline in planning and setting goals on how much to invest regularly, the kind of investment vehicles to use, period to retirement, expected returns, and target retirement amounts, among others.
It's always wise to take advantage of the present opportunities to save as much as possible, so even in a tough and unpredictable environment, being frugal in finance helps. The more streams of income one has in retirement, the better.
Retirement schemes offer a risk-free avenue for investing that should be considered side by side. Always have a balanced investment portfolio to serve different objectives. For long-term savings objectives, retirement schemes offer the best value on safety of the funds, returns, and tax incentives.
