Five Missteps to Avoid When Planning for Retirement

FIVE MISSTEPS TO AVOID WHEN PLANNING FOR RETIREMENT

By Alice Kamau, Genghis Asset Management

Introduction

Planning is a crucial requirement for a happy retirement and a significant financial goal for your future. When planning is done right, you will be assured of freedom and financial independence later in life.Retirement planning was a lot easier when one worked for one employer their whole life and retired with the company pension. Today, a lot has changed.Most people will change jobs many times or eventually work for themselves and thus need to have a personal retirement plan.

Another factor we ought to consider is the fact that life expectancy is increasing, meaning more retirement years to enjoy and at the same time more retirement years to fund.

So how do you plan for retirement? An excellent place to start is to know what NOT to do.Here are five missteps to avoid when planning for retirement.

  1. Not Having a Retirement Plan
    The biggest mistake most people make is not having a retirement plan in place. A retirement plan entails deciding the kind of life you desire at retirement, how much you’ll need to finance it, and putting in place a plan on how to get to the desired level of funds to take care of your retirement expenses.

    There are many considerations at play when designing a retirement plan that’s right for you. Our previous article covered the factors one should consider when coming up with a retirement plan. You can read the article Here

  2. Not Starting Early
    If you have a retirement plan in place, another common mistake is waiting too long to start saving for it. No matter what sum you need for retirement, the sooner you start saving for retirement, the more secure you’ll be in the future. This is thanks to , as every amount you save now will continue growing until you retire. Time is compound interest’s best friend.
  3. Cashing Out Your Retirement Savings Each Time You Change Jobs
    On average, 95% of individuals who leave employment or change employers withdraw the maximum available retirement benefits under the legislation as cash; that’s 100% of their contribution and 50% of their employer contribution.

    Studies show that this cash is depleted in less than three years after leaving employment. The frequent withdrawal of your retirement saving every time you leave employment or change employers depletes the retirement saving. In return, one finds that the size of their fund at retirement cannot cater to their retirement expenses, which translates to poverty at old age.

  4. Not Saving Enough
    Most people who save for retirement don’t save enough. Reports show that the current income replacement ratio is about 34%, against the recommended levels of 75%, meaning if you earn Kshs 100,000 before retirement, your retirement savings will only afford you an income of Kshs 34,000, against the recommended Kshs 75,000.

    To drive up your income replacement at retirement, one needs to consider saving more now to have a better tomorrow. Have more than one retirement plan if you can. Here’s the reality: Right this moment, you are either saving for retirement, or you’re consuming it.

  5. Relying on a Company Pension
    Most Kenyans who have pensions saving do so by virtue of belonging to a company with a pension plan for their employees. The problem with this is that it gives a false sense of security, yet you cannot depend on your company for retirement savings during these uncertain times.

    Secondly, the amount being contributed by the company might not be enough, and that’s why one ought to have a personal retirement plan. means your role and responsibility has shifted from passive to active.

  6. Conclusion

    Most of us make the mistake of not taking retirement planning seriously. We fail to start saving early enough, or we don’t save enough.

    Samuel Levenson, an American writer, once said that “You must learn from the mistakes of others. You can’t possibly live long enough to make them all yourself.” Let’s learn from the mistakes others have made and do better when planning for our future.

    More so, every person saving for retirement needs to develop or engage a financial expert who will walk with you the journey of retirement planning and saving.

    For advice on retirement planning, reach out to one of our financial advisors by emailing us at distribution@genghis-capital.com.

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