As a financial coach and speaker, two frequently asked questions whenever I talk about planning and saving for retirement are ‘how much must I save to retire financially secure? and ‘what should I do today that will help me transition comfortably into retirement?’
To ensure that Basotho achieve their retirement goals and retire comfortably, this week’s article shares retirement planning hacks and a downloadable infographic.
- Define the retirement goal.
Having a retirement goal helps you determine the type of lifestyle you want post-retirement and what you need to do today to plan for it. With a clearly defined goal, the next step is to calculate how much retirement capital is required to afford the lifestyle. It is important to remember that retirement is not only about how much capital you will need, but also the post-retirement activities and hobbies needed to keep you entertained. What will you do with your time after you retire? What activities will keep you busy and entertained?
- Calculate the income replacement ratio.
Linked to the retirement capital mentioned in the previous point, you need to calculate the income replacement ratio. This ratio determines how much income you will need to maintain your standard of living when you retire. This includes taking care of expenses such as groceries, utilities, and medical expenses. The recommended income replacement ratio is 75% of your pre-retirement income. How much is your current income replacement ratio?
To calculate your income replacement ratio or determine if you are on track, consult your pension fund administrator or financial advisor.
- Contribute more towards retirement.
Members of retirement funds are allowed to contribute up to twenty (20) percent of gross income. Under the defined contribution (DC) funds, both the employer and employee contribute towards the employee’s retirement. As a member of a retirement fund, how much is your current contribution percentage? How much is your employer contributing? Are the contributions enough to achieve the retirement goal or capital required to retire comfortably? These are some of the questions you need to ask yourself as you start your planning journey.
- Educate yourself and have a good record keeping.
Retirement matters, the jargons used, and pension laws can be overwhelming. As such, many people tend to ignore such conversations. The consequence is that many neglect their retirement planning and retire with insufficient savings. It is important to educate yourself about the rules of your retirement fund, relevant pension laws, and other applicable laws in the country. Good record keeping is also an important hack. Make sure that all your documents such as benefit statements and beneficiary nomination forms are kept safely and are up to date.
George Foreman put it beautifully when he said, ‘The question isn’t at what age I want to retire, it’s at what income?’. Personally, I believe good retirement planning also takes care of the post-retirement activities. What type of retirement do you want to achieve?
For more information, contact the Employee Benefits department at Alliance Insurance Company or visit www.alliance.co.ls. Likhomo!
