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Retirement Planning Starts Now

written by Mimi Esi Acquah April 4, 2022
Retirement Planning Starts Now

With reference to 2019 SSNIT data and the 2015 Labour force report, only 10.5% of Ghanaians aged 60 years and above receive pensions. For those who are “fortunate” enough to earn pensions, about 78% receive GHS1, 000 or less with only 1% receiving GHC 5000 or more. It is not surprising that most Ghanaian retirees struggle to maintain a comfortable lifestyle throughout their retirement. Unfortunately, women are more susceptible to this phenomenon due to relatively lower pensions coverage and retirement savings (resultant from fewer years in the active workforce and lower earnings) as well as a higher life expectancy.

Ideally, Retirement is a period during which you cease working for money. It is also a period for pursuing unfinished life’s goals. At this point, you should be living on income from the assets you have accumulated during your active years.

Your desired retirement outcome is your responsibility and not the responsibility of the government, your employer, or even your children. Don’t leave your retirement to chance. To achieve a comfortable and stress-free retirement, planning is key. Being deliberate and taking small but consistent steps over a period of time will go a long way to help you achieve financial peace of mind at retirement.

To start the retirement planning process, determine how much is enough to ensure a comfortable retirement. This magic number is influenced by how long one lives after retirement and the desired lifestyle at retirement. A financial planner can help you determine this figure.

Now that we know how much you will need for your retirement, the next question is where is the retirement income coming from?

For many Ghanaians, pensions and lump-sum payments provided by the three-tiered pension scheme is a major source of retirement income.

The First Tier is the Basic National Social Security Scheme for all workers in Ghana.  It is a defined benefit scheme and mandatory for workers to have 13.5% contributions made on their behalf by employers.  The contribution is managed by SSNIT. Your tier 1 will provide you with a monthly pension. To qualify, workers who have contributed for a minimum of 15 years have the right to 37.5% of their average best three years’ basic salary as monthly pensions when they retire. Every additional year beyond the 15 years attracts 1.125% in addition to the 37.5%, however, you can’t go beyond 60 %. You can visit the SSNIT website to try out their calculator.

The Second Tier is a defined contributory Occupational Pension Scheme mandatory for workers with a 5% contribution made on behalf of members by their employers.  The contribution is managed privately by approved Trustees. The second tier will provide a lump sum benefit upon retirement. This constitutes your contributions plus your investment gains or losses.

 The third tier voluntary provident fund and personal pension schemes enable you to make tax-qualified contributions to provide additional funds for workers when they retire. Provident funds are employer-facilitated. If your company has a provident fund, take advantage of it. The personal pension plan is for individuals who want to make voluntary contributions to enhance their pension benefits and also for workers in the informal sector. The tier 3 schemes provide a lump sum benefit just like I explained with tier 2.

It is important to note that pensions benefits are based on your based basic salary NOT Gross. A huge take-home salary (with juicy allowances) is NOT equal to huge pension benefits.

Other sources of retirement income may include rental income, business, gifts from children, etc. I recommend that these sources complement more guaranteed benefits provided under the 3 tiered pension scheme.

If you are behind on your journey towards the retirement you dream of, don’t lose hope. Create room in your budget for additional retirement savings by reducing your monthly expenses by a little or increasing your income and allocating it to the personal pension plan. Saving for your retirement is long term plan, if you start early, you can accumulate so much with little but consistent monthly contributions. For example, if you contribute GH¢ 100.00 monthly for 30 years with an average interest rate of 18%, you can accumulate about GH¢ 1.4 million even without increasing your monthly contributions. This is possible because of compound interest.

To stay on track, check all your statements regularly, follow up to resolve any issues and monitor your progress towards your retirement goals from time to time by using our retirement calculator. As much as possible, avoid early withdrawals. Have an emergency fund as well as other short-term and medium-term investment account(s) to sort out other financial needs you may have.

Mimi is a financial advisor and a financial literacy advocate . She believes that every individual can achieve financial freedom given the right knowledge and skill set. This belief has led her to aggressively pursue the financial literacy agenda within and outside of Axis. She also helps individuals with pre and post retirement planning while providing comprehensive financial advise. Mimi has been with Axis for the past 8 years. She currently works as the Team Lead for the Financial Planning Department. Prior to that, she was the Branch Manager in charge of sales in Greater Accra, Volta And Eastern Region. Mimi also founded and volunteers with Money Convos GH, a movement that seeks to promote financial literacy and personal finance management. She has an MBA from Webster University and Bachelor of Science degree in Banking and Finance. She is a Certified Financial Education Instructor. When she is not talking about personal finances, she loves to spend time with family and watch movies.

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