There is a number of ways one can use in approach this topic of financing your retirement but you have to take into consideration the risk weighting attached to each way. Some ways are quite risky and therefore, you have to select an option that will minimise the risk of losing all your savings and investment. You should therefore not gamble with your life and those of your immediate family members.
Why do we go to the labour market?
At the beginning of my career, I went to the labour market to offer my services in return for income that enabled me to pay for my bills that included food, rent, education, and self-improvement among others. I had to make a provision in my expenditure for savings and investment to accumulate funds that I am currently depending on to meet bills during the retirement period.
When do savings and investments start?
The savings and investment for retirement should start as soon as you earn your first cheque. It is never too late to start but the older you become the more demands you get on your income hence making it difficult to adequately save.
When does retirement start?
The retirement period starts when you stop receiving a salary cheque or any compensation for services rendered because you have retired from the labour market. The actual age for retirement will mainly depend on the terms and conditions of your current employer and the amount you have saved and invested in your retirement plan.
Rules for spending income from labour
I propose setting up rules of life that will guide you in spending your labor income on various expenditure items including your improvement and financial stability. Remember you are the cash cow and therefore you have to take care of yourself to ensure that you have the capacity to generate income until the creator recalls you from this world. Therefore, your first rule should be to enhance your capacity to earn income whether employed or not. The guidelines/rules for spending my income from employment were as follows;
|Food, rent , leisure and other household items||50|
|Education of household members including self-improvement||20|
|Savings and investment||20|
From the above 70, 10 and 20 percent of the income was spent on family, community and savings and investment respectively. It is important to include a rule to guide you on what steps you should take when you break your own rules. I have a carrot-and-stick rule for myself.
Savings and investment
Savings is the amount of money you set aside from your current income for future use especially during retirement when you do not have a regular salary or income from employment. Investment is the practice of turning your savings into assets that have preferably both the potential of generating income and growing in value over a period of time. The aim is to have adequate assets during your retirement period that will give you adequate income to fund your bills.
Somehow you have to decide on your lifespan or expectancy as both your assets and income accumulated in your retirement scheme have to be spread over your lifespan. You have to manage the risks of overstaying your assets or living longer than them. For purposes of example let us assume your projected lifespan is 85 years and you plan to retire at 65 years when your accumulated saving and investment are standing at Uganda shillings 3 billion. The 3 billion therefore will spread over 20 years (85-65) giving you access to UGX 150 million per year. The amount to be accessed may be adjusted in case of any adjustment in the life span.
It is advisable to build your capacity in the planning and management of your retirement investment portfolio. However, it is extremely advisable to engage an expert for advice in areas you may not have update information. You should not t take any uncalculated risks in areas you do not clearly understand as you could easily make a wrong decision or be prey to fraudsters,
Areas to invest
It is advisable to spread your savings over various assets that will preferably earn a return and grow in value over time. The distinct types of assets available in Uganda include the following among others;
- Government treasury bills and bonds
- Shares in listed companies
- Fixed interest-earning deposits
- Interest earning cash
Your investment approach will mainly depend on your risk appetite and the degree of liquidity you wish to include in your portfolio. Liquidity refers to how quickly an asset can be sold on the market without incurring substantial losses.
This article highlights issues I have considered when preparing for my retirement plan on the farm and should not, therefore, be taken as professional advice to the reader. The issues have to apply to your particular situation before being adopted.