I read an article in the local papers recently about the head of the armed forces advising his troops on the importance of planning for retirement. The rest of his comments resonated with what I have been trying to put across in my previous reflections. I know that sometimes, I run away in a conceptual dimension and in the process lose some ideas along the way. But I believe that concepts are tools that cut across local practice and present the principle of what is being communicated.
Well, what did the general say?
He talked about planning. Don’t find yourself in retirement like it was a sudden bad dream. You have had at least 25 years to get here. Planning is critical. Think about your situation and how long it will last. Jot down some ideas about where you would like to end up. On a farm rearing goats?? The easiest option, but at least let the farm be fairly mechanized/ organized to reflect the time, effort and resources committed to it to make such things possible. Ok, share the ideas with your husband/wife and/or children and close family members. This is critical for support. You may, from time to time, veer from the route through inertia or waning interest and it is the family who will remind you of your long term plans. There is a proclivity in some cultures to hide plans, especially from the wife because she might engineer your demise and run away with the wealth.
The general lamented about people running away from their families when in retirement. Remember this is the honey pot they have toiled over for 25 years and lived through the austerity with the promise of riches at the end of the rainbow. At times, these people have been abandoned because for some flimsy reason, they (the wife and kids) have not been supportive enough and therefore, go away and practically start afresh with new wife and new kids! Commitment is important to those who have stood by you all this time. New wife and kids means new objectives and this may mean money being spent in a completely new way leading to its quick depletion and then poverty and early death.
The general hinted on empowerment, that this should not be ones only source of income. DIVERSIFICATION people!!! While you work and wait for the honey pot, try your hand at other things. Again this should be a family endeavor with your partner and close family…if they are supportive that is. The idea is to learn early what works and what does not. It is an opportunity for learning new skills, new mindsets and creating a support system you can rely on. It is an opportunity to re-align oneself to newness, new ideas, hopes and dreams. It is very important to keep dreaming and keeping your prospects alive. Do not stop speaking about it, discussing it with those who are close until the dream becomes a reality.
The general also spoke about sustainability of self and family through measured expectations. A pension, no matter how generous cannot replace a salary. In my many years in financial services, I have witnessed on an escalating level, attempts at pushing pension payouts to almost restore one to their level when they are in full employment. Some of these acts include pumping up salaries shortly before retirement, very generous defined contribution formulas to meet these expectations and other conditions.
The pressure is transferred to employers and pension funds managing these schemes to meet these pay ups. Meagre resources must be diverted to meet actuarial deficits to pensioners who have been promised paradise through their membership. Ultimately, there is a skewed allocation of resources to the same people, to the detriment of expansion that leads to growth and more equitable distribution of resources. It is not sustainable in the long-term and I must say, some of this responsibility must be handed back to the individual. This is the beginning of empowerment.
There are many challenges to the pension debate but the answers lie in what we do before that date. What and how are we accumulating other resources to supplement the pension which luckily for some will be a constant stream until we die?? Ultimately the buck stops with you and me. Like a bad coin, this question keeps coming back up.
It was with this article in mind that recently I had the opportunity to start this conversation with someone young, newly employed and looking 20 years into the future who asked me, how can I prepare for financial freedom?
Look out for: Planning for financial freedom.