Sunday 24th September, 2006


Preparing for retirement

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In Japan and Europe, longevity statistics predict a startling trend: over the next 20 years, more than 30 per cent of the population in those countries will be retired. This has precipitated a new urgency to fund retirement.

The majority of these seniors will depend very heavily on the government’s social programmes and experts believe that in these developed countries, citizens will face plummeting levels of public services—and soaring taxes according to the McKinsey Quarterly.

There are thinkers who believe that developed countries more often than not, have become developed as a result of global labour, exploitation and expatriation of natural resources.

So where does that leave seniors in a developing country such as ours? It seems we may have to get busy following the same example as the developed world, or reinvent something. Since the former is still unlikely, that leaves us with reinvention.

If we fail at pro-activity, there may be an epic juggling of needs of the young, against the needs of seniors.

From the level of the individual in our society, the choice has to be action learning. We now have to learn on the run about saving and reinvesting, and we need to develop some new and innovative rules of the game.

There is value in the new action learning. The first basic principle: you have to save a fixed percentage or quantum from every bonus, lump sum payment, or unexpected receipts. It may be the only legitimate way to meet and beat the looming social crisis.

Conventional savings programmes are not meeting the needs, and welfare programmes are going to force higher taxes on us and squeeze public sector welfare, and public services, sooner or later.

The end of year is usually bonus time in the life of employees. Even small companies pay a Christmas bonuses. Many people, who benefit from these lump sum pay-outs cannot even remember what they did with it.

So here’s the deal! Never consume, or spend all your bonus, whether it is one month’s pay, or a percentage of profits. Always put away some. Don’t put it where you can draw it out. Put it where you cannot touch it, without a penalty.

In light of the demographic and ageing trends, put it away in your retirement programme.

In the US, financial advisers are urging that all working persons, should max out their credits and deductibles in annuity palms, IRA’s, and long-term savings plans. They urge individuals to save small amounts every month.

But what creates a ballooning or a mushrooming of cash assets is the discipline to put aside, for at least ten years, approximately 20 per cent of every lump sum payment, gratuity, etc that comes your way.

Yes you can spend to enjoy something that you’ve always wanted, but you can have almost as much fun on $20,000 vacation as you would on a $40,000 trip! And what is more, you will always feel less guilty about consuming $20,000 as opposed to $40,000.

In fact, local laws make it attractive to pass your bonus tax-free directly into a retirement plan.

Typically, when you draw and spend your bonus, you loose 25 per cent of the money, just for making that decision. Because then it is exposed to taxation.

So what’s the deal? Can you move in with your children’s family when you get older? And does the Centre for Strategic and International Studies’ argument that 12 per cent of GDP will be necessary to fund retirement benefits, mean enough to you?




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