If you are financially prepared and physically healthy, retirement can last for a long time. The different stages that make up your retirement have different expenses and require distinct approaches to budgeting. Even with a shorter retirement, you will go through the same stages, just in a packed time frame. Here is what those stages look like and how to handle your finances accordingly.
PERI-RETIREMENT – 50 TO 55
If you are not planning to retire early, Peri-retirement is the stage just before retirement. You are still working, but retirement is in the near-enough future that you are finally getting a clear picture of what your nest egg, income and expenses will look like. You are also getting closer to figuring out what you will do with your days once you are free to fill them as you please. What seemed merely theoretical earlier in your working life starts to seem real. We put age 55 on it, the age when people first qualify for reduced Social Security pension or payments. But you might retire at 60 or keep working up to age 70(for some categories of workers e.g. Reverend Ministers, and others).
At this stage, you should assess what your likely income and expenses will be once you are no longer in the workforce. What will you receive from a pension or Social Security? What is the balance in your other retirement plans like the Tier 2 and Tier 3(according to the new Ghana Pension regulation, Act 766). Will you have paid off your mortgage or other long-terms already, and if not, how much will you still owe and for how long?
You may be in a strong enough position to seriously evaluate whether you can afford to retire early. Your employer might want to downsize, if the need be, and you might find yourself considering whether to accept a buyout or an early retirement offer?, or be forced to accept one. If you run a family business, as a part-time job, this is a good time to create a succession or “take-over” plan. And if you are not where you want to be financially, it is a good time to work more, change jobs or actively pursue a promotion so you can earn more and save more for retirement while you have the chance.
Peri-retirement is also a good time to re-evaluate your monthly and annual expenses and cut back on costs that have crept up over the years to eliminate any wasteful spending and give your retirement budget some breathing space. Also, at this stage (as well as, possibly, the early stages of your retirement), you may still have major expenses like putting your kids through college, making a down payment on a home or paying for other plans. Finally, you might want to replace your usual vacations or annual-leaves with trips to places you have envisioned yourself moving to during retirement.
EARLY RETIREMENT – 55 TO 60
Some of the biggest changes in your budget will occur when you first retire. You will no longer have a steady paycheck from your employer, unless you get a pension. You will need a plan for managing your income during retirement and you will need to decide when to start claiming Social Security benefit. Mind you!, if you are not 60 you will be going in for reduced pension; and this is where you will have to benefit from your other streams of income if you had already started your investments(running a home business, and others like stocks, mutual funds, CDs & Fixed Deposits and money market instruments e.g. Treasury Bills).
But even, let me state that the Social Security & National Insurance Trust(SSNIT) has made it possible to start putting your final SSNIT account in order, that is, getting your “Blue Card” at latest age 55, so as to make it easy getting paid immediately you proceed on pension. You will also no longer have employer-sponsored health insurance or medical care, as pertains in some companies. Make sure to plan for how your spouse and any dependents will get health insurance if they are on your health plan.
You might also want to buy long-term care insurance from these privately-run mutual insurance companies if you have not already. Please note: DO NOT RELY TOO much on the National Health Insurance Scheme (NHIS), as in most cases it is not reliable.
You may be tempted to go on a spending spree at this early stage of retirement: You will have lots of free time and you will likely still be healthy and energetic. In this honeymoon phase, you might want to buy that nice car you have always imagined yourself driving, take an extended overseas vacation, or be engaged in other expensive activities. Hold back: You can quickly blow through your savings if you treat entering retirement like winning the lottery, with your retirement benefits; and before you know you are doomed.
One way to manage these new expenses is to take a part-time or seasonal job, start a business that gives you flexibility in your hours and location, or let yourself indulge for a while before jumping into a new career – the one you could never get into before because it did not pay enough. Earning GHC40,000 a year does not cut it when you need GHC60,000, but once you have retired, it looks better than earning nothing, and at this point it is more about personal satisfaction. You can also balance the expensive activities you want to spend time on with inexpensive or free ones: Engage in volunteering jobs; to help your community and for your own satisfaction. Use this time too to be fully committed to church and other religious activities if you had not done so in the past.
This might be the time to move somewhere more desirable now that your job no longer ties you to a certain location. There will be costs associated with moving, as well as possible other costs. Have you ever dreamed about retiring in the city, or, wherever? Depending on the cost of living where you currently reside versus that where you are headed, moving could be a boon to your financial situation – or a major belt-tightener.
MIDDLE RETIREMENT – AGES 60 TO 80
By middle retirement, you will be receiving Social Security benefits. Now is a good time to reassess your asset allocation, if you are not in an investment that does this for you. During this time you MUST have most of your investments in very liquid forms i.e. T/Bills, Bonds and mutual funds, to some extent; and not forgetting your emergency funds in your savings account. Please note that this time is NOT the time to be running a current account at the bank, except where the business you now engage in demands that. Ghanaian Banks are, nowadays, even “eating” slowly into Savings Accounts by way of various bank charges(including VAT on financial transactions and card services), let alone if you have Current Account. Some Banks will, even, definitely run your account, be it Savings or otherwise, to zero balance if you do not seek proper financial advice from experts. A typical example is where charges on my own Savings Account, with one of these Banks in Ghana, are 300% more than the interest l receive on quarterly basis. This Bank in question, will NOT reward you with even one Ghana Pesewa if your account balance falls below GHC 500 for the entire life of your account. I still hold on to them because of the efficiency of customer service; and because l am a shareholder of their listed shares for in the long run these deductions come back to me, in the form of dividend payments.
In addition to receiving more income in this stage, you might be tired of some of the travel and new activities you pursued during early retirement, so your expenses might decrease. You might be in the mood to stay home more, or your travel might be centered on inexpensive trips to visit your grandchildren. With luck, your kids are established enough in their careers that they no longer turn to you for their survival; except where you did not marry in time and, therefore, still have your children in schools and colleges/universities. In addition, you probably are not paying for term life insurance anymore: These policies typically expire when you turn 60.
You may have created a will or estate plan when your children were young because you wanted to make sure they would be taken care of if you and your spouse died simultaneously. Have you updated these documents since then? While you are still healthy and mentally capable, make sure your will or estate plan is in order so your money and assets are distributed the way you want after you pass away.
LATE RETIREMENT – 80 PLUS
In late retirement, you may have higher healthcare costs to treat a chronic condition or an acute illness. Medical spending tends to be highest in the last years of life. Some health insurance packages will cover some of your expenses, but you will still have out-of-pocket costs for further payments, deductibles, and/or prescriptions. You might have new expenses if you decide to move to an independent or assisted living facility or if your health means you need to move to a nursing home (as is the case in some countries); this, l vividly remember seeing a family friend couple (a retired medical doctor and wife, almost in their 90s, being pushed to the aged-home), or hire a home health aide. If you have long-term care insurance, it will ease the burden of any nursing-home or home health aide bills. Aside from a possible increase in healthcare costs, your other expenses will be similar in late retirement to what they were in middle retirement unless you make a major change, like moving.
You will want to reassess your nest egg and decide whether you should be withdrawing money at a faster or slower rate. Looking at what you have left, you will need to think about what you want to spend during your lifetime and what you want to leave to others. Make sure any charitable bequests are in place as some rich men in Ghana now do or practise.
Retirement is both an event and a process. In a best-case scenario, your savings will need to last three decades (up to your 80) or more, because of improved medical facilities and others. The expenses at each state of retirement are associated with how you choose to spend your time, where you decide to live and how your health holds up. If you take these factors into account and evaluate how they will change throughout your retirement, you can plan and budget accordingly.
Wishing all readers of this piece a happy retirement planning and budgeting. Stay blessed; and, please, take good care of your health, for a healthy living and long retirement.
Sam Bediako-Asante is the CEO of Sambed Consult, a Business, Management, and Investment Advisory firm. He is also an Investment Analyst, a former Banker, Professional Administrator and also presently an accredited SA Specialist of the South African Tourism in Ghana.
Sam is, again, a Global Consulting Expert at GlobalWonks Inc. USA, and a member of the Micromentor Group, USA.
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