Tell me, why save if no one knows what the future holds?

There is constant talk about issues that will affect my life more than 30 years from now, yet no one really knows what the future holds.

PHOTO | FILE | NATION MEDIA GROUP

What you need to know:

  • While in some developed countries retirement income in this vicinity is common, the same cannot be said about Kenya, whose GRR is less than half the rule of thumb.
  • Pondering financial security in your retirement is therefore worth your while.

Q. I recently attended a moving forum discussing the need to save for retirement. I am 26 years old. I contribute five per cent of my salary to the retirement fund, while my company contributes another five per cent. There is constant talk about issues that will affect my life more than 30 years from now, yet no one really knows what the future holds. This comes across as somewhat irrelevant. Should I bother about financial security in retirement at this time?

 

Research suggests that on average, Kenyans’ retirement savings are insufficient to meet their financial needs in retirement. This is based on a yardstick known as gross replacement ratio, a measure of the extent to which income from retirement savings can replace pre-retirement earnings. It is generally thought that a gross replacement ratio of 75 per cent of pre-retirement earnings is sufficient for a retiree. While in some developed countries retirement income in this vicinity is common, the same cannot be said about Kenya, whose GRR is less than half the rule of thumb. Pondering financial security in your retirement is therefore worth your while.

Inadequate retirement preparedness, especially in light of increasing life expectancy, may result in a population that is inevitably hurtling towards old age poverty and the associated social and psychological trauma. The disquieting trend, however, is that many individuals do not save sufficiently when they are economically active, a situation partly attributable to poor financial literacy. 

To avoid a blind plunge into retirement, it is important to understand what you will require for that phase of life. Taking a long-term view as you make your saving and investment plans for your retirement raises the likelihood of achieving financial security, peace of mind and a sense of control over your future. Many personal financial advisers recommend that you save between 10 and 15 per cent of your income for retirement, starting in your 20s.

Thirty years from now might seem distant, yet the years pile fast and the weeks never return. The voyage to retirement starts the day you start working, and so should your preparation for it.

While no one might be able to foretell your future, rest assured that life’s expenses will not desert you. To quote George Foreman, ‘The question isn’t at what age I want to retire, it’s at what income.’