How prepared are you for the day when your employment or business income ends?

Don’t worry, this is not another lecture on the importance of saving for retirement, we all know it’s important, our parents and financial advisors told us.  For most of us, our minds occupied with raising a family, paying a mortgage and building a career it was easy to forget about preparing for retirement. Pension plans and annuities were the last things on our minds.

The problem is that those years from being a busy 30 something year old parent, home and career builder to a 50 something empty nester fly past like the wind. Suddenly we wake up to the fact that 65 or whatever retirement age we are facing is just around the corner.

The wise few amongst us will have been investing over the years. Others may be entitled to a pension from a business, commercial employment or government service. Many others, through circumstance, poor planning, lack of financial discipline or plain bad luck will suddenly realise that we are unprepared for the day that our incomes from our regular employment or business activities stop.

Many of us who did make some attempt to prepare for our old age have become victims of inflation and currency devaluation. I have personal experience of this and I know that huge numbers of baby boomers could tell similar tales.

When I was in my early 30′s and employed by a large company in South Africa, I sensibly started paying in to a Retirement Annuity plan. This had tax advantages comparable to a Canadian RRSP or similar retirement plans in other countries. On leaving the company after over 10 years service, I was entitled to receive my contributions to the company pension fund. To prevent losing a large part of this to tax, I invested the lump sum into my Retirement Annuity plan.

At the time, conservative growth estimates indicated that after the large lump sum injection, this plan would provide an income sufficient to finance a moderate lifestyle from age 60 and obviously a slightly better income if I delayed the maturity to 65 or 70. The income would be even higher if I could continue my monthly contributions.

Now 35 years later, the South African currency has devalued to one tenth of what it was. Inflation has eroded purchasing power in most countries and in my case, I moved to North America with its higher cost of living. In real terms, the annuity I bought at the maturity of that plan gives me less than 10% of what I had originally expected. Although it is totally inadequate to live on, it still gives me a good feeling when the quarterly transfer arrives in my bank account. It makes me realise the wisdom of investing that lump sum in a good pension plan instead of sacrificing a large part to income tax and squandering the rest on consumables. Which is exactly what I would have done then!

Inflation and currency devaluations are facts of life. They will occur whether we save and invest or not. We have some flexibility in choosing where we live and where we retire which may either reduce these effects or even take advantage of them. As my experience shows, we are still better off by investing and saving for our old age than using inflation as an excuse for spending all our income.

My experience also shows the security of investing in a retirement plan with and purchasing an annuity from, a reputable insurer. Despite the chaos and uncertainty in the “new” South Africa, because my annuity is with one of the largest insurers, my investments keep on generating a return and my payments keep on coming.

Wishing you a secure and prosperous life.