Retirement is something that we all wish for. Whenever the topic of retirement comes up, we imagine ourselves on a beach somewhere sipping on cocktails on a warm sunny day or playing sport at a country club. The reason why we fantasize about retirement is that we are forced to start work early. An adult is expected to either leave home or find a job at the age of 18. Studies show that an average human being spends close to a third of their lives working. It is for this reason why most simply can not wait to experience that side of life.


As much as retirement might sound wonderful, there is a lot to consider before the day comes. When we are still working, we can rely on our paycheque. If we make poor financial decisions the month before, we know that we can recover in the coming months. However, with retirement, the situation is not the same. I believe that a large percentage of the population does not have such funds available for them to enjoy retirement life. They will eventually have to survive on grants or welfare for them to get by. Individuals are urged to put a lot of thought into retirement planning early so that they do not suffer in old age. There are various ways in which this preparation can occur, and I am going to highlight these measures below.


Pension Funds

Many companies offer their employees pension benefits. The employer signs up for a pension fund in their particular field and contributes a certain amount towards the employees. The employees’ in-turn contribute a certain amount of their salary towards this fund. The benefits from the fund will accrue to an individual upon retirement or some upon disability.


There are two major forms of pension benefits, namely prescribed benefit funds and defined contribution funds. Prescribed benefit funds set out how much we as employees receive upon retirement. Some of the factors looked at include the contribution as well as the years we served on the job. Prescribed contributions, on the other hand, state how much the employer and employee both contribute to the fund.


Upon retirement, individuals have the option of either getting a lump sum or a portion of the fund. When an individual elects to receive the accrued benefit as a lump sum, there are some tax penalties attached. This is done so that we do not go for this option as some individuals with poor control can spend the money quickly. The other option is to get a fraction of it as cash and the rest of it to be invested into an annuity. I am of the opinion that this option is more favorable because it not only attracts less tax but also ensures that the retiree is looked after for a long time.


Volunatry Annuities

For those with more disposable income, purchasing a voluntary annuity could be beneficial. A voluntary annuity can also be bought by self-employed individuals that do not have an employer-employee relationship. Voluntary annuities are highly regarded because of their tax benefits. An annuitant does not get taxed on the contributions made to the annuity, and when their benefit accrues, they are only taxed on the capital element. Voluntary annuities are also favored by individuals because they are not as volatile as equities. I find that annuities are fairly safe, and annuitants rarely run the risk of losing their investment.


Individuals who purchase annuities either elect to receive the benefit for a specified period or until death. Voluntary annuities that pay from retirement until death are good because they provide us with an almost similar monthly amount as before retirement.



Investments are also another way to ensure that retirement becomes a joy and not a burden. It is of paramount importance that we do an analysis of our finances to figure out how much to spend as well as our risk appetite. When we figure out our risk appetite it becomes easier to make informed choices. If this is not done, we will end up investing in foreign currency or commodities when we can not handle such volatile markets. I strongly believe that retirement planning is something that should be undertaken well as it sets the tone for the type of retirement in the future.