Many Ugandans grossly underestimate how much they will need to retire. Part of this obliviousness is due to a lack of understanding of what it will really take to retire comfortably meaning that even those who think they are prepared for retirement are not able to justify their preparedness.
Apart from millennials aged between 22 and 34, the cohort closest to a financial turmoil is Generation X (GenX).
Ugandan Gen Xers, who range between 35 and 54 years, are well aware that they should be saving and investing more for retirement but are too muddied in outstanding bills and debt and find it easier to prioritise other things other than saving for retirement.
Long-standing, millennials have been highly stereotyped as the age group that is reckless with their money, takes on more debt, have a “you only live once” mentality and lack financial stability.
Deviating from the general opinion held that millennials mostly want to consume rather than save and invest in a 2018 Retirement Confidence report conducted by Enwealth Financial Services and Strathmore University which found that millennials are keen on saving for their retirement but they do not put their money in retirement benefits schemes opting to alternative investments.
By contrast, many Gen Xers who are currently in their peak earning years remain shell-shocked from the strains of their financial obligations such as caring for children and ageing parents, not to mention the sky-high cost of living.
The hard reality is that the vast majority of Gen Xers start planning for retirement later in their working years or sustain a lifestyle without having any strategy to channel their professional successes into better planning for their future.
It explains why pension coverage in Uganda stands merely at 10 per cent. In other terms, 90 per cent of Ugandans do not have a penny saved for retirement.
The few that have saved have either have their money tied in plots of land that cannot easily be converted to the cash needed during retirement, businesses which can collapse or in bank accounts earning close to nil interest.
Due to advances in the medical field, people are now likely to live longer than they planned, hence risking outliving their savings. This puts even the few that have been saving at risk of outliving their savings and poverty in old age.
The Retirement Confidence report already established that only 1 in 7 Ugandans is confident that they will outlive their retirement savings.
This paints a dismal picture by Gen Xers whose lack of saving flies in the face of the expectations to retire between 50 and 60 years old, own a home and have a monthly income. This shows why most people would be willing to work even after age 60 at the expense of rest.
In the public sector where more public servants are approaching the mandatory retirement age of 60, the country is left grappling with a ballooning pension bill.
For a very long time, signs have been displayed to show Gen X that they can no longer rely on government social security benefits alone to secure a comfortable retirement.
Most financial advisers agree that the easiest way to ensure a comfortable retirement is to start saving early and let the power of compound interest work overtime. But currently, a large number of Ugandans are way behind when it comes to achieving financial freedom.
However, it is never too late to get started or improve retirement readiness. The reality is that many Gen Xers will need to make “catch-up” contributions to enable them to stash away enough money to sustain them through their golden years.
With the help of a financial professional, a 40-year-old can retire comfortably by contributing more to tax-favoured retirement schemes which could potentially make a significant difference in their retirement nest egg.
Authored by Bancy Kaleli, the Pensions Consultant at Enwealth Financial Services.