HOW TO EFFECTIVELY SAVE FOR YOUR RETIREMENT

By Kelvin Mkwawa, Seasoned Banker.

Data shows that, as a society, (Tanzanians) have a spending culture – Bank of Tanzania (BOT) data in 2018 shows that our consumption rate is 62% of GDP – as opposed to a savings one. 

The majority of us (Tanzanians) have poor savings habit which affects our quality of life during our retirement. Most of us have conflicting priorities when it comes to affording our current lifestyle hence affecting our ability to save for our future/retirement. We are not wired to save enough for our retirement other than the mandatory savings (social security deductions) and this has to change.

But how much is enough to save for a comfortable retirement? A rule of thumb is that a retirement income equal to 75% of your final salary just before you retire will allow you to live comfortably in retirement. 

The best financial advice is to always start saving as early as possible. But that is easier said than done as life tends to pass by as we try to build our careers, start and support our families, and strive to overcome life’s challenges as they come. So how can you do that? This week I will share a few tips that will help you to start your retirement savings:

• Set Clear Goals & Seek Advice – Before you can even think about starting to save for retirement, it is important to get a clear picture of what you want your life to be like after you retire. Thinking about where you want to live, what you will do with your time, and when you will retire will help you have clear goals. Once you have a clear picture of your goals, seek advice from professional financial advisors. A research conducted by one of the largest mutual funds in the United States found that people who hire financial advisors can improve their retirement savings by up to 31% compared to those who are not using financial advisors. This is because a financial advisor will work with you to determine how much you will need at retirement to live the way you want and will help you monitor your progress all the way through.

• Choose Your Investments Carefully – There are a variety of different retirement saving options based on your current financial situation and goals. For example, if you are starting your retirement savings late, you may need to consider investing more aggressively and vice versa. Different savings options have different terms, structures, interest rates, and requirements so it is imperative that you take your time to study the options before making any decision. The wrong saving option can have a significant impact on your retirement lifestyle hence the importance of carefully considering the options available cannot be underestimated.

• Increase Your Income – A very important key to saving is to earn more than you spend. Cutting down your expenses is one of a great way to find a little extra money to put towards your retirement. Once you’ve made some reasonable cuts, it’s time to focus on finding ways to increase your income. There are different ways to increase your income: you can ask for a raise at work, or you can apply for a job that offers better benefits, you can take a second job (if your current job allows it), or you can look into starting a side business. All the options I have mentioned here are to help you earns extra income so you can save more for your retirement. Hence whenever you earn extra income, prioritize it towards your retirement savings. 

To summarize, I believe the failure to get into the habit of saving regularly is one of the biggest reasons why most people don’t become financially secure. If you don’t have a saving habit, then you need to develop it to give yourself a chance to save for your retirement. I shared a few tips that will help you to start saving for your retirement: set clear financial goals, choosing your investment options wisely, and seeking additional income. Persistence and discipline is the key to saving, and hopefully, the tips I shared in this article give you a better understanding of how to save for your retirement.

Written by Kelvin Mkwawa, MBA
Seasoned Banker
Email address: Kelvin.e.mkwawa@gmail.com