The years you will spend in retirement are probably going to be more expensive than the years you spent working or running your business. A further complication is that you will probably have limited or no employment opportunities. Therefore, saving and investing for retirement is probably the most consequential financial decision you will make about your sunset years.

There are three distinct phases of retirement planning that describe the building, conserving, and spending down your retirement money. Across the phases, you should have a multi-pronged approach to save for retirement e.g. through a mandatory national retirement scheme (such as the NSSF in Uganda), employer-sponsored retirement account, and a personal retirement account.

Accumulation Phase: Saving and investing for retirement as a young adult

The first step is to start. At the start of your working life as a young adult, retirement is the last thing on your mind. Despite the pressure to pay rent, buy new shoes, pay off that debt from friends or relatives, we recommend that you start saving for retirement by setting aside a fraction of your income from the first cheque. Then continue consistently to save some of your income (either from salary and/or business income) until you have sufficient funds in your retirement account to last you through your years in retirement.

The second step is to figure out what those 20 or 30 years in retirement are going to cost and set that as your target. The aim is not to even think about retirement until you hit that magic number. The retirement decision should be driven by you reaching the target amount you need to finance your sunset years rather you hitting some arbitrary age set by people who have no idea what your financial circumstances are. Use the XENO platform to figure out how much retirement will cost and compute how much you need to save monthly to stay on track.

The accumulation phase focuses on building your retirement assets by saving and investing some of your earned income specifically reserved for retirement. The quality of life you will enjoy in retirement will depend on the money you saved, the investments you made, and the assets you accumulated during this phase. Your investment strategy in this phase can be aggressive because you have a relatively long-time horizon even if you might face short term losses in some of your investments.

Conservation Phase: Successful Professional/Business Owner

In this phase, the investment strategy changes markedly from aggressive to conservative since you cannot afford to take on a lot of risks. This phase should kick in approximately 10 years before your planned retirement date. Be sure to evaluate all your retirement investments, desired lifestyle expenses, tax obligations, any expected pension, retirement goal risk profile, medical and estate planning needs, and debt reduction before retiring.

It is important to determine whether you would like to maintain, increases, or reduce current standards of living bearing in mind that cost of living will increase due to inflation. It is essential to gain a sense of what you need to have in your retirement account to ensure you have a comfortable retirement. Check if your savings rate is sufficient to help you arrive at your desired account size. Also, your investment strategy should turn conservative as you approach retirement to emphasize capital preservation.

Drawdown Phase: Wise Retired Professional/Business Owner

The primary objective of retirement planning is to build an income stream that will replace your monthly income (from salary, business, or both) during retirement and eliminates old-age poverty. The drawdown phase starts when you stop earning income from your job or business. In this phase, you begin to reap the rewards of all your retirement planning and should expect to receive a monthly pension (if you qualify for one), and/or planned income from your various investments through an orderly drawdown plan.

There are two ways to consider the drawdown phase, depending on the question of interest. How long will your money last if you drew down a certain desired amount (e.g., UGX 2m) every month to finance the monthly expenses? Or what is the optimal monthly drawdown amount if you want your retirement pot to last the desired time (e.g., 20 years).

Keeping on track for retirement

XENO helps make smart retirement decisions across the by helping you construct a free retirement plan and drawdown strategy. The XENO platform can help you figure out the optimal monthly drawdown amount or how long your retirement pot will last you. In any case, do not make that decision blindly. You need expert guidance. Let us keep you on track.