Retirement – Financial planning (VIII)

 Today, we will begin to take up some of the investment options that may be considered by individuals in phase II, which we defined as years ‘11’ to ‘30’ of a person’s business or career. Again, we need to keep in mind our sweeping definition of ‘investment’ for our purpose.  The second phase we are […]

 Today, we will begin to take up some of the investment options that may be considered by individuals in phase II, which we defined as years ‘11’ to ‘30’ of a person’s business or career. Again, we need to keep in mind our sweeping definition of ‘investment’ for our purpose. 

The second phase we are looking at now is a stage in which persons get sufficiently competent in their professions and businesses; good relationships are formed, and, from its beginning, individuals begin to build up sizeable personal fortunes. For those in business, continuing to build on their successes should remain their focus. For those working as employees and professionals, their challenge should be to continue growing the investments they started making in the first phase. If they are interested in going into business, they should have started in the early parts of this phase or do that now. Future business success would demand that they build practical business understanding, mindset, and thick skin required to navigate an exciting but also tough field. Specifically, the following are relevant: 

The ‘right’ guiding principles: We have mentioned that in the first phase, we need to cut out financial waste and get value for our spendings and investments. The same principles and discipline should be maintained in this phase. After all, the quantum of spending and investments are now likely to be higher so the costs of any errors will be correspondingly higher as well.

Over the last few decades, our society, like all societies, has been undergoing a flux of transformations. Some of the transformations are good and we are all beneficiaries, while the consequences of others are undesirable. Socio-economic and political developments are continuously evolving locally and globally. Seemingly ‘little’ issues in distant parts of the world reverberate across the globe in intricate ways. Changes in local regulations throw in threats or offer opportunities to what we can do or have been doing.  

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Particularly at this stage, but of course, at all stages, it is important for individuals to be aware of the impact or likely impact of everything that is happening or may happen around us. Beyond this understanding, we need to know how to respond wisely and chart a path of success for ourselves. To be able to do that, we must continuously build our interest and knowledge in economic, business, and political affairs for the purposes of seizing opportunities and/or containing threats to our investments. The personal financial principles we build on our knowledge (or lack of it), and which we hold dear and live by are key to what we can achieve in life. It is important to get them right. 

Defined contributions plan, again! Regardless of what we do and at what phase we may be in, a minimum and common that we can all do is to latch on to the scheme that is appropriate for us within the PRA 2014 as regulated by the National Pension Commission. This is a pension scheme we can participate in that is almost ‘effortless’ on our part. 

Agreed, the defined contribution scheme comes with its environmental and operational issues, but it is a significant improvement over the defunct defined benefit plan. One argument that some people make against the current scheme is to suggest that what beneficiaries get after retirement falls below the real value of what they contributed. I think this conclusion is rather simplistic and hardly exhaustive. As mentioned earlier, if we were all allowed to voluntarily opt out and plan our pension schemes individually, many of us may end up working for thirty-five years but have nothing to fall back on. This may happen to many people for two possible reasons; First many wouldn’t just plan at all. Some of those that ‘plan’ will not do half as well as the regulated scheme is now doing! The point is that the current scheme may not be perfect; it may not even deliver the best results possible, but it is better than not having anything, and as I said it is almost effortless on the part of beneficiaries. Besides, and this is important, nothing precludes us from making additional private plans, which is what this column is essentially about. 

Moonlighting: There are restrictions for some employees as to what business they may be engaged in, if at all, and how they could go about them. On one hand, it is quite understandable that employers expect loyalty and full commitment from their employees for the contractual time, effort, and results the employees should put in and deliver. On the other hand, business by nature desires full attention. The concern that engaging in other businesses may distract employees is, therefore, valid. Yet, some prior experience is required for employees to stand a good chance of success in the businesses they may subsequently go into. 

I have no doubt that my personal experience engaging in private businesses when I was a paid employee in the private sector made me a better employee than I could have otherwise been. I got to understand the pains of businesses that patronised my employers because I was probably suffering the same as a businessperson. Engaging in my businesses made me more creative and practical in coming up with solutions to issues that my employer faced. Besides making money, it also made me a lot more resolute, objective-driven, and confident. All these showed because I got rapid promotions and had no issues with my employer whatsoever. Nonetheless, we need to strike a balance between the two opposing demands. 

Next week we will continue with how, in my opinion, those who are allowed by the terms of their employment, could moonlight fairly and correctly.