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Case Study: I Did Not Plan For Retirement

Do you have a plan for retirement?

I remember a conversation with a former manager a few years ago about retirement. Back then she was in her early fifties and looking ahead to her retirement in the next fifteen years (at that time.) After I told her that I was going to sign up for a registered retirement savings plan (after a gentle nudging by my mother), she congratulated me for taking that step. When she was my age, she never thought about saving for her retirement. And back then, no one really talked about how to plan for retirement.

Funny enough, it seems that many people still do not think about or talk about what will happen after they finish work. And this means that they do not plan for retirement. Many are contented to work and contribute to government pension programmes, and collect the funds at the end of their work life. It’s true that some can survive on what they receive from their government funded pension. They might have paid off their major expenses such as mortgages and car loans. But others who might still have these expenses to pay might find it difficult to cover them from month to month.

I came across someone who did not plan for retirement. She is a family member of a friend and she is struggling to make ends meet. This case study highlights the need for retirement planning and anticipating one’s needs after retirement. It will identify a few of the steps that you can take to prepare for that period in your life when you will be receiving a pension which will most likely be less than your salary.

Meet Joan

Joan grew up in an extended family – surrounded by her mother, brothers and sisters, cousins, aunts, uncles and grandparents. She attended a primary school that was close to her home until she was ten years old. After sitting the common entrance examination, she entered secondary school where she excelled. Joan was a hard worker and she achieved five ordinary level certificates. On completion of secondary school, she got her first job working at as a shop assistant in one of the neighbourhood shops.

She was able to contribute to her large household and buy the things that she needed, even though her pay was not a lot. Joan was good at mathematics and accounting, and she yearned for a job that was more challenging than the shop assistant job. Soon enough, she was promoted to the position of shopkeeper, because the owner of the shop, Ms. King, had fallen ill. She was an old lady who was not in the best of health, but pushed herself to keep the shop open. When her health took a turn for the worse, she was forced to hand over the running of the shop to someone else – Joan.

A New Position

Joan saw her new position as a step in the right direction. As shopkeeper, she was responsible for ensuring that the shop was running efficiently. She had to order stock, manage stock levels, use profitable pricing strategies and maintain records of all of her transactions. Joan had several tasks, but she enjoyed her job and the accompanying responsibilities. The shop was doing well, so she decided to diversify her products by adding new items and additional brands.

Although the shop business was booming, Ms. King was not. Twelve years after Joan started handling the shop, Ms. King passed away. She had one son who lived overseas and he immediately put the shop up for sale and later approached Joan with an offer to buy the shop. The property consisted of the shop, an upstairs space and a storeroom. Joan was hesitant, but she felt that buying the property would eventually work out in her favor. After consulting with a loan advisor at the bank, she made a firm decision to purchase the property. She also included funds to expand the shop because she was running out of space. She had started selling additional products and she needed additional display space. She also hired a shop assistant to make the shop more efficient and assist with some of the increasing tasks.

Unforseen Expenses

Joan still lived at home with her elderly mother and was her primary caregiver. Her family including her brothers and sisters had all left home, but she had remained. As her mother aged, Joan had to enlist the services of a day nurse to look after her. Her mother was suffering with dementia and required constant care. This was an expense that Joan bore on her own, because her siblings were not willing to help. They claimed that they had their own bills to take care of. Her savings were slowly being depleted, but she did not mind because she felt it was her duty to give her mother the best care possible.

Pension had not crossed Joan’s mind and she did not plan for retirement. She assumed that she would keep saving her money and hoped that it would be enough for her to survive on. She had no children and her only major commitment was the mortgage for the shop, which was doing well. Her mother, whom she was extremely close to, passed away just shy of her 82nd birthday. Joan had to foot the bill for her funeral on her own, because once again, her siblings refused to help. Her mother did not have any savings of her own, so Joan was forced to resort to her savings.

No Plan For Retirement

Joan knew that she was getting older and working hard was taking a toll on her body. She was approaching the age of sixty, but now she is extremely worried that she will not have enough money saved to retire at sixty-five. She was not saving for retirement, thinking that her savings along with the government’s social security plan would be enough. However, she realised that she would barely be able to make ends meet.

She did not take her mortgage into consideration. She still owed another fifteen years on the loan and the shop’s earnings were not what they used to be. To continue paying the mortgage meant that Joan would have to work until she was at least seventy-five. And the funds from the government social security would not be enough to cover what she owed the bank. The thought of not being able to survive weighed on her heavily and kept her awake many nights.

Joan’s Options

Facing unexpected challenges, Joan has to decide what she should do next. She could rent the shop to a third party, sell the entire property and pay off the mortgage; renovate the property  and turn the vacant shop space into a rental home. She has decided to meet with an independent financial advisor to get some solid advice.

Her words of advice? Plan for retirement! Her biggest mistake was not saving for retirement from the time she started working at the shop. She also said that before you think about getting a mortgage, assess the length of the payback period. If it takes you well into your retirement years, just say no!

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