The story of many Zambians in the formal sector with well-paying jobs who end up becoming destitute after their flourishing careers is not one which is unusual. A good number of citizens who had high earning jobs in their working days tend to find themselves struggling to make ends meet after their career comes to an end through retirement. With the coming of the new retirement age in Zambia, which became effective on 14th August 2015, the late retirement age in Zambia currently sits at 65 years. This then means that the average employee in Zambia who starts his career at the age of 25 after attaining a formal College or University education, has approximately 40 years to be formally employed before he can qualify for late retirement. This may sound like a long duration of time, but in our setting, this might not be the case as it may take one a long period of time to actually get employed even after having completed your College or University education.
As a person begins his career in Zambia, one has certain societal obligations that he feels he needs to fulfill. These may include things like owning a motor vehicle, owning the latest technology devices such as mobile phones and computers, dressing in the best outfits and fashions one can afford, buying a piece of land for residential, commercial or farming purposes, furthering one’s own education through post-graduate studies and last but not the least getting married. This is before an individual can make other considerations per our culture, which include taking care of one’s parents who raised you and got you to where you are, siblings that may still be in Primary or Secondary School or University, as well as other relatives that become dependent on you the moment you are formally employed. All the above-mentioned items do require a significant amount of money from this newly employed individual.
The average newly employed University graduate, earns a salary ranging between ZMW 3,000 to ZMW 6,000 per month. With current economic conditions and the increasing cost of living, a graduate employed in Lusaka will need to spend on average, of not less than ZMW 3,000 to meet his basic needs. The average decent two bedroomed flat will range from ZMW 2,500 to ZMW 4,000 depending on the residential area. That in its own means an individual will not be able to pay the rentals from his salary, on his own and may need to share an apartment with a colleague, reducing his monthly rental cost to ZMW 1,250 to ZMW 2,000 at the higher end. The two individuals will need to incur further expenses for utilities such as electricity, water and garbage services which may approximate to ZMW 500, a house help at a cost of ZMW 500, and monthly groceries and relishes ranging anywhere in between ZMW 1,000 to ZMW 2,000. In addition to this, the employee will also need to incur a transport cost to and from the place of work, which will average anywhere between ZMW 10 to ZMW 20 per day, translating to ZMW 200 or ZMW 800 per month depending on geographical distance to the place of work. In some other cases, the employee may need to buy himself a meal at lunch whilst at work, which then increases this daily spend. The addition of all these costs, shared by two graduates living together, amounts to roughly ZMW 3,250 per month (Rent ZMW 1,250, Utilities ZMW 250, house help ZMW 250, grocery and food ZMW 1,000, transport to and from work ZMW 500, average figures used). So, assuming a newly employed graduate earns himself a salary of ZMW 5,000 per month, this leaves him or her ZMW 1,750 as excess income, before considering other expenses such as Dstv, barbershop or saloon activity, clothing, weekend entertainment, friend’s kitchen party’s and wedding committees as well as church obligations. The individual will also need to budget for basic household items required to start his life such as a bed, Television set, refrigerator, chairs, Dstv, microwave etc. As can be seen from the above example, the monthly income earned in most cases will equal or be less than one’s expenses to be incurred for a month in order to be comfortable.
So, to continue with the above example, if the employee is to be prudent and disciplined enough, he could be able to save roughly ZMW 500 per month and still meet most of his monthly obligations. With the saving of ZMW 500 per month, the individual saves up ZMW 6,000 per year, and it will take him approximately 6 and a half years to save ZMW 40,000 to enable him to buy a decent motor vehicle and fulfil one societal expectation. Bear in mind that this 6 and a half years is taken from the 40 year approximated working life that this individual has to be formally employed. This then leaves him with close to 33 years to achieve all other things such as hosting a wedding, furthering his education if deemed necessary, taking care of his nuclear and extended families, buying a piece of land and building a dream house, all to be achieved before he qualifies for late retirement.
As the individual progresses in his career, his monthly income is also likely to increase and he earns a better salary. However, as time goes by, so do responsibilities and obligations. As now the individual is grown up, more mature, independent and respectable in society, family obligations are likely to take a toll on one’s income. These will include the fact that the individual is likely to be married and will now need to take care of his or her spouse, children’s expenses, school fees as well as other relatives who are not financially independent. The increase in responsibilities and expenditures thus reduces the effect of an increase in one’s salary and expenses are still likely to match the new increased incomes.
As this cycle continues and time passes by, many employed individuals only realize the need to save up for their retirement when it is too late and they only have a few years left to be actively employed.
THE PROBLEM
As per a Jesuit Centre for Theological Reflection (JCTR) report issued in August 2019, the living cost for a family of 5 in Zambia is currently estimated at ZMW 6,210. It is worth noting that this is as per the basic needs basket, which caters for items such as rent, electricity, water, charcoal, and basic foods such as mealie meal, beans, kapenta and does not cater for luxuries such as cheese, wine, and pizza which one may have become accustomed to during his working days. To continue with the same lifestyle and luxuries as when one was in full-time employment then increases your monthly budget after retirement, for a family of 5, to not less than ZMW 10, 000 per month. As a good majority of retirees will not be able to meet this expenditure, this then creates a problem for a retired person as he will have to suffer significant lifestyle changes and drop off a majority of things that he used to do when he was in full-time employment. This drastic lifestyle change then leads to depression and in some cases death, a few years after retirement.
THE SOLUTION
It is imperative to recognize early in one’s career, the need to plan ahead for retirement. In this article, we will focus on the need to save for retirement as this has been seen as the best solution to counter financial challenges after retirement.
As was highlighted earlier in the article, the average employee in Zambia will have an active full-time work span of anywhere between 30 to 40 years, depending on what age the person was when he or she was first employed. With a monthly saving of ZMW 500 per month, which translates to ZMW 6,000 per year, and placed into a fixed deposit account (ZMW 6,000 every year of full time employment) with a reputable financial institution, compounded at an average interest rate of 10% per annum, the individual would have saved up to anywhere in between ZMW 1,080,000 to ZMW 2,600,000. If we assume this individual is in very good health and will live an additional 15 years after retirement till the age of 80, this would translate into a monthly income of between ZMW 6,000 to ZMW 14,000 per month at maturity of the investment, which as stated earlier was assumed at 30 to 40 years.
This in addition to any other sources of income such as monthly receipts from NAPSA after retiring, private pension plans taken out by either the employer or employee, as well as income from business ventures if at all the individual has any, is likely to be a comfortable position for a retired individual and should be the sort of financial freedom any individual in formal employment should be looking for. The emphasis for this article is for an individual to realize early on in his or her career, the need to save and plan for their retirement and avoid procrastination and believing that they will save when they earn a better income in the future as their career progresses. It is important to develop and get into the habit of saving early on in your career, and invest in secure long term investments with reputable financial institutions, as it will only be easier to carry on with this discipline if you were able to save even from the little income earned when starting out your career.