Tackle pre-retirement leakages before they destroy your future

By Yaw Korankye Antwi

Pre-retirement leakage refers to anything that reduces your accumulated pension wealth before you begin to draw benefits. Since defined-contribution (DC) schemes, such as the 2nd and 3rd Tiers, depend on contributions plus investment returns minus costs, any disruption to these components weakens your eventual retirement income.

Retirement fulfilment does not happen by accident. It is earned through disciplined accumulation, informed decision-making, and deliberate protection of your pension assets. In an earlier article, Thieves of your Pension Benefits, the greatest danger to retirement security is not always low income. It is lack of adequate or relevant information and  leakage from your pension pot before retirement .

Below are the major enemies to your fulfilment in retirement;

Financial illiteracy – The silent destroyer

Anywhere I get the chance to undertake retirement planning session, I mention this as the number one enemy to long-term financial security” . Many workers attend retirement seminars too late in their careers, when meaningful corrective action becomes difficult. The best start is an early start.

Some crtitical information we need, is to understand what drives pension fund accumulation, other options and their risks, and overestimating retirement income

The ways to mitigate this is to seek the relevant knowlegde and apply them. As part of the knowledge;

• Undertand that you need decades to plan for retirement
• Understand income replacement ratios, i.e. how much retirement income you make as a percentage of your working income.
• Treat retirement planning as a lifetime responsibility, not a one-time event.

Continuous withdrawals from the 3rd Tier Fund

One of the most direct forms of pre-retirement leakage is early withdrawal from voluntary schemes. If the need for the withdrawals do not border on matters of life and death, please leave your pension fund alone! Remember it took over a decade to accumulate the fund. This is a one-time chance which cannot be regained. Therefore if there is ever the need to withdraw from the 3rd tier scheme, it should be directed into a similarly long-term financial objective that can add to your retirement income.

Although the defined contribution 3rd Tier schemes may legally permit early access under certain conditions, each withdrawal disrupts compounding. Such withdrawals are dangerous because:

• Compounding works exponentially over time and you lose optimised growth on your fund.
• Withdrawals permanently reduce your capital base
• Rebuilding at older ages requires higher contributions

Some recommended actions to prevent such leakages are to exhaust cheaper liquidity options first (workplace loans, family support), evaluate both real cost and opportunity cost before touching pension funds and seek financial advice when under pressure to withdraw.

This has been the difficulty in the pension space where contributors, including those in the 30s and 40s withdraw from the 3rd tier scheme. People have withdrawn their 3rd tier funds and have wasted it. Another argument is that the fund loses purchasing power under inflation if allowed to sit for a long time in a pension fund. True, but under such circumstances, it is still better to end up with higher lump sum than end up with a lower lump sum. GHS10,000 is better GHS2,000 in such an inflationary account. The bigger the amount the better.

Failed investment expectations

Retirement assets are long-term and exposed to evolving risks. Any option you have as a retirement income has expectations. Business failures, market downturns, inflation, or political interference can erode both principal and returns. The leakage will happen if you overconcentrate in one asset class and ignore the failure risks that each of the option carry.

To mitigate this, diversify across pension tiers and other investments, regularly review risk exposure and adjust portfolio strategy as you age.

Raising your standard of living as your income increases

As you earn more money,  you will start spending more money. This is known in simple terms as lifestyle inflation. There is nothing wrong with that, but the increased earnings has to reflect in your retirement savings. Retirement income will likely be lower than active work income . Lifestyle inflation is particularly harmful in retirement planning because:

1. It reduces surplus income available for pension contributions.
2. It encourages dependence on high active income.
3. It introduces lifestyles that are difficult to sustain in retirement.
4. It may lead to early withdrawals from long-term investments.

Retirement income is typically lower than work income, and failing to adjust lifestyle expectations can quickly erode retirement resources. If lifestyle expectations are unrealistic, accumulated funds can deplete rapidly.

Certain pre-retirement lifestyle, for instance luxury habits, create structural pressure that may tempt early withdrawals (another form of leakage). Develop the attitude to invest cash windfalls and bonuses into a pension fund or other long-term instruments. This is never a call to resign your life to one of depravity where you are just ‘hoarding’ cash for the future. Definitely enjoy your income growth, but push some aside to fund your improved lifestyle now and for retirement.

Be mentally ready to adjust your lifestyle to suit the retirement income. It can be disheartening to lose certain work-related priveliges, but a good mental conditioning can help you go through that adjustment successfully. As an old adage goes just ‘cut your coat according to your size’.

To mitigate this situation, align lifestyle with projected retirement replacement ratio, budget consciously and build multiple income streams to provide income retirement.

Inadequate use of the 3-Tier Structure

The 3-Tier system was introduced to enhance adequacy , yet many rely only on the 1st Tier and 2nd Tier schemes only. It is estimated that 75% of retirees in Ghana depend largely on SSNIT and family support. The 3rd tier which gives largest tax-free contribution is often underutilised. The fact that the voluntary contribution is the highest among the tiers tells you that your retirement is in your hands.

Failing to maximise voluntary tax-free contributions, up to 16.5% of your pre-tax basic salary  is another form of self-inflicted quiet leakages. This is so important that, you are blessed if your company contributes tier 3 for you. If your company does not contribute a 3rd tier for you, look for a licensed scheme and instruct your payroll to contribute on your behalf.

Conclusion

The greatest tragedy is that many losses occur quietly through planning delays, poor decisions, or avoidable withdrawals, and contributors may never realise what they could have accumulated. Financial leakage before retirement can rob you of peace of mind, dignity, and independence in old age.

There are a lot more factors that create pre-retiement leakages. To know more and their remedies, pick up your copy of the book, ‘Retiring Richly – How NOT to Retire Poor’ launching on Friday, 20th February 2026.

You only have one accumulation phase in life. Protect it fiercely.

Post Views: 1