Ethics, Faith, and Future: Retirement Planning in Islamic Finance
As life expectancy continues to increase, retirement trends are changing around the world. Muslims need to take into account the principles of their faith when planning for retirement. In this article, we will explore the Quranic verses, Hadith, and real-life cases related to retirement and provide practical solutions and advice for Muslims.
According to a report from the World Economic Forum (WEF), individuals globally are pursuing longer and more active retirements, leading to new challenges and opportunities for governments, businesses, and individuals alike.
One of the report's key findings is that people are increasingly viewing retirement not as a time to wind down but as a chance to pursue new hobbies, interests, and even careers. Many retirees are taking up new activities, volunteering, or starting their own businesses, while others are returning to work in part-time or gig economy roles. This trend is particularly evident among women increasingly seeking more fulfilling and financially independent retirements.
The report also highlights the need for individuals to save more and plan more effectively for retirement, given the longer lifespans and the potential for increased healthcare costs as they age. Governments and businesses will also need to adapt to these trends by ensuring that pension and benefits systems are more flexible and responsive to changing needs and by supporting older workers in their efforts to remain active in the workforce.
Overall, the WEF report suggests that retirement is no longer a traditional endpoint but rather a new beginning that offers a wealth of opportunities for personal growth, continued learning, and social engagement. By embracing these changes and planning ahead, individuals can enjoy longer, healthier, and more fulfilling retirements for years to come.
Islam emphasizes the importance of preparing for the future. In the Quran, Allah says, “But seek, through that which Allah has given you, the home of the Hereafter; and [yet], do not forget your share of the world. And do good as Allah has done good to you. And desire not corruption in the land. Indeed, Allah does not like corrupters” (28:77).
Another verse highlights the balance between worldly matters and the Hereafter, “Say, “Indeed, my prayer, my rites of sacrifice, my living and my dying are for Allah, Lord of the worlds. No partner has He. And this I have been commanded, and I am the first [among you] of the Muslims.” (6:162–163)
Prophet Muhammad (peace be upon him) also emphasized the importance of seeking lawful earnings and avoiding unnecessary expenses. He said, “The upper hand is better than the lower hand (i.e., the hand that gives is better than the hand that receives). Start with those whom you are responsible for. And the best charity is that which does not make one poor” (Muslim). This highlights the significance of being financially responsible and prioritizing the needs of our families and dependents.
Overall, Islam promotes a balanced, responsible approach to financial management that includes saving for the future, seeking lawful earning, avoiding excessive spending, and prioritizing the needs of our families and dependents. Consistent, small efforts toward these goals are greatly valued in Islam and can help us lead a fulfilling and prosperous life in this world and the Hereafter.
Many Muslims worldwide face the challenge of balancing the desire for a fulfilling retirement with the need to save for it. For some, the solution has been to pursue entrepreneurial ventures in retirement. For example, in Lebanon, a retired parent started a business selling natural and organic products online. They had initially planned to retire quietly but found that they wanted to keep working and contribute to their community in a meaningful way.
Muslims are found in many different professions, and retirement planning will look different for each individual. For example, a doctor may need to prepare for a longer retirement due to the job's physical demands, while a teacher may need to plan for reduced income during retirement.
Examples of Companies from the Islamic World
Malaysia is a Muslim-majority country that has made strides in retirement planning. The Malaysian government has implemented a mandatory savings program for employees called the Employees Provident Fund, which allows individuals to save for their retirement and provides a safety net in case of emergencies.
The Kingdom of Saudi Arabia also has a mandatory savings program called the General Organization for Social Insurance (GOSI), which provides retirement, disability, and unemployment benefits. In Egypt, the state pension system has been gradually improving in recent years, providing more security for retirees who may not have access to private pensions or savings plans.
Examples from American & European Companies:
Many ethical American companies have recognized the importance of retirement planning and offer generous benefits for their employees. For example, Patagonia, a clothing company, offers its employees a 401(k) retirement plan with a matching contribution of up to 10% of their salary.
In Europe, the Danish company Novo Nordisk has been recognized for its comprehensive retirement planning benefits for employees. The company offers a pension plan, a retirement savings plan, and a one-time retirement contribution.
Practical solutions and advice
Muslims can begin by setting aside a portion of their income for savings and retirement. Planning for future expenses, such as healthcare and long-term care. Seeking advice from financial professionals who understand Islamic principles is essential to ensure that investments are made in accordance with Shariah law (jurisprudence). Lastly, it is important to strive for a balance between worldly matters and preparing for the Hereafter, as outlined in the Quran and Hadith.
In summary, it is imperative for Muslims to adopt a comprehensive approach to retirement planning that incorporates their Islamic teachings and the necessity of planning for the future. By adhering to the Quranic principles and Hadith, consulting with experts, and pursuing ethical retirement planning alternatives, Muslims can look forward to extended and more satisfying retirement periods. This approach is sincere, thoughtful, and confident, ensuring that Muslims enjoy a prosperous and fulfilling future.