Keeping a nest egg aside for retirement is doable, and highly advisable, for all income earners – whether as an employee or a business owner . You might think, ‘Oh, I am too young to save for retirement’ or ‘I earn too little to save for retirement’. You might also argue that you work in the private sector, which means your pension is secure and airtight. Having a pension is great, and please ensure you have pension contributions – either from your company or through private contributions. However, because there are conditions to accessing pension funds, we can’t rest on that alone. Given the rate of inflation especially in our Nigerian economy, early retirement planning is important for salary earners and entrepreneurs alike.
Here are 4 principles for retirement planning.
- Estimate how much you will need post-retirement:
Average rule of thumb is that retirement age is 60 and most people are expected to live to about 80. This means the average person has about 20 years post-retirement to plan for. This is a significant amount of time that can’t be taken casually. The first step in planning is to calculate how much you will need to survive on a monthly basis at your retirement. Usually this is a function how much you plan to spend multiplied by the number of years you project post-retirement.
- Create a plan to start setting funds aside:
While you are still actively earning an income, start being intentional about creating a budget for retirement. Everything to do with money starts with a budget so retirement planning should be an expense line on your budget: identify and separate how much you will set aside monthly towards your retirement years. Committing to this – especially the closer you are to your retirement years – holds you accountable to what you do with your money, and keeps you on the straight and narrow concerning your retirement finances.
- Have a dedicated retirement planning bank account:
Ideally your retirement funds (outside of what is going to your pension account) should be in a separate account to help you keep track of how much you have. As you gather funds into this account, you can then use the money to make investment decisions based on your retirement plans.
- Investing for retirement:
The way you invest in retirement ideally should be different from the way someone at an earlier stage of life invests. The first thing is to establish a diversified portfolio. The mix of this portfolio will change as one advances in years as the older one gets, easy access to consistent cash tends to be more important than other asset classes. An example could be:
30% Cash + 40% Bonds + 15% Stocks + 15% Alternative Investments
These asset classes are all important to understand and next week we will go into some detail in explaining what each means and what it means to you not just for retirement but at every stage of life.
Preparing for retirement doesn’t have to be a chore, rather it is a way of securing a green future for yourself and your family during your “winter” years so you have peace of mind.
