Prior to the 20th century, there wasn’t a major focus on retirement. People generally worked until they dropped; or they lived with their families. Fast-forward to now, retirement age in most companies is between 55 and 65, yet millions of Nigerians live well into their 80s. Thousands of Nigerians have set out on a new adventure called retirement, and while most of us have great plans for how to spend it; too few have any plan to make sure our money will last us during this period.
How do we live well in retirement years?
You don’t have to be old to think about retirement. Why not take steps now to ensure you have income in retirement? A bit of forward planning now could ensure you’re able to take it easy when the time eventually comes.
According to the Nigerian Bureau of Statistics, just over 8 million registered workers have a Retirement Savings account (RSA) with a Pension Administrator. Participants within the age distribution 30-49 years have the highest percentage composition while participants above 65 years old have the least percentage composition. Makes sense as by 65 most people would have left paid employment or stopped contributing to a personal pension plan.
How do you put a savings plan in place? Conventional wisdom suggests taking the following steps:
- Determine early enough when you want to retire. Time waits for no one and the years will roll by faster than you realize. Ideally the time to start thinking and planning for retirement is during your active economic years (when you’re still actively generating income either through a salary or business returns).
- Start by working out how much you’ll need each year of your retirement. An often-used estimate is 70% of your current annual income.
- Multiply this by the number of years you expect to be retired for. A common benchmark is 20-25 years. This will give you a target savings amount to aim for.
- You can then work out how many years you are away from retiring, to determine how much you might need to be saving each year to hit this target.
A note of caution: Savings are great, but they shouldn’t be your only strategy. Why? Factors such as inflation and currency devaluation affect the purchasing power (how much you can actually buy things) of your savings.
So how do you guard against this? Your focus should be on investments (real estate, bonds, stocks (for dividends not trading)) that generate cash flow, compounding your wealth and helping you set up a legacy of wealth – both during your lifetime and after.
We’ll talk more about this next week.