Secrets of How to plan for stress-free retirement
In this piece, JOSEPHINE OGUNDEJI writes how workers in their 50s can achieve financial security and prepare adequately for retirement
As individuals approach the age of 50, they often find themselves at a critical juncture in their financial journey, where retirement planning takes centre stage. This milestone birthday serves as a poignant reminder that retirement is around the corner.
However, for many, the prospect of retirement can be daunting, with research indicating a widespread feeling of unpreparedness for what lies ahead. This sentiment stems from various factors, including inadequate savings, lingering debt obligations, and concerns about escalating healthcare costs.
One of the foremost concerns for individuals nearing 50 is the state of their retirement savings. Despite the knowledge that saving for retirement is crucial, many find themselves lagging behind their savings goals due to competing financial demands. The realisation that their nest egg may not be sufficient to sustain their desired lifestyle during retirement can evoke feelings of anxiety and uncertainty about their financial future.
Debt can also pose a significant obstacle to retirement preparedness for those in their 50s. Many individuals find themselves juggling various forms of debt as they approach retirement age. Balancing debt repayment with saving for retirement becomes a delicate act, and for some, it may necessitate delaying retirement plans or reassessing financial priorities to achieve a more secure future.
Healthcare expenses emerge as another pressing concern for individuals nearing retirement. As they age, the need for medical care often increases, potentially placing a strain on their finances if not adequately planned for.
Longevity considerations further compound the challenges of retirement planning for those approaching 50. With life expectancy on the rise, individuals may need to prepare for a retirement period spanning several decades, necessitating a robust financial strategy to sustain their lifestyle throughout.
This underscores the importance of not only saving diligently but also investing wisely and accounting for factors such as inflation and potential market fluctuations over time.
In an interview with The PUNCH, the Chief Executive Officer of the Nigerian Council of Registered Insurance Brokers, Tope Adaramola, said that retirement is a major aspect of life and is not peculiar to salary earners alone.
He said, “We must take note that everyone must retire, and the notion that retirement is for those we call salary earners should be debunked. Everyone should make space to retire someday when they cease their daily work routine.
“Ostensibly, when they cease, they will only live on what they had planned for when they were in active work, whether as a salary earner or non-salary earner such as an entrepreneur.”
According to Adaramola, retirement planning is in two phases, which are financial and non-financial planning for retirement.
He said, “One, from the insurance point of view, there are several insurance policies that we often refer to as endowments, which could be bought from insurance companies through registered brokers for all insurance.
“Because registered brokers understand the technicalities of insurance, they can do necessary intermediation to get maximum value for the insurance you are undertaking, bearing in mind that insurance is usually technical but quite beneficial. So, there are different types of endowments. There are educational endowments that could be taken up.”
According to Adaramola, an annuity is even formally entrenched as a terminal point for those doing contributory pensions.
“So, at the point of your disengagement, you can buy an annuity. And annuities are sold by insurance companies. The beauty of annuities is that most annuities bought pay salaries for life. You will continue to draw based on your age and agreement with the annuity seller,” he explained.
Daramola explained that individuals could purchase annuities in a lump sum payment.
He said, “For example, you have N10m, N20m, and you buy an annuity, which is stacked over time. In this case, you draw what has been allotted to you, including dividends that may accrue by the investment that your money may have been used to make.
“There are also programme withdrawals, and that is within the realm of the PFAs. They can also assist you so that you can start to draw pension benefits.”
He emphasised the option of utilising the property market for retirement planning, admonishing that while property investments could offer attractive and potentially lucrative returns, and caution was paramount to ensure sound decision-making.
Booster for financial independence
A financial expert, Olufemi Ososan, said retirement planning is an act of making adequate provision by an individual towards a period in the person’s life wherein he or she is not working but can draw from an amount saved up while working.
“There are two main methods for retirement planning. The first is the defined contribution plan, where the employer regularly adds a specific sum to the employee’s retirement account. However, it’s the employee who faces the investment risks as the final payout depends on market performance.
“The second option is the defined benefit plan, where the employer commits to providing regular payments to the employee after retirement. Here, the employer bears the risk, ensuring there’s enough money to fulfil those payments over time.”
Ososan noted that retirement planning is an essential pillar for enhancing financial independence in one’s post-career years.
He advised, “By diligently saving and investing during their working years, individuals can build a solid financial foundation that empowers them to maintain their desired lifestyle and meet unforeseen expenses during retirement.
“This increased financial autonomy not only provides peace of mind but also allows retirees to pursue their passions, travel, or engage in other meaningful activities without the worry of financial constraints.
“Moreover, strategic retirement planning enables individuals to chart a course towards early retirement if desired. By carefully estimating and projecting their savings growth, individuals can determine the optimal age at which they can comfortably retire.”
“Whether voluntarily or otherwise, one must certainly come to a point of retirement. The retirement phase is typically assumed to mark the end of a particular service activity and the period that efforts sown before retirement are reaped,” another finance expert, Habeeb Olaosebikan, explained.
He lamented that it is not always a period of reward for some people, as the struggle doubles up upon the commencement of the retirement phase.
“In a simple term, retirement plans can be said to be a strategic decision to invest for the post-retirement phase (future) during the pre-retirement phase (present). In the same vein, it is unarguable that the future rests on the shoulder of today,” he enunciated.
Start early
A Lagos-based finance expert, Philip Bakare, said beginning retirement planning early is vital as it fosters financial security and enables individuals to seize investment opportunities, leading to long-term prosperity.
“Starting retirement preparations at 27 is advisable, and it is crucial to be mindful of it. Despite the misconception that savings might not be an effective means to maintain wealth, cultivating a strong saving habit can significantly impact one’s overall financial well-being. “By prioritising saving, individuals ensure they have the necessary cash flow to seize investment opportunities whenever they arise, thereby, restructuring their financial approach for long-term security and growth.”
According to Bakare, the financial security of an individual during post-employment years can be achieved by setting clear goals, budgeting effectively, utilising tax-efficient retirement accounts, making consistent contributions, and diversifying investments to optimise long-term returns.
He noted that saving for retirement in Nigeria can be accomplished through the following practical steps:
Set clear retirement goals: Determine your retirement goals, including the age at which you want to retire and the lifestyle you envision during retirement. Having clear goals will help you establish a target savings amount.
Create a budget and track expenses: Develop a budget that allocates a portion of your income specifically for retirement savings. Track your expenses to identify areas where you can cut back and redirect funds towards your retirement fund.
Open a retirement savings account: Take advantage of Nigeria’s pension system by opening a Retirement Savings Account with a Pension Fund Administrator. Contributions to your RSA are tax-deductible, and the funds are invested to grow over time.
Consistently contribute to your RSA: Make regular contributions to your RSA, ideally through automatic deductions from your salary. Aim to contribute a percentage of your income that aligns with your retirement goals.
Diversify your investments: Diversify your retirement savings by investing in a mix of assets, such as stocks, bonds, real estate, and mutual funds. This diversification helps spread risk and optimize returns over the long term.
He added, “Retirement savings plans may differ from one person to another. Despite this, setting the retirement plan objectives from the onset can be the differentiator on whether a plan will be successful or otherwise.”
