Understanding the different sides to retirement planning

Retirement period is a time when we quit active service. It is a phase of our lifetime that has its own starting point, but unfortunately nobody knows the end point. The value of a prudent plan has never been more critical than it is today- as the economy is volatile and uncertain, the savings rate is negative, the capital market is volatile and people are also living longer than before with the attendant cost.

For experts at IEI Anchor Pension Managers Limited, retirement planning involves all activities from your first employment, up to and after your retirement geared towards ensuring that you and your needs are well provided for in the retirement phase of your life.

According to the PFA, in drawing up a retirement plan, it is critical to identify the following: When would you retire? What your activities could be during your retirement? What kind of income will you need in retirement? and What income to expect at retirement?.

When would you retire? Depending on your outlook, and personal circumstances, people may choose to retire early, say before 50 years, while others will retire later, just at 60 years, or for however long their terms of employment permit. Many factors including your state of health, desire to pursue other activities, and very importantly the level of financial resources and responsibilities will affect the timing of your retirement. For some others, however, the timing of retirement is not entirely up to them. Sometimes accidents, ill-health, and employer-distress may lead to a pre-mature retirement.

What your activities could be during your retirement: During retirement, some people choose to continue in active life, supporting their communities, participating in politics or even running a full-time business. Others may choose to limit themselves to light activities as traveling, visiting children and grandchildren, etc. It is important to plan ahead for how you will like to spend your retirement, and prepare yourself mentally and financially for whichever choice you make.

What kind of income will you need in retirement? Planning adequately for your financial needs in retirement is very important. It is therefore necessary to ascertain ahead of time, how much income you will need in retirement. In planning towards this, one may envisage family responsibilities, state of health, and life expectancy. For example, having children of school age at retirement, your financial needs will outstrip those who do not. If you already live in your own house and will not be paying rent during your retirement, then your financial needs will differ from someone who does not own a home.

What income to expect at retirement: Once you have ascertained your financial requirements at retirement, it is necessary to determine your income streams. For someone that has planned retirement early enough, income may come from investments such as dividends, capital appreciation, rental income as well as pension and other retirement benefits. Estimating your sources of income is important to enable you plan how to meet your needs at retirement.

For experts at Stanbic IBTC Pension Managers also, retirement planning as an exercise the world over is fraught with many challenges. For Nigerian workers who are especially challenged by low levels of income and savings as well as huge family and social responsibilities, retirement planning can be more complicated. Some of the social issues that affect effective retirement planning in Nigeria include: the size of our families, polygamy, the additional responsibilities of an extended family, and inadequate access to medical facilities.

They stated that in addition, Nigeria does not have an operable social security system that takes care of the aged, the young unemployed, and most disturbingly, the disabled, meaning that all these categories of people constitute an additional responsibility on the worker and the worker’s resources.

While the average life expectancy of Nigerians hover somewhere in the early 50s, a large number of Nigerians live up to their 80s and 90s. With many more people living up to those ages, and the growing sophistication amongst our young adults, provisions have to be made in our social system for caring for the aged. Where such systems are not in place, workers have to plan for their old age.

Planning is especially important in the area of housing. Nigeria still does not have a functioning mortgage system, and acquisition of real estate is still mainly on a cash and carry basis. In major cities like Abuja and Lagos, as well as in cities throughout the country, properties are very expensive and beyond the reach of the average worker. Only recently, the Federal Government as part of its monetization policy for its employees has begun the process of selling its houses to them on an owner-occupier basis. It is envisaged that a mortgage backed security will be created to finance these acquisitions, and this would herald the development of a mortgage system in the country.

Under the new contributory pension scheme, retirement planning also takes a new and more promising dimension. Firstly, the new scheme is compulsory for Nigerian workers in the private and federal public sector, and is being embraced by many State Governments already, ensuring that workers receive their benefits as and when due, and establishing a uniform administration and regulation of retirement benefits in Nigeria. Due to its funded contributory nature, and the fact that it is privately managed and well, it is a marked departure from previous schemes in the private and public sector. The individualism that anchors the scheme, as well as the portability of the individual Retirement Savings Account (“RSA”), gives both social and economic benefits to the worker and society at large.