A few years ago, an Aunt of mine retired after 25 years in her banking organization. She had gotten a generous gratuity, which she used to start a shopping centre. Although she couldn’t get access to her pension scheme yet because she was below 50 years of age, she already had a well-thought out retirement strategy and was also able to maintain a lifestyle similar to the one she had before retirement. When I asked about her strategy; she educated me on having a Retirement Savings Account (RSA), ensure that your employer makes a contribution of 7.5% of your total income to your RSA, and have an investment plan.
For a young career minded individual between the ages of 22-35, thoughts about retirement are a back burner. There are a lot more pressing issues like; promotions, contracts, loans, marriage, children, building projects and car payments, etc. It should be in your best interest to consider long term concerns such as your own retirement plans. Regardless of whether you’re 10, 15, or possibly 30 years away from retirement, being on the right side of things is the best place to be.
Some common concerns, retirees are usually worried about are:
- Longevity: Most retirees usually outlive their retirement payment checks/savings. This occurs when the pension scheme has an age clause of 10-20 years payment schedule.
- Health: Some retirees face health challenges that usually come with old age. Access to medical care and health insurance providers will come in handy as they grow older.
- Income: Retirees especially those with previous experience in the corporate world, require a monthly income equivalent to salaries that could help out in monthly expenses.
The Federal Government of Nigeria in 2004 put in place a pension system known as The Pension Reform Act 2004 that would address the issue of pension administration.
This gave rise to what is now known as Contributory Pension Scheme (CPS), instead of the then Defined Benefits Scheme (DBS). The scheme provides for retirement saving options geared at putting a retiree on monthly income even after he or she must have retired from active service.
There is a common assumption that savings, in addition to pension scheme and a less expensive lifestyle will all add up to financial security at old age. For some, this may turn out to be true, but such success stories occur as a result of good luck and rare on most occasions. Don’t get me wrong, I’m not recommending that you don’t save at all, as a matter of fact; putting away a percentage of your income every month from now until you retire, can do away with financial anxieties many retirees face. But there are also other forms of investing money and making it work for you.
Having a retirement strategy is a sure guaranty of stability and economic independence in your later years.
You can adopt these effective investment plans for your retirement, below:
1. Programmed Withdrawal: The Programmed Withdrawal (PW) is a retirement product offered by the Pension Fund Administrators (PFA) for periodic payments (monthly/ quarterly) to a retiree. The Retirement Savings Account balance is spread over the expected life span of the retiree but an initial lump sum can be collected while the remaining funds in the account are managed by the Pension Fund Administrator. Under this model, the monthly pension is at least 50% of the last monthly income. Programmed monthly or quarterly withdrawals are calculated on the basis of an expected life span, in other words, Programmed Withdrawal provides a retiree with guaranteed income for a period between 10-15 years and after this tenor, he ceases to earn further income from his PFA. Within this period if death occurs; the balance in the PW is transferred to a named beneficiary under a will or letter of administration. A retiree on Programmed Withdrawal with a PFA can move to another PFA and can also change to annuity with an insurance company. The Return on Investment (ROI) on any money market instrument purchased by the PFA’s belongs to the retiree in his RSA.
2. Annuity: This is a contract agreement between an annuitant (Policyholder) and an insurance company (licensed by NAICOM), whereby the Annuitant deposits a lump sum to the insurance company which ensures a fixed sum is paid to him by the insurance company at an agreed time interval e.g. Monthly, Quarterly, Half Yearly or Yearly for a tenor of 10 years, although payments could continue for the rest of the annuitant’s life. However, this payment ceases upon the unfortunate death of the annuitant, therefore it is not eligible for inheritance, but in the event that the annuitant dies before the guaranteed tenor elapses the beneficiaries will only be paid for the remaining period of the agreed years or in a lump sum. Annuities are appropriate financial products for individuals seeking stable, guaranteed retirement income. Annuitants never outlive their income stream, which edges its longevity risk over Programmed Withdrawal. The annuitant can only move to another insurance company after two years but cannot switch to Programmed Withdrawal with a Pension Fund Administrator.
3. Money Market Instruments: These instruments include but not limited mutual funds, bonds, equities, shares, stocks, etc, that are traded in the capital markets. Capital markets create a channel between you (the investor) and the end user which could range from businesses, private individuals and the government. These investments mature over time, with dividends paid into your bank account or reinvested by your capital asset managers. This industry is overseen by the Securities and Exchange Commission of Nigeria.
4. Real Estate: The National bureau of statistics reports that in the first quarter of 2016, real estate services sector contributed to 6.46% of the Nigeria’s GDP. Due to the large housing demand, the market is rosy, and ripe for the picking. With the average rental price for a two bedroom apartment edging towards N500,000 in large cities like Lagos and N250,000 in smaller towns, and cities, A supply gap of affordable housing units can create significant investment opportunities.
In conclusion, if you intend to consider these options for your retirement plan, please research them thoroughly, and commit to a good company/provider before deciding whether it’s an appropriate investment for someone in their situation.
There’s never a right time to start planning for retirement; it will be unwise to not have a pension plan for old age!
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