Let’s face it, as a Nigerian youth, you’re most likely your parent’s retirement plan. Do you intend to make your children your retirement plan, too? If the answer is no, then you should continue reading.
Retirement might seem like a distant concept when you’re young and just starting your career. For many young people, the goal is to make money and enjoy life. Also, with the economic situation, very few people are considering saving for retirement. However, the sooner you begin planning for retirement, the more confident you are of your future. In this article, we’ll discuss why retirement planning is important for you and provide some actionable steps to kickstart your retirement journey.
Why Retirement Planning Matters
- Life expectancy: If you plan to live a very long life, you’ll likely spend more years in retirement. You’ll need adequate savings to maintain a comfortable lifestyle and avoid being dependent on people.
- No guarantee of pension: While some jobs offer pension plans, they are not guaranteed. Depending solely on an employer’s pension plan might not be enough. That’s why you need to make alternative plans for your retirement so you won’t be stranded.
- Inflation: The cost of living tends to rise over time due to inflation. You risk losing your purchasing power if your savings don’t keep pace. It’s possible to save for retirement and it’s not enough at the end of the day because inflation has affected the value of your money.
- Financial independence: Retirement planning empowers you to maintain financial independence in your later years, reducing the burden on your loved ones. Also, it allows you to do whatever you want without considering how it will affect other people’s finances.
What to consider when planning for retirement
- Retirement age: Determine when you want to retire. The age at which you plan to stop working will significantly impact how you save for your retirement Some people retire early, while others choose to work longer. If you plan to retire at 40, you need more work than when you retire at 70.
- Financial goals: Set clear financial goals for your retirement. Consider the lifestyle you want to maintain and the activities you want to pursue. Having specific goals will help you calculate how much you need to save. There’s no set amount on retirement. It all depends on the kind of life you want to have.
- Current savings: Assess your current savings and investments. Knowing your starting point is essential for determining how much additional savings you’ll need to accumulate. This will help you make better financial decisions.
- Retirement expenses: Estimate your future expenses in retirement. Consider factors such as housing, healthcare, transportation, and leisure activities. Again, don’t forget to account for inflation, which can reduce your purchasing power over time.
- Debts: Try to pay off high-interest debts before retirement. Reducing or eliminating debt will free up more of your retirement income for other expenses. You don’t want to spend the rest of your life paying debts when you should be resting.
- Savings rate: Determine how much you need to save regularly to reach your retirement goals. The earlier you start saving, the less you’ll need to contribute each month because compounding will occur.
- Emergency fund: Maintain an emergency fund to cover unexpected expenses during retirement. This fund can prevent you from dipping into your retirement savings earlier than planned.
- Healthcare costs: Consider the cost of healthcare in retirement. Healthcare expenses often increase as you age, so factor this into your retirement budget. Consider health insurance options and any supplemental coverage you may need.
- Tax considerations: Understand the tax implications of your retirement savings and withdrawals. Learn about the Nigerian tax law and how it affects your money over the years.
- Inflation: Account for inflation when estimating future expenses. What costs #50,000 today may cost significantly more in 20 or 30 years. Although you cannot be 100% accurate, you can be close.
- Regular review: Periodically review and adjust your retirement plan. Life circumstances change, and your savings strategy should adapt accordingly. You might want an entirely different life than what you’ve planned previously. Adjust your plan as your wants change.
- Lifestyle adjustments: Be prepared to adjust your lifestyle if necessary. Sometimes, unforeseen circumstances may require you to reduce expenses or work part-time in retirement. The thing about the future is that anything can happen. Always be prepared to adjust accordingly.
- Insurance: Assess your insurance needs, including life insurance, disability insurance, and long-term care insurance. These policies can protect your financial well-being in retirement. Do research and register for insurance that suits your needs.
- Legal documents: Ensure you have important legal documents in order, such as a power of attorney and healthcare directives, to manage your affairs in case of incapacity. This allows you to choose how you want to be cared for by other people if need be.
- Transition plan: Plan for the transition from your working years to retirement. Consider how you’ll fill your time, maintain social connections, and stay engaged. Do you want to travel the world, relocate to a new country, or offer humanitarian services? Having a plan informs the kind of decisions you make.
Also read: 10 Money Mistakes to Avoid in Your Twenties
Getting Started On Retirement Planning
Set clear goals
Begin by defining your retirement goals. Consider your desired retirement age, lifestyle, and the activities you want to pursue. Having specific goals will help you estimate the amount you need to save.
Calculate your retirement needs
Use retirement calculators or consult a financial advisor to determine how much you should save each month to meet your retirement goals. Be realistic about factors like inflation and potential healthcare costs.
Start early
Time is your greatest asset when it comes to retirement planning. The earlier you start saving, the less you’ll need to contribute each month to reach your goals. Compound interest works wonders over the long term. Also, the earlier you start saving, the earlier you can retire.
Diversify your investments
Avoid putting all your eggs in one basket. Diversify your investments across asset classes like stocks, bonds, real estate, and a retirement savings account (RSA). A diversified portfolio can help manage risk and potentially yield higher returns.
Consider a Retirement Savings Account (RSA)
In Nigeria, the Pension Reform Act of 2014 requires employers to contribute to their employees’ RSAs. Take full advantage of this by contributing the maximum amount allowed, 18% of your monthly income.
Emergency fund
Ensure you have an emergency fund in place before focusing on retirement savings. This fund can cover unexpected expenses, reducing the need to dip into your retirement savings prematurely.
Seek professional advice
Consider consulting a financial advisor who specializes in retirement planning. They can help you create a tailored plan and provide valuable insights to optimize your savings.
Stay informed
Stay updated on financial news, investment opportunities, and changes in pension regulations. Knowledge is power when securing your financial future, and you need all the power you can get.
Conclusion
Retirement planning is not just for the elderly; it’s a lifelong journey that starts when you begin earning. All you need to start is a plan and an account and you can flesh out the details as you go. A retirement plan allows you to build a secure and comfortable future. Don’t wait until it’s too late; start planning for your future today, and enjoy the peace of mind that comes with knowing you’re financially prepared for your retirement years.
