Successful Planning For the Soon to Retire; Savings And Investment

Life is changing, we live in a world where what used to work no longer works; a world, very difficult to understand but do we just fold our arms?wait a minute, if those that planned well in well managed economies are failing, what about those who are not planning in a badly managed economy like ours? I guess we’ve got lots of work and deliberation to do here because these are no longer the days when children are succour at retirement because the children themselves do also grow to become parents these days, struggling and never finding their feat hence, you can not afford to joke with your personal savings and investment which is where the major source of livelihood is expected to come from after the active work life. For these reasons, I will please suggest you just stay connected. Welcome to the column that plans the next phase of your life with you and it is my belief that you are being rightly guided.


Importance of the Last Five Years:

Please note that the last five years of your work life is so germane to the entire retirement issue in the sense that it would most likely determine how you end it all either as a success or failure. The last five years of your work life should therefore be spent consciously in the handling of your finances than at any other period. In other word, you probably can afford to be lackadaisical about your plans when you were forty and below but not when the curtain is being drawn, no. I beg of you.

The period under consideration is the last opportunity to correct some past mistakes, misdemeanour and indolence on financial issues. It is the period to recover lost financial grounds, the time to pay for past debts and set for the third age which is the last stage of man on earth. Your retirement might stretch beyond your imagination as death might just refuse to hit on time regardless of your expectations based on what you see and hear happening to others, the last five years of your active work life would determine largely how well you can cope. Five years seems short but I can tell that it is long enough if well planned and spent.

Perhaps you have been an investor all the while in various sectors of the economy; this might be the period to reshuffle your investment portfolio by changing the assets class in preparation for a secured life. It is not the period to embark on risky ventures but rather calculated risks if at all. If you have lost money in any form of investment, it is the period to work or plan towards full recovery and if you are comfortable enough, it is the period to consolidate.  Let’s go further this way;


Between Pension and Investment:

Nigeria’s pension scheme has been so refined lately largely to a dependable level but note that pension is just a savings scheme with fixed rate of contribution, the accruals are not expected to be geometric beyond the original contributions either at  current stage or at retirement but at any rate, it would help as a compulsory form of savings during the active years, give a soft landing to financially illiterate workers who would most probably not save at all regardless of boundless opportunities at their disposal. It is also designed to assist frivolous spender by keeping a fixed proportion of their income safe for the future instead of nothing after many years of active work life.

To an extent, the risk involved in the pension scheme as it currently stands is limited owing to the structure and different strata of management and the overseeing function of the commission- PENCOM. But then, I don’t believe that you should just keep all your eggs in that basket not because of any inherent danger but because of the probable inability of pension in financing the totality of your expected bills at retirement for which reason other forms of investment to be handled and managed personally are recommended.


Why You Need Other Forms Of Investments:


The Truth And Limitations Of Pension Scheme:

  • Pension contribution is fixed relative to current pay of an employee suggesting that it is meant to only enhance disciplined savings culture which is the first stage of the entire personal financial planning debate. Savings anywhere in the world had never and will never be enough to enhance living at retirement as the strength of savings such as pension is limited to ensuring a measure of conveniences or at best create financial stability at retirement and not necessarily to enrich. In other words, pension scheme does not possess the capacity to cater for all your needs after your active years. Where then do you go for further help?
  • Pension scheme just like every other form of savings which it is always comes with low interest rate which is often fixed. The beauty can only be in the length of time the contribution is made to get the best of returns at a future date suggesting that the earlier the better.
  • Because of the restrictions and yield, pension scheme as much as it is advisable is often not a hedge against inflation which had remained uncontrollable in Nigeria. In other words, values of savings might be reduced relative to cost of other goods and services for which the scheme is designed to cater for at the future period. Please note that fixed interest earners lose in the long run when inflation rate is considered.
  • Some business owners have been found to have criminally withheld staffs contributions unremitted for several months; this which places a huge risk on the retirement income of many aspiring retirees is common among those in private employments. On the other hands;
  • Retirees that rely only on pension the world over had ended up trying to cope with life after active work.
  • Yield on pension had often been affected by general downturn in the economy as there had been experiences of collapse in some countries across the globe.
  • Pension is mostly advantageous to those who had consistent and unhindered work life without any form of retrenchment or termination of appointment.
  • Some pension administrators do not maximise yield on contributions and pension accounts they manage.
  • Further contribution stops at retirement when withdrawals is expected to commence at which point depletion of the funds also commences as further interest lacks the capacity to beef up previous
  • The length of time withdrawals can be sustained could be determined by the level of contributions and the amount being withdrawn either on monthly or quarterly basis because all you have to withdraw is relative to your contribution plus interest. In other words, to stretch the withdrwal period, you might no choice to lower the monthly withdrawal.
  • Management of contribution and pension accounts carry certain cost and charges by the administrators.


The Truth about Investment:

  • Investment is that portion of your income that is not restricted in quantity or time, directed to profitable ventures with the intention of yield maximisation now and at a later date.
  • If properly channelled and supervised, it is a hedge against future increase in the prices of goods and services- inflation.
  • It is not to replace pension contribution but to rather complement whatever the contribution is in the pension scheme.
  • Investment also carries its inherent risks hence; a measure of carefulness is required particularly as retirement draws nigh. In other words, an entire investment can be wiped off if the investor becomes greedy, careless or fearful as the case may be.
  • The opportunity to personally control contribution and diversification make investment advisable particularly to an aspiring retiree with five years or less to still work.
  • Investment could form a part time job at retirement depending on the extent of knowledge the investor had acquired over a period of time.
  • Investment doesn’t necessarily need to be so much as opportunities abound in many areas as we shall soon see to put in as little but consistently.
  • Investment gives the room for retirement without the barrier of location. In other words, you might choose to live in a less traffic city at retirement where as your investment can be in congested cities depending on the type and your plans.
  • Some forms of investment don’t necessarily require day to day supervision.
  • Investment if properly carried out can continuously generate increasing passive income long before and at retirement.
  • Some forms of investment are more easily transferrable.
  • Some forms of investment are divisible which makes sales very easy.
  • Investments are easily discontinued and can also be increased at will depending on the level of income.
  • Because investments are often personally managed, progress or failure are always detected and remedied in time.
  • Yield and returns on investment can be reinvested for compound interest over time.


The Best Combination for An Aspiring Retiree:

  • Whether you are in private practice or civil service; a business owner or an apprentice, pension is a must. The better if you cultivate the culture of little savings here and there to restrict spending on frivolities.
  • Because of the natural limitation of pension scheme, it is also compulsory to invest rapidly or aggressively particularly in your last five years of active work.
  • Pension and investment shouldn’t tamper with other forms of specialised or target savings which include home ownership and children education.
  • The simple psychology is that the more your level of investment and other specialised and target savings during the active years, the lower the expenses and ultimately the longer your retirement savings can go in aiding your finances at retirement. In other words, if you must retire well, the last five years of your active work life must be dominated by various forms of investment in addition to the pension contribution and consciously low level expenditure on depreciating assets. Furthermore, your last five years should have to cater for the previous long years of passivity on investment or varied losses on previous investments.


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