HOW TO LIVE GLORIOUSLY IN THE GOLDEN AGE IN NIGERIA

  

  Studies have shown that building and maintaining resources and capabilities to assure a comfortable worry-free retirement is a constant struggle for  most people. Retirement refers to withdrawal from one’s employment position or occupation or from active working life. Retirement refers to that part of one’s  life when he or she voluntarily, or involuntarily withdraw from actively working, or from any type of labour. If planned right, retirement period is expected to be the best part of one’s life – a time devoted to leisure, and to the good pleasures of life and family – the golden age.

  There are many factors that determine when an individual can retire. These factors include age, state of health, and the level of resources needed to make life comfortable in retirement. In most nations of the world, the age of 60 and above is generally viewed as a good time to retire, but some may be forced to work for longer years because of an inability to possess the financial resources to make life comfortable in retirement.

  Sadly enough, most people hardly plan for retirement, preferring to put off retirement planning until it is just about too late to do so. Imagine a student preparing for the final exams, may choose to prepare long before the examination date comes, in order to ensure good performance in the exams. Well, some other students put preparations off until 2 to 3 days before exams. This system of exams study, most often than not , lead to disastrous performances in the exams. Unfortunately, this is how most people treat their retirement – they spend their wealth during their active working years and neglected to plan for the assured future.

  Added to this is the fact that sometimes, retiring may not be up to the individual – people are sometimes forced to retire as a result of ill-health, accidents, employer distress, or becoming displaced by new technologies. Others may be forced to retire as a result of legislation about the positions they occupy at work, or with regard to a statutory age of retirement.

RETIREMENT PLANNING IN NIGERIA

  Prior to 2004, retiring workers viewed their impending retirement with fear and trepidation. This is because pension schemes in Nigeria was bedeviled by many problems – the public service operated an unfunded Defined Benefits Scheme;  and several employees in the private sector were not covered by the pension schemes put in place by their employers.

In situations where workers are covered and properly funded by employers, reports of financial malpractices and impropriety by members of the pension trustees is rife. Demonstrations, protests and road blockades were very rampant as a result of a heavy backlog of unpaid pension.

  Since 2004 when the government, led by President Olusegun Obasanjo, enacted the Pension Reform Act 2004, there has been relative stability, and sanity restored in the administration of pension schemes in Nigeria. Nowadays, a lot more people are looking forward to their retirement age with much hope. In 2014, the government updated the pension laws and introduced the Pension Reform Act, 2014. This act further consolidates on the gains of the previous act, and widened the net to capture more categories of workers into the Pension Schemes. The players in the new pension schemes in Nigeria include PENCOM – the Regulator; Pension Fund Custodians and Pension Fund Administrators. The coast is now clear for more workers to put in their best for their employers in their active working years to justify the huge investments made into their future retirement.

PLANNING FOR RETIREMENT IN NIGERIA

  The first step in your retirement planning is to identify your retirement income goals, and then outline the steps required to achieve them. It is very imperative to start early, to begin to create savings and investment plans early enough.

Identify your retirement income goals

·     Make a realistic estimate of how much money you need to cover your needs in such critical categories like feeding, healthcare, accommodation, family commitments and obligations.

·      Make a feasible plan of how you will cover those needs categories.

Begin with the end in mind, and realistically plans how you will provide beforehand the resources you need to fund those need areas – monthly and yealy. The following may help as a guide.

Retirement Savings Account

  Open a retirement account where you will house your retirement funds – this is not a go-to account but your retirement piggy-bank. Ask your employer if your terms of employment cover compulsory savings in Pension Fund Administrator (PFA). This should be a no-brainer.  The Pension Reform Act 2014 makes it mandatory for all employees in organizations employing 3 or more workers to open a retirement savings account in each employees name with a Pension Fund Administrator. It is also mandated that monthly deductions and remittances of 10% of total monthly emoluments (from employer) and 8% of total monthly emoluments (from employee) be lodged into that account every month. The objective is to ensure that upon retirement or loss of employment, employees under the scheme can have access to the funds so accumulated. Funds in the account are invested on behalf of the contributors in order to ensure superior returns.

Money Market Instruments

  The Money Market is a virtual trading arena, where investors borrow and lend money in the short term, with the unconditional right to receive a fixed sum of money (interest rate) on a specified date. Money Market instruments are very safe, and they are IOUs issued by governments, financial institutions and large corporations. Examples of such instruments include treasury bills, issued by governments;, commercial and financial papers issued by corporations, and  banker’s acceptances created by non-financial firm but guaranteed by banks

Real Estate

  This includes lands, buildings and other improvements – plus the rights of use and enjoyment of that land and its improvements. Here is a tricky one – people build houses and occupy them. This helps to save money that could have been paid on rent , but cannot be regarded as asset until it becomes an income-generating entity. Income-generating buildings and lands are a very good store of value as well as well as a good source of cash flow or passive income. So, the objective is to invest in real estate that will not only accommodate, but which will also be capable of producing positive cash flow.

Stocks and Shares

  Shares are proof of equity ownership in a company. Shares can be bought and sold. Owners of shares are part owners of the company whose shares they are holding. They are therefore entitled to a portion of the profits  (dividends) of that company whenever they are declared. Shares a good store of value too, but it is better for a prospective retiree to seek expert advice before dipping his funds into the volatile stock market. As a result of the Coronavirus ravaging the new world, investors with low risk appetite may find the market too volatile. But, as Warren Buffet says:  ‘Be greedy when others are fearful, but be fearful when others are greedy’.

Annuity

  The Pension Reform Act, 2014 provides for retirement benefits to be paid to the employee immediately after retirement. If an employee qualifies for a lump sum, the balance after the initial lump sum is to be used to purchase Programmed withdrawal managed by PFA or Annuity which is managed by a life insurance company.

  Annuity payments refers to payment of regular income to the retiree from the inception date of the annuity program, monthly or quarterly, (as determined by retiree) for the entire duration of his life. The objective of this annuity program is to reward life – the longer a retiree lives, the more benefits will accrue to him from the annuity program. However, if the retiree were to die prematurely after inception of the annuity program, the balance in his accounts will be paid to his or her named beneficiary.

 On the other hand, Programmed withdrawal managed by PFA provides for regular fixed payments to a retiree within and up to a defined life expectancy limit. Unlike Annuity, programmed withdrawal payments to the retiree will stop once payments have reached the number of years defined for him to live.

Conclusion

  An investor who believes he might fall short of his income estimates can augment his expected retirement benefits by opening additional voluntary contribution into his RSA account. He may also engage in any of the above methods to shore up his expected expected retirement income with any of the above methods. But thanks to the faithful implementation of the PRA2014, the contributions into employees RSA accounts are being invested by expert investors in the PFA and the PFC under strict guidance from PENCOM – the regulatory body.

  Take a chance. Prepare for a great time in your golden years. It is never too early to start!

Contributions are welcome. If you need more information or advice on your retirement planning in Nigeria, I'd be glad to help. Shoot me a mail at dewalemi@gmail.com