PREPARING FOR RETIREMENT: A Practical checklist

PREPARING FOR RETIREMENT IN NIGERIA: A Practical checklist BY ABIYE AMAKIRI

Symposium Paper Delivered At The Leadership Institute Session During The Annual Congress Of The Mens Missionary Union of the Nigerian Baptist Convention In Port Harcourt, Rivers State, NIGERIAPREPARING FOR RETIREMENT IN NIGERIA THE ONLY WAY TO PREPARE FOR RETIREMENT IS TO START PLANNING YOUR OWN RETIREMENT LONG BEFORE YOU RETIRE!!!

PREPARING FOR RETIREMENT & RETIREMENT PLANNING IN NIGERIA SOME Hard truthsRetirement Planning, the world over, is full of challenges.In Nigeria, it is made even more difficult for the Nigerian worker by the following factors Low salary income which translates to zero or little savings culture.

Public Policy Uncertainties that impact negatively on our pensions administration system and the mortgage and insurance industries.

Lack of a public social security system that caters for the vulnerable in society - the young and unemployed, the aged and the physically challenged persons.

PREPARING FOR RETIREMENT & RETIREMENT PLANNING IN NIGERIA SOME Hard truthsRetirement Planning, the world over, is full of challenges.In Nigeria, it is made even more difficult for the Nigerian worker by the following factors Lack of a functional mortgage system which guarantees the Nigerian worker affordable housing.

Huge family and other social responsibilities aggravated by the average size of our nuclear families, near-mandatory obligations to large extended families and our traditional preference for polygamy.

Dysfunctional public infrastructure which places additional pressure on the retired Nigerian worker.planning your retirement when IS RETIREMENT?To plan effectively for retirement, the worker must know in definite terms when he is due for retirement.

There is retirement based on the age of the worker, the number of years of service put in and, of course, there is the voluntary and involuntary (forced) retirement.

planning your retirement when IS RETIREMENT?While the policies on these various forms of retirement are clearly set out for workers in advanced countries, they are still fraught with uncertainties here in Nigeria.Retirement Based on Age varies depending on whether one is in the private sector or the public sector. Its slightly clearer for the Nigerian worker in the private sector but still confusing for the worker in the public sector depending on whether he is in the Local Government, State or Federal Civil Service (60 vs 65 years). Even in that case what applies to the academic is different from what applies to civil servants in the other sectors and yet these are all public servants. Even in the academics retirement age is dependent on whether one is a professor (65 vs 70 years) or not. The same confused state appears to prevail in the judiciary.

Retirement Based On Number of Years Again this varies between the private sector and the public sector but is predominantly set at 35 years of service.

Voluntary Retirement Most systems offer the option with incentives for voluntary (early) retirement. Again while the policies guiding this form of retirement are clear in the private sector, they can be confusing in the public sector.

Involuntary or Forced Retirement This includes a situation wherein a worker is forced to retire out of service before his retirement time (age or number of years) for a number of reasons including layoffs and redundancies. It is difficult to plan for this form of retirement as it is not very foreseeable on the long run. In fact, this form of retirement can destroy even the most meticulous retirement plan put into place by a worker.

planning your retirement when IS RETIREMENT?Given all of these scenarios and, to some extent, uncertainties, every Nigerian worker must study the laws and his terms of engagement (conditions of service) carefully and proactively determine, in very unambiguous terms, his retirement age or service year in order to determine when and how to start planning for retirement.

If the worker is thinking of voluntary retirement then he has to start planning even earlier.

planning your retirement when IS RETIREMENT?planning your retirement when do you start?Given all of the identified challenges, it is imperative for the Nigerian worker to plan for his/her retirement so that he/she is financially, physically and emotionally prepared for this eventuality.

If a worker is financially prepared for retirement then the chances are that he will be physically and emotionally stabilized for it.

The thrust of this discourse is tilted towards financial and documentary planning for retirement.

planning your retirement when do you start?Therefore, the big question remains - When is the best time for the Nigerian worker to start planning for his or her retirement?

The experts say between 15 to 10 years before retirement or from the age of 30 years. But this is for an organized society where the system operates like clockwork.

And so we recommend a much earlier time for the Nigerian worker who is faced with far more challenges than his counterparts in Europe and other developed nations. planning your retirement stARTING early CAN NEVER BE TOO LATEThe Nigerian worker must start retirement planning early with the determination of his retirement date from Day One of his employment. If an earlier voluntary retirement is being considered then this makes it more imperative.

He must keep this in view in every social decision he makes from that point on as some of these decisions may, much later in life, translate to the social and domestic pressures that will impact negatively on his retirement income and affect the quality of his life in retirement.

planning your retirement stARTING early CAN NEVER BE TOO LATEYou can never go wrong if you start early as you can review your plans and benchmark it against inflation and other current realities periodically.

planning your retirement stARTING early CAN NEVER BE TOO LATEWe have identified Three Phases of Retirement Planning for the Nigerian worker -Social Planning (Planning personal lifestyle) Phase which should start from Day One of employment Financial Planning Phase Recommended by experts to start in ones 30s but must also start from Day One of employment for the Nigerian workerDocumentation Phase which the experts advise should commence 3 years to retirement but which we recommend should commence 5 years to retirement for the Nigerian worker given the issues of documentation peculiar to our Country.

planning your retirement stARTING early CAN NEVER BE TOO LATEThe examination of each of these phases will throw up a practical checklist to planning retirement for the Nigerian worker.

planning your retirement practical checklist 1. SOCIAL (PERSONAL LIFESTYLE) PLANNING (From Day 1) Plan your active work lifestyle from Day One to fit into your desired retirement lifestyle. Determine the quality of lifestyle you desire in your retirement and work towards it by planning your active working life.

planning your retirement practical checklistBelow are some of the factors that may impact on retirement plans and affect the quality of the Nigerian workers retirement life if not addressed early in active work life -

Type of marriage Monogamous vs Polygamous LifestyleSize of family Small vs Large Nuclear Family, Nuclear family vs Extended FamilyLocation of family house Planned Environment vs Frontier Area, Perfected vs unperfected titleMake a will early and review it periodically with your lawyer. planning your retirement practical checklist CONTD2. FINANCIAL PLANNING (From Day One but not later than 15 years to retirement) The worker must evaluate and determine his desired quality of life and set goals in retirement life so that he can benchmark them against his salary level and pension contributions and begin to save and make plans towards them. Here, there 4 (Four) basic factors he has to take into consideration

planning your retirement practical checklist CONTD4 (four) basic factors to take into consideration:Determine Your Annual Income & Expenditure - Actual Salary Income vs Expenditure He must determine his monthly expenditure against his monthly income and determine what he can save monthly. This remains a major challenge to the Nigerian worker given our low basic salary level. Expense heads will include transport to and from work, family feeding, healthcare expenses, school fees, etc.planning your retirement practical checklist CONTD4 (four) basic factors to take into consideration:Determine Your Desired Quality Of Life In Retirement & Set Your Goals Having determined his annual income and expenditure level, he can then proceed to determine the quality of life he wants to live in retirement. Where to live, whether he is relocating or not, his preferred healthcare, type of home he wants to live in and hobby are some of the factors that must be considered. He must then proceed to set goals to match the lifestyle.planning your retirement practical checklist CONTD4 (four) basic factors to take into consideration:Estimate Your Retirement Income & Expenditure Projected Retirement Expenditure vs Calculated Retirement Income Once the worker has determined the desired quality of retirement life and set his goals in retirement, you must then proceed to put a budget to that retirement lifestyle (usually a projected monthly or annual budget).This is expected to be lower than his expenditure level as an active worker because your daily needs will drop. As an example daily transport fare to and from work would have been removed from his daily expenses. The note of warning is that in undertaking this estimate it is advisable to be as conservative as possible in your projections.

The worker should then calculate his retirement income, which will be from various sources such as his savings, retirement pension payments and rents and income from other investments. A good financial plan should ensure that the calculated retirement income should be higher than the estimated retirement expenditure. The reverse should raise an alarm and should be good grounds for a further review of the plan.

Furthermore, a workers retirement income under a good retirement plan should be about 75% of his income in his active work life. This is a tough call for the Nigerian worker to achieve.4 (four) basic factors to take into consideration:Determine A Savings & Investments Strategy to Secure Your Plan - Savings, Pension (NPF) Payments, Rents & Other Investments These are the means by which you can secure your retirement income and ensure that you balance out this income with your projected expenditure. If the estimated expenditure for your desired quality of retirement life outstrips your retirement income then you will have to undertake further reviews and perhaps, increase investments in some key areas. You may wish to increase your savings or undertake some other investments which will yield additional returns in your retirement life. But this will, of course, impact on your current monthly or annual income as these savings and investments will be funded from your current monthly or annual salary income.Some common forms of additional investments outside of your traditional savings and pension schemes will include Low Risk Investments such as money market funds and Treasury Bills. TBs are the safest and provide for inflation.Bonds offer higher returns and higher risks than Treasury bills. Bonds with short term maturities are advisable as bonds with long term maturity do not adequately hedge against inflation.Shares & Stocks are very risky especially in Nigeria but offer very good returns. Players in these instruments should stick to the shares of quoted blue-chip (Triple A) companies but must actively monitor the market to know when to exit and reinvest.Some common forms of additional investments outside of your traditional savings and pension schemes will include Mutual Funds a proper mix of mutual funds can result in higher returns than low risk investments. It is always advisable to seek professional guidance in this area.Life Assurance and other Insurance Schemes These will include Health and Education Insurance Schemes. But care must be taken in selecting the insurance companies.Mortgage Schemes in addition to the mandatory NHF contributory scheme & Real Estate Investments.planning your retirement practical checklist CONTD3. DOCUMENTATION PHASE (5 years for the Nigerian worker but not later than 3 years to retirement) Typically, the experts will advise the worker to commence this phase of retirement planning 3 (three) years to retirement. The Nigerian worker should commence his 5 years to retirement.

Documentation includes the issuance of notice and filing of relevant papers towards final retirement.

planning your retirement practical checklist CONTDThe worker must commence the review of and proper documentations of all mandatory or statutory contributory schemes including pension deductions the NPF, NHF, NHIS etc are up to date and reflect in the relevant offices. Particularly, the worker must routinely reconcile his individual Retirement Savings Account (RSA) which, happily, is now very portable under a more efficient uniform pension administration and regulatory system in Nigeria.

He should also begin to review and perfect the documentation of all other savings and private investment schemes he has undertaken and add up to his retirement income.

planning your retirement practical checklist CONTDHe must determine the state of his mortgage, if any, and ensure that he has a well documented title if he has finished paying same.

It is always best to follow up on documentation when you are in service and still given the cordial treatment by your colleagues who work in those office than when you leave service.

THANK YOU

planning your retirement ReferencesYour Retirement Plan: How To Get Started by Festus Aleogena & Co (Chartered Accountants) - http://www.faleogenachartac.com/le-retirementplan.phpPlanning For Your Retirement: Issues In Retirement Planning StanbicIBTC Pension Managershttp://www.stanbicibtcpension.com/?pageid=325