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How to Plan for Retirement in Nigeria

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Thinking about pensions is thinking about the future, in the long or short term. It is also thinking about abandoning the Nigerian labor market, retirement, and a new life stage full of promises and opportunities, but also uncertainties. For this reason, planning for retirement should be increasingly important for every Nigerian. It is, after all, about planning a future in which economic stability and maintenance of the standard of living are assured.

Why retirement plan?

The future of pensions has always had a prominent place among the concerns of the population. According to statistics, pensions are currently perceived as one of the country’s major problems. In fact, in the last decade, pensions have always been among the main concerns of the population.

The 2018/20 recession and financial crisis exposed the weaknesses of the Nigerian pension system, which has been under constant stress ever since. The demographic challenges posed by an increasingly aging population and the financing problems generated by depending exclusively on the contributions of the active population (if unemployment rises, as in the current situation, income falls) have put the balance at risk of the public pension system.

It is increasingly necessary to save in a complementary way, through the different instruments available, to be able to complete the public pension with other income.

The medium and long-term scenario is uncertain, but everything indicates that the amount of the retirement pension will be less and less in the future, especially for those who today still have a good part of their career ahead of them. For this reason, it is increasingly necessary to save in a complementary way, through the different available instruments, to be able to complete the public pension with other income. It is a way of ensuring that, once we leave the labor market, we will not lose the quality of life.

Step 1: Understand what the future holds

Planning for retirement may seem complicated, but it can actually be done in a few steps and relying on expert opinion. As a starting point, we must estimate what the future holds. That is, how much of the public pension will correspond to us if nothing changes.

In this sense, the NLPC Pension Funds Administrator Limited calculator provides a retirement simulator that we can access with the electronic certificate. In it, you can see how much we have contributed, how much we still have to contribute, how much we are expected to receive as a pension, and what the real value of the pension will be at that time (the so-called deflated value).

Step 2: Determine how much you have to save

Once we have an idea of ​​how much we will be able to receive from a public pension (a value that, the more in the long term, the more imprecise it will be), we will be able to determine how much it is necessary to save. To do this, we will start by calculating the difference between the standard of living that we want to have or maintain in the future and what we are going to receive.

We will then multiply that amount by the number of months of approximate life expectancy after retirement. This is another very variable value, but it helps us to get an idea of how much we will have to save in total. From this total value, we can determine how much we will have to save per month. In this sense, it is very important to take into account the age and the years that we have left in the labor market. The earlier you start, the better your chances of reaching an ambitious savings goal.

Step 3: Establish an investment strategy

Once the first two steps have been completed, it is time to define the investment strategy. In this sense, you have to think about when, how, and how much. The first answer is simple: the sooner the better. Constant and very long-term savings allow us to take on more risk and, therefore, receive higher returns. It will also prevent the effort (what we have to save month after month) to be less to reach the desired amount, and time and regularity in the contributions will protect us from the ups and downs of the market.

Thus, the younger and more time is ahead, the greater the chances of taking risks. In the same way, the closer we are to retirement age, the more prudent we have to be and the less risk we can tolerate. The latter connects with the next question: how. There are many savings tools on the market, each with its strengths.

Pension plans are designed taking into account the saver’s risk profile and allow it to be modified as circumstances change

Pension plans are specifically designed for long-term savings that allow supplementing the public pension once retired. Depending on the final objectives, a periodic contribution is set (it is best to make it monthly) and the total sum of the amount contributed plus its income is recovered when the person retires. These plans are designed taking into account the saver’s risk profile and allow it to be modified over time and as circumstances change.

In addition to pension plans, there are other financial products available on the market, such as the different types of investment funds. It is important to highlight that both pension plans and other long-term savings products are investment instruments. It is always necessary to invest to seek the revaluation of savings and thus compensate for the rise in the standard of living.

As we pointed out at the beginning of this section, the further away the retirement moment is, the more determined the investment strategy can be. On the contrary, the closer you are to retirement age, the more conservative you have to be and the less risk you have to take.

Step 4: Get Started and Don’t Lose Perspective

Throughout this process, it is advisable to be advised by experts in savings, investments, and retirement. They will be able to clearly explain all the options, with their advantages and disadvantages, and help us establish realistic and attainable savings goals. Ultimately, once the investment strategy has been decided, the final step is to start saving, regularly contributing the amount we have estimated. However small this may be, in the long term, and with perseverance, great goals can be achieved.

Finally, it is important to keep your goals in mind and not focus on possible fluctuations in the financial markets. In the long run, the investment will always be positive. However, this does not mean that you have to forget about strategy altogether. It will always be necessary to review the plan and modify it if conditions change (if income increases or decreases or family responsibilities increase, for example).

In conclusion, proper retirement planning is not too complex. Knowing how much we can receive from the public pension, taking into account how much we are going to want to save, what our saving capacity is and how much time we have, we can choose the most appropriate investment strategy to maintain our standard of living once we reach retirement age.

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