How to secure your future after retirement – Punch Newspaper

In this article, HENRY FALAIYE discusses the current retirement landscape, challenges, and steps individuals can take to secure their post-retirement lives

Retirement is an inevitable phase of life that every working individual will eventually face. The importance of saving for retirement cannot be overemphasised. The lack of a comprehensive social security system makes it crucial for individuals to plan their financial futures.

Nigeria’s rapidly increasing population and dynamic economy present a distinctive and challenging landscape for effective retirement planning. Traditionally, many Nigerians relied on extended family support and informal social networks to provide for their needs in old age.

However, as urbanisation and modernisation increase, these traditional support systems are weakening.

The National Bureau of Statistics reported that only a small fraction of the Nigerian workforce was enrolled in any formal pension scheme, leaving the majority without a structured retirement plan.

The introduction of the Pension Reform Act in 2004 marked a significant step towards improving the retirement savings culture in Nigeria. The Act established the Contributory Pension Scheme, mandating that employers and employees contribute to an individual retirement savings account.

Despite this, many Nigerians remain outside the formal pension system, particularly those in the informal sector, which constitutes a significant portion of the workforce.

Retirement savings importance

Financial security: The primary reason for saving for retirement is to ensure financial security during old age. Without a regular source of income, retirees who have not saved adequately may struggle to meet their daily needs, medical expenses, and other unforeseen costs. Retirement savings provide a cushion that allows individuals to maintain their standard of living even after they stop working.

Inflation protection: Over time, the value of money decreases due to inflation. Savings set aside for retirement can help protect against the eroding effects of inflation. By investing in various financial instruments, individuals can grow their retirement corpus and ensure that it retains its purchasing power over the years.

Independence and dignity: However, having sufficient retirement savings allows retirees to maintain their independence and dignity. They do not have to rely on their children or relatives for financial support, which can sometimes strain family relationships and lead to a loss of respect and autonomy.

Healthcare costs: Healthcare needs tend to increase with age. In Nigeria, where healthcare can be expensive and access to quality medical services is limited, having a robust retirement fund can be crucial. It ensures that retirees can afford the medical care they need without compromising other aspects of their living standards.

Economic stability: On a broader scale, a culture of saving for retirement contributes to economic stability. When individuals have adequate savings, they are less likely to depend on government welfare programs or charity, reducing the fiscal burden on the state and allowing for more efficient allocation of resources.

Addressing the challenges and improving retirement savings in Nigeria requires a multifaceted approach:

Enhancing financial literacy: Increasing financial literacy is essential. Government agencies, financial institutions, and non-governmental organizations should collaborate to provide education on the importance of retirement savings and effective financial planning. Initiatives like workshops, seminars, and online courses can help spread financial knowledge.

Strengthening economic policies: Implementing stable and consistent economic policies can create a conducive environment for savings and investments. Efforts to diversify the economy and reduce dependency on oil can mitigate economic volatility and encourage long-term financial planning.

Informal sector inclusion: Extending pension coverage to the informal sector is crucial. Innovative solutions, such as micro-pension schemes tailored to the needs of informal workers, can help increase participation. Mobile technology and digital platforms can facilitate easy enrollment and contributions.

Building trust in financial systems: Restoring trust in financial institutions and pension managers is vital. This can be achieved through transparent management practices, stringent regulatory oversight, and accountability measures. Highlighting success stories and testimonials can also help build confidence.

Cultural shift: Promoting a cultural shift towards self-reliance in retirement is important. Media campaigns, community leaders, and influencers can play a role in changing perceptions and encouraging individuals to take responsibility for their retirement savings.

Government incentives: The government can provide incentives to encourage retirement savings. Tax breaks, matching contributions, and subsidies for low-income earners can make saving for retirement more attractive.

Addressing these challenges requires a collective effort from the government, financial institutions, and individuals. The government can implement policies that incentivise saving and ensure economic stability. Financial institutions should offer accessible savings products tailored to various needs. Additionally, individuals need education on the importance of early and consistent retirement savings. By working together, Nigeria can foster a robust culture of retirement savings, ensuring financial security and dignity for its citizens in their old age.

Speaking with The PUNCH, the Chief Executive Officer of ADOJ Limited and Financial Consultant, Adebukola Adetutu, said, “I cannot overemphasise the importance of retirement savings. In today’s fast-paced and unpredictable economic environment, securing a stable financial future is essential.

“Retirement savings provide a critical safety net, ensuring that individuals can maintain their standard of living and financial independence in their later years. Without adequate savings, many retirees face the grim prospect of financial insecurity, which can lead to stress and a diminished quality of life.”

Adetutu explained that one of the major reasons for prioritising retirement savings is the increasing life expectancy.

“As people live longer, the need for a substantial financial reserve becomes more pressing. Due to changing societal dynamics, traditional support systems, such as family networks, are becoming less reliable. This shift underscores individuals’ need to take personal responsibility for their financial well-being,” he stated.

Also, an economist and banker, Mr Tuyor Otubanjo, highlighted the benefits of retirement savings, particularly because of the power of compound interest. Compounding occurs when the interest earned on savings is reinvested, leading to exponential growth.

Otubanjo stated that starting to save early maximises those benefits.

He said, for instance, that young professionals who begin saving early could see their contributions grow significantly. A 25-year-old saving N20,000 monthly at a six per cent annual return could accumulate over N50 million by age 65 while starting at 35 might yield around N26m. Early and consistent savings lead to a more substantial retirement fund.

“By prioritising retirement savings, individuals can secure a dignified and comfortable retirement, free from financial concerns. It is never too early to begin planning for the future, and the earlier one starts, the more secure and enjoyable their retirement years will be,” Otubanjo added.