In managing your finances, you should also plan for your retirement. Okechukwu Nnodim writes on easy steps to take while preparing to quit paid employment
It is important to note that financial security after an employee retires doesn’t come easy. It takes adequate planning and strict adherence to saving to be financially secured in retirement. Hence, employees and even owners of small businesses must cultivate the habit of setting money aside for retirement. Remember, saving matters!
As a result of this, the Federal Government through the National Pension Commission introduced the Pension Reform Act in 2004. The government also initiated the Contributory Pension Scheme for workers in the public and private sectors. This article, however, will focus on how an average employee can prepare for retirement and not the rules guiding the contributory scheme.
The Head, Research and Corporate Strategy, PenCom, Dr. Farouk Aminu, in a presentation recently, noted that though the pension scheme, workers will able to save, receive their retirement benefits as and when due, and directly contribute to the Nigerian economic development. Below are some steps to take as you prepare for retirement, according to experts:
Start saving, continue, be persistent
As an employee, if you have not started saving for retirement, it is high time you do. For an individual who is already saving, whether for retirement or something else, keep going. Experts say saving is a rewarding habit. You can start small if you have to and try to increase the amount you save on a monthly basis. This is because the sooner you start saving, the more time your money has to grow. As a matter of fact, the average employee should make saving for retirement a priority. You must devise a plan, stick to it, and set goals. Remember, it’s never too early or too late to start saving, experts say.
Identify your retirement needs
To maintain your living standard after you quit your job is expensive, experts note. This, therefore, means that retirement is not cheap but expensive. It’s been estimated that a low income earner will need about 70 per cent of his pre-retirement income in order to survive in retirement. The average high income earner may need about 90 per cent or more to maintain his standard of living when he stops working. Aminu noted that the key to a secured financial future was early planning and stressed that by so doing you are taking charge of your future in retirement.
Contribute to a retirement savings account
This is where the Federal Government’s CPS comes in. You should contribute to your employer’s retirement savings plan early so as to have enough funds in retirement. Sign up and contribute all you can to your employer’s retirement savings plan, no matter how much is offered by your company. Experts note that automatic deductions by your company and prompt remittance to your chosen Pension Fund Administrator makes contributing to the scheme easy.
Often times, taxes are lower than what you contribute depending on the ability of your company to sort this out with appropriate authorities. Experts note that over time, compound interest and tax cuts make a big difference in the amount you will accumulate. They advise you find out about your plan from your PFA. For example, you can find out how much you would need to contribute in order to get the full employer contribution and the time duration necessary to get the money.
Understand your employer’s pension plan
As an employee, you should find out if your employer has a traditional pension plan. You should also figure out whether you are covered by this plan and try to understand how it works. Experts say you may approach the administrator handling the plan for your company to ask for an individual benefit statement. This is to see what your benefit in the plan is worth.
For individuals planning to switch jobs, it is advisable to find out what will happen to your pension benefit. You should learn what benefits you may have from a previous employer in relation to what you are expecting. You may also find out if you will be entitled to benefits from your spouse’s plan. This, however, depends on the administrator handling the plan.
Ask investment questions
Experts note that how you save can be as important as how much you save. This is because inflation and the type of investments you make play important roles in how much you will have saved at retirement. It is therefore advisable to know how your savings or pension plan is invested. If possible and if you have enough to save, you can put your savings in different types of investments. Experts note that by diversifying this way, you are more likely to reduce risk and improve return. However, your investment mix may change over time depending on a number of factors such as your age, objectives, and financial circumstances.
Avoid withdrawing from your retirement savings unless it’s due
If you withdraw your retirement savings now, you may lose principal and interest and you may lose tax benefits or have to pay withdrawal penalties, experts say. It advisable to leave your savings invested in your retirement plan even when you change jobs, or better still move them to your new employer’s plan.
Culled From: The Punch