Effective ways to start retirement planning
Retirement planning is often put on the back burner for many young professionals, especially those grappling with immediate financial obligations such as student loans, mortgages, or personal expenses. While these concerns are pressing, the long-term effects of not planning for retirement can be detrimental to one’s financial security and well-being in later years. Young professionals often perceive retirement as something distant, something they can address “later.”
However, starting early lays the foundation for a more secure, stress-free retirement. The earlier one begins saving and investing, the more time the money has to grow, leveraging the power of compound interest. This simple principle can significantly amplify retirement savings, leading to a more comfortable lifestyle when the time arrives. It also offers the benefit of financial independence, as early retirement planning allows individuals to build a nest egg that requires less reliance on external sources in their later years.
In Nigeria, where the population is rapidly growing and the economy is unpredictable, early retirement planning becomes an even more critical issue. The country is grappling with several economic challenges that can have a profound impact on personal finances. High inflation rates, fluctuating currency values, and periodic recessions make long-term financial stability uncertain. For instance, inflation reduces the purchasing power of the naira, making it harder for individuals to meet their everyday expenses, let alone save for retirement. Moreover, the value of pensions or savings in naira can diminish over time due to inflationary pressures. As a result, the need to secure retirement funds that can withstand these economic shifts becomes even more urgent.
Furthermore, Nigeria’s pension systems, including the mandatory pension scheme for employees in the formal sector, are not always reliable. While the National Pension Commission regulates the sector, challenges such as poor implementation of pension schemes, delayed payouts, and non-compliance by employers continue to undermine the effectiveness of this system. In the private sector, many individuals do not have access to pension schemes, and even those who do may face difficulties in getting their rightful pensions when the time comes. This lack of a robust and dependable pension system further emphasises the importance of individuals taking responsibility for their own retirement planning. The uncertainty surrounding pension payouts underscores why it is crucial to have a personal savings and investment plan that ensures financial independence in the long run.
Additionally, the economic burden of an aging population on public resources is a growing concern. The government may not always be in a position to provide the necessary support for retirees, given the pressures on social welfare systems, healthcare, and other public services. For individuals, the need to prepare financially for retirement becomes even more pressing as government-backed support may not be reliable. By planning for retirement early, individuals can reduce the future pressure on public resources and avoid becoming financially dependent on state assistance, which may not be available when they need it most.
Given these circumstances, early retirement planning becomes a matter of personal security and a proactive approach to one’s future. With Nigeria’s economic volatility and the lack of a reliable pension system, taking control of retirement planning provides individuals with the opportunity to build wealth, diversify income sources, and ensure financial stability in the face of uncertainty. It’s clear that the earlier one begins planning and saving, the more likely they are to navigate economic challenges with confidence and financial independence. The future may be uncertain, but taking proactive steps today can provide a stable foundation for a secure retirement in the years to come.
Compound interest
One of the most effective ways to start planning for retirement is by understanding the power of compound interest. The earlier you begin saving, the more your money will grow. Even small amounts saved regularly can accumulate into significant sums over time. Starting your retirement savings at a young age gives your investments more time to appreciate, allowing you to benefit from compound growth, interest earned on both your initial contributions and the interest those contributions generate.
Structured budget
Another key strategy for early retirement planning is to create a budget that allows for regular savings. Without a structured plan, it can be easy to overlook savings or use extra income on short-term pleasures. However, building a clear, long-term financial plan and prioritising retirement savings will ensure that you contribute consistently, no matter what unexpected expenses arise.
Automated savings
To take this further, automating your savings is an effective way to ensure you consistently put money aside for retirement. Setting up automatic transfers to a retirement account, whether it’s a pension fund, individual retirement account (IRA), or 401(k), guarantees that savings become part of your monthly routine. This takes the temptation to spend away and ensures that your retirement fund steadily grows over time.
Investment diversification
In addition to saving, diversifying your investments is another crucial component of early retirement planning. Relying solely on savings accounts or pension plans might not offer the best return in the long run. Consider investing in a variety of assets, including stocks, real estate, and bonds. This mix helps to spread risk and can potentially yield higher returns, particularly if you have a longer time horizon to weather market fluctuations.
Goal-oriented planning
It’s equally important to start contributing to a retirement plan that matches your goals. In countries like Nigeria, where pensions may not always be reliable, having an alternative plan that involves direct investments in wealth-building assets is a prudent approach. Whether it’s through government-approved schemes, personal retirement accounts, or employer-sponsored retirement plans, make sure to tailor your contributions based on the amount of time you have left before retirement and the lifestyle you envision.
Plan review
Review your retirement plan regularly to ensure it stays aligned with your goals. Life circumstances change, whether it’s a career switch, a family milestone, or an unexpected expense. Reviewing your plan regularly allows you to make adjustments as needed, ensuring that you remain on track to meet your retirement goals.
Employer benefits
Maximising employer benefits can significantly boost your retirement savings. Many employers offer retirement savings plans, such as matching contributions to a 401(k). If your employer provides this benefit, take full advantage of it. By contributing enough to take advantage of any employer match, you’re essentially getting free money that can accelerate your path to financial security.
Vision clarity
Besides financial strategies, it’s crucial to develop a clear vision of your retirement goals. Think about the lifestyle you want, whether it’s traveling, starting a business, or living comfortably without worrying about finances. Having clear goals helps you determine how much you need to save, what kind of investments to make, and how aggressively you need to approach saving to ensure that your dreams become a reality.
Debt reduction
Alongside these strategies, minimising debt can be an effective way to free up more money for retirement planning. High-interest debt, such as credit card debt, can undermine your ability to save. Focusing on paying down high-interest debt first will create more room for savings. Additionally, being debt-free as you approach retirement means fewer financial obligations that could otherwise drain your resources.
Emergency fund
Another vital element in the retirement planning process is building an emergency fund. Having liquid savings to cover unexpected expenses prevents you from dipping into your retirement savings when life throws curveballs your way. Aim for three to six months’ worth of living expenses in an easily accessible account.
This fund gives you financial flexibility and ensures that your long-term goals remain on track, even during challenging times.
Financial education
Lastly, educating yourself about retirement planning is a powerful tool that many people overlook. The more you understand about investment options, tax advantages, and savings strategies, the better equipped you will be to make informed decisions. Read books, attend seminars, and consult with financial advisors who can provide insights tailored to your specific financial situation and goals.
A cultural and non-political group of Ibadan, Oluyole Club, recently called on Nigerians to take proactive steps in planning for retirement, describing it as a crucial phase of life that requires deliberate financial preparation.
The immediate past president of the club, Rasaki Oladejo, made this call at the club’s 2025 yearly lecture and bursary awards with the theme, “Planning for a fulfilling and financially secure retirement.”
Oladejo, who was the guest lecturer, emphasised that while retirement was a universally anticipated stage, many individuals enter it unprepared, leading to anxiety and financial instability.
He said, “Retirement is a stage in life to which everyone looks forward, but to fully enjoy this phase, we need to plan ahead. Such planning involves setting aside savings during one’s active years to ensure financial security when employment income ceases. With increasing life expectancy and the declining reliability of traditional pension schemes, personal financial planning has become more important than ever. The focus should be on early and sustained retirement preparation.”
Oladejo outlined common fears associated with retirement, including the loss of a regular paycheck, housing, social status, workplace camaraderie, and authority. He added that poor financial preparation only worsens these fears.
He added, “Retirement worries often revolve around the adequacy of pension payments, investment decisions, inflation, rising medical costs, housing options, new career paths, boredom, and other uncertainties. There are outdated assumptions, such as relying on children for support or expecting pension benefits to suffice; instead, retirees now often live 20 to 30 years post-retirement, sometimes longer than their entire working life.
“Retirees should also continue supporting both aging parents and adult children, increasing financial burdens.
Highlighting key concepts like the Crossover Point, the moment when investment income equals or surpasses living expenses, Oladejo encouraged individuals to pursue voluntary retirement through financial independence, not just age.
He advocated assessing current financial positions, including all income and expenses, and determining how much is needed to maintain one’s desired retirement lifestyle.
Oladejo recommended, “Deploy practical saving and investment strategies such as the 50-30-20 rule (50 per cent for needs, 30 per cent for wants, 20 percent for savings/investments); building an emergency fund equivalent to six months of expenses; Leveraging retirement plans for self-employed professionals and traders and among others.
“Of course, there are several challenges, including; lack of financial literacy, inadequate savings, market volatility and unexpected life events.”
Oladejo further urged Nigerians to reframe retirement as a new chapter rather than a decline. He encouraged nurturing meaningful relationships, pursuing hobbies, prioritising health, and embracing present realities with optimism.
“Take personal responsibility for your financial future. Retirement planning is not for those approaching old age; it is a lifelong activity,” he advised.
In conclusion, starting early is the best way to ensure that you can enjoy a stress-free and financially secure retirement.
By leveraging the power of compound interest, automating your savings, diversifying your investments, and creating a clear financial strategy, you can build a robust retirement fund. Make it a priority to start today, review your plans regularly, and stay committed to your goals. Your future self will thank you for the effort you put in now.
