Why You Must Save Towards Retirement

Photo Credit: Barbaric.com
A safe happy retirement is everyone’s dream. In the past, parents took care of their children and began to dream of a safe, happy retirement as soon as their children got employed. The better the jobs their children got the more comfortable the retirement that they could enjoy. While this dream can still be a reality in this generation, societal fabric is disintegrating and life is becoming more expensive. In addition, we are living longer and should expect to spend more in retirements than our grandparents did.


Many of us under the illusion that life expectancy is low, so there is no need to save for old age. Although Nigerian’s life expectancy is often citied 54.07years (Global ranking), this is the life expectancy of a Nigerian childhood diseases like diarrhea and malaria, as well as mortality resulting poor social and medical facilities. However, the life expectancy of an adult at any age is highly influenced by lifestyle, income and psychological factors. Consequently, one contributing factor to low life expectancy is failing to plan for retirement. The outcome of not planning adequately for retirement is mortality(death) and old age poverty and therefore chances of one living longer are very minimal.


Retirement, like death, is an eventuality and requires proper planning. Unfortunately, most Nigerian view retirement as farfetched and fail to plan for it, often ruining their sunset years for lack of planning. Inadequate retirement planning often leads to homelessness among retirees because they no longer have regular income to pay for their rent and upkeep. With reports indicating that only 16 per cent of Nigerians own houses, majority of working people have shelter because they are earning an income. If we do not encourage people to save for retirement, we are setting ground for destination.


Why should one save for retirement?


Traditional systems of old age security are breaking down. Are you sure that your children will take care of you when you retire? Accomplishing the dream of a secure, comfortable retirement is much easier when you plan your finances. There are several benefits schemes and there are four distinct ways in which a retirement benefits scheme enables employees enjoy greater benefits than other forms of savings.


• In the case of occupational retirement benefits schemes, both member and sponsor (employer) contribute to the fund, all to the eventual benefit of members. This translates into ‘free income’ from the employer in the form of employer contributions going into the scheme.

• Member contributions to Retirement Saving Account(RSA), the benefits are tax deductible. For example. If you earn N150,000.00 and the contribution is N11,250.00 to a Retirement Savings Account is tax allowable.

• Contributions made into a Retirement Savings Account can be invested in long term assets so as to earn optimal returns over a period of time. However, the contributions into the Scheme are by law required to diversify their investment risk.

• All investment income earned by tax Retirement Savings Account is tax free, hence generating more funds for re-investment. On the other hand if you invest directly say in treasury bills or bank deposits, you will be required to pay withholding tax on the interest earned.


• All retirement benefits earned by persons aged 50years or over are tax free.


If you are a member of a Pension Scheme, then on attainment of retirement age, the scheme will pay you a monthly pension for the rest of your life no matter how long you live. You can all convert up to 1/3 of the total benefits due from a Pension Scheme into a lump sum payment. If you are a member of a provident fund, then on achieving retirement benefits age, you will be paid a lump sum which if you invest wisely, can also provide you with income for the rest of your life.


The retirement benefits vested on an employee cannot be accessed by any person. For an example, your employer cannot recover any amounts that you owe to the company from your Retirement Saving Account(RSA) benefits without your express written authorization.

In conclusion, there are many other benefits available to retirement savers including the peace of mind that comes from having your assets administered and invested by professionals under the careful eyes of the Capital Markets Authority. For more information on how you can prepare for a comfortable retirement, Please contact our IBN specialist for advice on risk and employee benefits consulting services.

Dennis Orogun
Head Resource Benefits Association
Insurance Brokers of Nigeria
Dennis.orogun@ibn.com.ng
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