How to Start Planning For Retirement in Your 20s
What plans are you putting in place for your retirement?
Think retirement plans are for oldies? When you approach the retirement age, you’ll wish you had set plans in motion long before.
Don’t wait until life deals you an unpleasant surprise before making a move. Just like some other things in life, the earlier you get started, the better off you will be. Even though things don’t always go exactly as planned, you still have a huge say on how your future will turn out. Don’t sit around waiting for things to happen by chance and hoping life fixes itself. Plan your life and future to turn out just the way you envisaged.
Here are 5 moves you should make right now if you want to secure your financial future:
If you are reading this then you have already taken the first baby step. Next up is creating a retirement dream.
How do you want your retirement to look like? State your retirement goals; activities you will love to engage in when you stop working full time, would you keep working part-time or are you retiring to manage your business? Would you love to take a vacation or give back to the society through community works? Which city do you want to live in? Etc. Knowing the apt answers to these questions and more will give you a clear vision and idea of what you are planning for and the financial requirements for it.
Run through the numbers.
Having drafted a clear-cut retirement vision, the next thing on your bucket list is to check what you are currently worth and how to increase your earning potential. How much do you bring home weekly or monthly? How much do you currently have in your savings or emergency funds account?
Create a plan.
Make a clear plan on how you will go about fulfilling the dreams/goals you created in step one above. Broaden your earning potentials, stay out of unnecessary debts, save and invest more. See these tips on how to boost your personal finance
Have a retirement savings account.
Some employers offer retirement plans and contribute to their employee’s retirement savings. For example in Nigeria, employers (both public and private) enrol their staff under the Pension Contributory Scheme and this is regulated by the Pension Reform Act.
How does this work?
8% of your (employee) Basic+Housing+Transport (BHT) allowance every month goes to pension contribution. Your employer deducts this amount from your salary at end of the month. Your employers also contribute 10% of your BHT every month and the total which is 18% is then transferred to your retirement savings account every month. This savings account is usually opened in your name by your Pension Fund Custodian, the amount is then assessed by your Pension Fund Administrators who help you invest the money. This pension amount is not taxable as it is a statutory deduction (deductions made according to the law).
You also have the right to contribute more than the stipulated 8% that means you can voluntarily contribute more if you wish to or if you have excess cash. However, any voluntary contribution made (as indicated above) shall be subject to tax at the point of withdrawal if the withdrawal is made before the end of 5 years from the date the voluntary contribution was made. If you can afford it, endeavour to contribute more to your retirement savings.
Get financial education.
Knowledge is power. What you do not know you cannot face squarely. It is in your interest to read up all you can on finance management.
Look up your company’s retirement plans for employees & retirement generally. If you are not a civil servant then you need to be appropriately informed about the retirement packages and policies of your company. This will help you get clarity and negotiate to your benefit where possible.