1. PLANNING FOR RETIREMENT
(WHAT EVERY DOCTOR SHOULD KNOW)
Presented
@ the
DOCTOR’S FORUM
By
Mrs. Aderonke Adedeji ACA, FCCA
MD/ CEO
Leadway Pensure PFA Limited
2. OUTLINE
Rationale for planning retirement
Key Considerations
Investment Planning
Managing your Interests
Overview of the Pension Reform Act (PRA)
2004
About Leadway Pensure PFA
Conclusion
4. RATIONALE FOR PLANNING RETIREMENT
Retirement is inevitable
The major reason for working is to be able to
provide for when one stops working
Any one who does not plan, plans to fail
Demographic studies in the last decade indicates
an increasing life expectancy leading to
progressive ageing and increase in longevity
Though longevity is desirable there is the risk is
that the individual might outlive his financial
capacity to maintain himself and his dependants.
5. RATIONALE FOR PLANNING RETIREMENT (cont’d)
The belief that financial needs will decrease at
retirement may be erroneous. In reality, the desire
to maintain one’s standard of living will create new
financial needs.
The growing phenomenon of price inflation which
impairs the ability of a fixed income earner to save
and also erodes the purchasing power of
accumulated funds.
An involving process and requires seriousness and
focus
Too many people leave it to chance
7. AGE GROUPING AND RETIREMENT PLANNING
Attitude towards retirement is generally influenced by age and
circumstance at the point in time
Under 30yrs
Generally unconcerned about pensions and retirement. Enjoying financial
freedom. More concerned with career opportunities. This usually results to
loss of great opportunity to plan for a secure future.
Mid 30s and Late 40s
Have inherent responsibilities including providing for children’s upkeep/
education
Need to maintain lifestyle, while striving to improve standard of living.
Involved in various ventures and often diversifies their investments to
strengthen their financials.
Stage most people tend to acquire own houses through mortgage or
company financed scheme.
8. AGE GROUPING AND RETIREMENT PLANNING (CONT’D)
Between 50 to 60 yrs
Full realization that time is running out
For those at the top of their careers – feel a sense of achievement
For others who may not have been so lucky, retirement becomes priority.
Questions are raised about quantum of retirement package as well as
security of the benefits, if any.
65 & Above
The expectation is that the consolidated returns from various sources of
are likely to fully support your lifestyle.
Doctors are often still able to engage in other gainful employment (full time
or part-time basis).
As one ages, a critical area of concern is managing retirement resources
Unfortunately, some of those who leave employment at age 60 find it
difficult to cope financially.
9. SOURCES OF RETIREMENT INCOME
Insurance
Various insurance contracts can be tailored to provide cash or regular
installment payments
National Insurance
Social security schemes such as the defunct NSITF provide cash
payment and other benefits to members on retirement.
Employer Schemes
Often referred to as occupational schemes offer retirement benefits to
employees, i.e. provide cash as gratuity in addition to pension for the
life of the employee.
Basically either self administered by Trustees or by an Insurance
company and non PFA.
Defined Benefit v Defined Contribution Schemes
10. SOURCES OF RETIREMENT INCOME (CONT’D)
Personal Savings Plans
Employer-geared savings – the organization takes up the
responsibility of retirement benefits by having a % tage of the
individual’s monthly or yearly income set aside
Individual personal savings – the individual decides to save a %
tage of his earnings against his eventual retirement
Investment Income
Over the years of employment, you may have built up tangible
assets such as land, property & stocks
The returns from these investments will form a good source of
income to augment other sources following retirement.
There will be a growing need to review investment portfolio whilst
in retirement
11. SOURCES OF RETIREMENT INCOME (CONT’D)
Part Time Employment
Consultancy
Research
Teaching
Business Ventures
Private Practice
12. GUIDE TO HAPPY RETIREMENT
To some, retirement means quitting work altogether, to
others it simply means slowing down.
The journey to retirement should start when
one starts working– adopt a phased
approach.
Never too late to start – No time like the
present.
Articulate the challenges one would face at
different stages of life in retirement.
Define your dream at retirement and ensure
the dream is firmly grounded in careful
analysis and practical planning
13. PLAN YOUR EXIT FROM REGULAR EMPLOYMENT
Ensure you can leave at the right time.
People who leave a job voluntarily are likely to
be happiest in retirement than those pushed out
People who retire on their own terms have a
schedule and better opportunity to get their
post-work finances in order.
The shock of retirement is usually overwhelming
for those not mentally prepared for it.
It pays to recognize the possibilities of being compelled to stop work
because of ill health or downsizing and the need of some advanced
planning so as not to be caught off-guard.
14. KEEP BUSY AND HEALTHY
Seek a part time vocation.
Active religious and social work usually
attracting no monetary reward.
Research study, Consultancy on retirement
– up to 50% of income generated by retirees
can come from part-time employment and
over half of the percentage is from those
that are self employed.
Keep healthy. This affects the quality of life
you wish to live.
16. YOUR PERSONAL FINANCIAL REQUIREMENTS
See the big picture (your expectations) and translate this into financial
terms.
Where amounts to be paid are not sufficient to allow retiree maintain
anything close to his pre-retirement lifestyle, the strategy must be
aimed at identifying additional sources of income as well as
developing a spending strategy that will allow a balance between
likely income and expenses.
Residence, family situation, including children’s education and upkeep
– all these must be translated and quantified so as to ascertain
financial implications
Do you have any debt?
17. RETIREMENT INVESTMENT STRATEGY
Your strategy is to adopt an asset allocation formula that will
give a balanced portfolio of investments (with enough
growth, good returns and security) to protect the overall asset
base.
Establish a cash flow - Liquidity.
Risk v Return.
Have a diversified income sources which takes advantage of
financial market instruments, tax implications while hedging
against the risk factors.
18. RETIREMENT INVESTMENT STRATEGY (CONT’D)
How Much Money is Needed?
5 key Variables
50% -100% or more of pre- Age at retirement
retirement income?
Current love of investments
No “one size fits all” answer
Amount of annual income
needed
Amount needed depends
on: Rate of return on investments
Age at retirement
Health status and life expectancy Number of years in retirement
Goals (e.g., travel, hobbies, work
after retirement)
Lifestyle decisions (e.g., choice of
area and housing)
Available resources (e.g., retiree
health benefits)
19. INVESTMENT OUTLETS
Fixed Income Securities
Fixed deposits & Cash–tend to enjoy a low level of risk & considerable
level of guaranteed security. May not enjoy real growth if net interest
income is below inflation.
Money Market securities – Instrument is very liquid and relatively safe.
Due to trading in very high denominations, may limit access by
individual investors secure loss secure than FD.
Treasury Bill – exceptionally safe investment issued by govt. to finance
expenditures. Backed by the full weight of govt.
Bonds –Govt. v Corporate investments than stocks (especially FGN
Bonds which have zero risk). Holders are certain of fixed interest
payment at least twice yearly.
Equities and Stocks – You share the risk of company’s failure and the
benefits of company’s success. Sectoral distribution is an important strategy
in buying stocks. Recommended for achieving long term goal. Seek advise.
20. INVESTMENT OUTLETS (CONT’D)
Mutual funds – the fund manager has the responsibility to invest in
various instruments. Cost effective and can be purchased in small
denominations
Real Estate investment
Long term–require careful planning as to the particular nature and
location of investment so as to maximize return in the medium term.
Watch words in the administration of real estates are care, prudence
and foresight.
Income growth -unlike dividend from stocks, rent from leased property
is payable in advance. There is however the risk that a sitting tenant
may refuse or be unable to pay rent when due.
Capital Security and Growth–the best hedge against inflation.
Owning your house is the foremost strategy when considering
retirement planning. Ensure you minimize risk of total loss through
21. INVESTMENT OUTLETS (CONT’D)
Retirement Savings Accounts – Diversified investment portfolio managed
by professionals. Steady growth. Not accessible till retirement or
unemployment.
Business Interests – Private Practice.
22. INSURANCE
Life insurance – making sure a sum of money will be available
to dependants in the inevitable event of a death. Depending on
type of policy, this can be paid as lump sum or spread over a
series of payments.
Insurance against loss of income:
Permanent health insurance – provides regular income payment for an
insured that is off work as a result of illness or disability.
Disability insurance – used to protect the future earnings of an employee by
replacing the income in event of becoming physically challenged.
Critical illness Insurance – allows the insured cover the cost of living with the
illness
Long term care insurance – provides resources to pay the cost
of long term professional care if a person becomes too ill or
disabled.
Annuities–a pre-planned arrangement to utilize accumulated
savings under an occupational pension scheme or personal
24. MANAGING YOUR INVESTMENTS
Advisable that one is guided by professionals
(Independent Financial Advisers)
Educate yourself and get involved
Identify investment outlets in line with
objectives
Phase the process
Free up cash flow – pay off debts
Be disciplined
Conduct regular reviews, rebalancing &
repositioning
25. MANAGING OF RISKS
Inflation risk – your investment returns should be
high enough to compensate for the effect of rising
prices.
Credit risk – this exist in the case of investments
purchased as a loan (Bonds, CPs, e.t.c) where the
borrower is unable to pay. Have a financial institution
guarantee the bond or invest in a mutual fund as a
way of reducing the risk.
Interest rate risk – may arise from long term deposit
or investment in Bonds. You will however enjoy a
higher yield when the interest rate is falling.
26. MANAGING OF RISKS (CONT’D)
Market
Market risk is the risk that the entire stock market or
segment in which you have invested will lose value - Invest in
the long term to combat this risk.
Business risk –
Business risk - risk that an individual business e.g. private
practice will decline, hence the risk of loss in income.
Longetivity – this is the biggest risk faced by retirees.
Therefore to achieve more returns, you may have to accept more
market and credit risks.
28. PRIVATE PRACTICE
How have you set up your medical practice?
Is it viable?
Is it structured?
Can it run without you?
Have you built a brand?
How have you planned the development and replacement of key
positions?
What criteria will you use in identifying and selecting leadership
competencies suitable in realizing your long term goals?
29. PRIVATE PRACTICE (CONT’D)
A practice incorporated will be a more attractive
business prospect to either a child taking over the
practice, or potential buyer in the future.
Similarly, 2 or more Practitioners considering merging
their practices can be facilitated in a more controlled
and structured fashion from within a company
structure; and
Can be a veritable source of income on retirement.
Succession planning is a key issue for practices as the
main Practitioner approaches retirement age
30. Objectives of the
Overview
PRA 2004 Features of the
Overview of
the PRA
Scheme
of the
PRA
Additional Voluntary
Contribution
2004
31. OBJECTIVES OF THE PRA 2004
Ensure that every worker receives
retirement benefits as and when due
Promote a savings culture
Transparent and efficient management of
pension fund as well as Secure compliance
and wider coverage
Establish a strong regulatory and
supervisory framework
Establish a system that is financially
sustainable, simple, transparent and safe.
32. FEATURES OF THE SCHEME
Contributory (Min EE – 7.5% & ER – 7.5% of emoluments).
All Investment Returns accrue to the Contributor via individual
Retirement Savings Account (RSA)
Mandatory for Public servants; FCT; Private sector organizations
with 5 or more employees
Privately managed by Pension Fund Administrator (PFA).
Third party custody of pension assets by Pension Fund Custodian
(PFC)
Strictly regulated and supervised – National Pension Commission
(PENCOM)
Group Life Policy - In the event of Death, Life Insurance Proceeds
are paid into RSA and applied in favour of the Beneficiary under a
Will or to the Spouse and Children of the deceased or in the
absence of a wife and child, to the recorded Next-of-Kin
33. ADDITIONAL VOLUNTARY CONTRIBUTION (AVC)
AVC is contribution that can be made into the RSA over
and above the statutory 15% of emolument and can be
withdrawn prior to retirement.
One major advantage of the AVC is that it is tax exempt
both at the point of contribution and withdrawal if
invested for a minimum of 5 years.
In opening an AVC, you need to consider the following:
What would be your consumption pattern and standard of
living when you retire?
How much would you need on a monthly basis in retirement
to maintain your expected standard of living
What will your pension income be worth by the time you
retire?
35. LEADWAY PENSURE PFA - CAPITAL & OWNERSHIP STRUCTURE
9.33%
18.99% 25.26%
46.42%
Paid-up Share capital = N1.42 Billion
36. BOARD OF DIRECTORS
CHAIRMAN
Lt. General
Garba Duba (Rtd.)
DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR MD/CEO
Mr. Oye Dr. Anand Mr. Tunde Mrs.
Mr. Oluwole Mr. Kofo Mr. I K
Hassan- Prakash Hassan- Aderonke
Oshin Majekodunmi Osakwe
Odukale MFR Mittal Odukale Adedeji
38. CONCLUSION
Adopt a phased approach to planning your retirement – have a
slightly aggressive investment strategy while working, but a
conservative approach after your retirement.
Despite the various sources of income following retirement, the ideal
is to aim for an income portfolio mix with the flexibility to achieve
regular income base.
In managing your risks, seek for a maximization of returns. Ensure
you match reward against security at all times.
Use Insurance to protect against a major financial catastrophe. In
the case of life insurance, do not use it for a savings plan.
In managing your resources at retirement, let your spending pattern
be driven by modest prudence matched by amount of available
income rather than emotions.
Keep healthy as a way to achieving a happy retirement life
Be guided by financial advisers in managing your investments.
