PLANNING FOR RETIREMENT

(WHAT EVERY DOCTOR SHOULD KNOW)

Presented @ the

DOCTOR’S FORUM

By

Mrs. Aderonke Adedeji ACA, FCCA

MD/ CEOLeadway Pensure PFA Limited

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

Rationale for

Planning Retiremen

t

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.

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

Key Consideration

AGE GROUPING AND RETIREMENT PLANNING

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.

Attitude towards retirement is generally influenced by age and circumstance at the point in time

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.

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

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

SOURCES OF RETIREMENT INCOME (CONT’D)

Part Time Employment Consultancy Research Teaching

Business Ventures Private Practice

GUIDE TO HAPPY RETIREMENT

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

To some, retirement means quitting work altogether, to others it simply means slowing down.

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.

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.

Investment

Planning

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?

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.

RETIREMENT INVESTMENT STRATEGY (CONT’D)

How Much Money is Needed?

50% -100% or more of pre-retirement income?

No “one size fits all” answer

Amount needed depends on:

Age at retirement Health status and life

expectancy Goals (e.g., travel, hobbies,

work after retirement) Lifestyle decisions (e.g.,

choice of area and housing) Available resources (e.g.,

retiree health benefits)

5 key Variables Age at retirement

Current love of investments

Amount of annual income needed

Rate of return on investments

Number of years in retirement

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.

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 insurance.

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.

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 pension plan to purchase a pension from an insurance company.

Managing Your

Interests

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

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.

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.

Private Practice A

sustainable business venture?

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?

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

Overview of the PRA 2004

Overview of the PRA

Additional Voluntary Contribution

Features of the Scheme

Objectives of the PRA 2004

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.

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

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?

How soon do you plan to retire?

Leadway Pensure PFA

LEADWAY PENSURE PFA - CAPITAL & OWNERSHIP STRUCTURE

18.99%

9.33%

25.26%

46.42%

Paid-up Share capital = N1.42 Billion

BOARD OF DIRECTORS

CHAIRMAN

Lt. General Garba Duba (Rtd.)

DIRECTOR Mr. Oye

Hassan-

Odukale MFR

DIRECTOR

Dr. Anand Prakash Mittal

DIRECTOR

Mr. Oluwole Oshin

DIRECTOR

Mr. Kofo

Majekodunmi

DIRECTOR

Mr. I K Osakw

e

DIRECTOR Mr.

Tunde Hassan

-Odukal

e

MD/CEO

Mrs. Aderon

ke Adedeji

PRODUCTS & SERVICES

Products Retirement Savings

Accounts (RSA)

Additional Voluntary Contributions (AVC)

Gratuity Schemes

Continuing/Legacy Funds

Withdrawal Program (Benefit Payments)

Services Retirement Planning

Programmes

Awareness/Sensitization Programmes

Statements

Fund Reports

Email Updates

Periodic Newsletter

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.

Your future… Our passion

Thank You