It’s never too early or too late to start saving for retirement age. If you are just starting out, focus on saving as much as you can, even from a meagre income.
But if you are nearing retirement, consider increasing contributions to your savings or imbibe the culture of using the popular scale of preference method.
The truth is that the earlier you start saving and investing, the better you’ll be, thanks to the power of compound interest.
And even if you began saving late or have yet to begin, it’s important to know that you are not alone, and there are steps you can take to increase your retirement savings.
Focus on starting
Be determined to start saving, no matter the odds, investing as much as you can, and let compound interest – the ability of your assets to generate earnings, which are reinvested to generate their own earnings – have an opportunity to work in your favour. The more you can invest when you’re young, the better off you’ll be at old age.
How much can you save?
Here, there is no limit to what you save. Save as much as you can, is the standard advice. Many financial planners recommend that you save 10 per cent to 15 per cent of your income for retirement, starting in your 20s.
But that’s just a general guideline. It is your retirement we’re talking about. So it pays to get a little more specific by doing your homework up front. It’s a good idea to establish a savings target – one that tells you roughly how much you should set aside over time to meet your retirement goals.
The best way to determine your savings target is to use an online calculator. It will help you figure out how much you should accumulate and how much you must set aside in the meantime to reach that target.
Be sure to update the calculation each year, so that you can see if you’re on track.
Save more from your earnings
Try to divert as much of your earnings into savings as you can. If you don’t have a budget, create one. If you do have a budget, revise it to reflect your new, urgent commitments, as well as any changes in your spending since your last outbreak of budget fever. Chip away at wasteful habits – that might mean ditching expensive dinners or unused gym memberships.
If you’re still young and you can’t save enough right now, don’t be discouraged. Your income will probably grow as you progress in your career, allowing you to save more. You might also have other opportunities to boost your savings rate; for example, a bonus or inheritance can make a big difference in your long-term prospects, if you invest some of the money in retirement accounts.
Where to invest the money
You may need the growth that stocks provide. The stock market returned 10.02 per cent a year on average between 1926 and 2015, versus just 5.58 per cent for bonds, according to research firm Morningstar. Given stocks’ superior returns over the long haul, most financial advisers recommend that an investor whose retirement is more than 20 years away holds at least three-quarter of their portfolios in stocks and stock funds.
In Nigeria, for now, people may be cautious about investing in the stock market because of political uncertainty, but some experts say, if you invest now, you may reap a fortune after elections. If you don’t have the stomach for steep downturns, however, you may increase your allocation to include more bonds or bond funds. Holding about 70 per cent of your portfolio in stocks and 30 per cent in bonds will let you capture most of the long-term growth of stocks, while sheltering your investments to a certain extent during a lull.
