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Planning for retirement doctors forum2 Presentation Transcript

  • 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
  • 3. Rationale for PlanningRetirement
  • 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
  • 6. KeyConsideration
  • 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.
  • 15. Investment Planning
  • 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
  • 23. Managing Your Interests
  • 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.
  • 27. Private Practice A sustainable business venture?
  • 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 OverviewPRA 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?
  • 34. LeadwayPensure PFA
  • 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 OsakweOdukale MFR Mittal Odukale Adedeji
  • 37. PRODUCTS & SERVICESProducts Services Retirement Savings  Retirement Planning Accounts (RSA) Programmes Additional Voluntary  Awareness/Sensitization Contributions (AVC) Programmes Gratuity Schemes  Statements Continuing/Legacy Funds  Fund Reports Withdrawal Program  Email Updates (Benefit Payments)  Periodic Newsletter
  • 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.
  • 39. Thank YouYour future… Our passion