• Login
  • Register
Nairametrics
  • Home
  • Exclusives
    • Financial Analysis
    • Corporate Stories
    • Interviews
    • Investigations
    • Metrics
    • Economy
    • Nairalytics
  • Markets
    • Currencies
    • Cryptos
    • Commodities
    • Equities
      • Company Results
      • Dividends
      • Stock Market
    • Fixed Income
    • Market Views
    • Securities
  • Sectors
    • Agriculture
    • Aviation
    • Company News
    • Consumer Goods
    • Corporate Updates
    • Corporate deals
    • Corporate Press Releases
    • Energy
    • Entertainment
    • Financial Services
    • Health
    • Hospitality & Travel
    • Manufacturing
    • Real Estate and Construction
    • Renewables & Sustainability
    • Tech News
  • Business News
    • Budget
    • Public Debt
    • Funds Management
    • Tax
  • Financial Literacy
    • Career tips
    • Personal Finance
  • Lifestyle
    • Billionaire Watch
    • Profiles
  • Opinions
    • Blurb
    • Op-Eds
    • Research Analysis
  • Recapitalization
    • Access Holdings Offer
    • Fidelity Bank Offer
    • GTCO Offer
    • Zenith Bank Offer
  • Home
  • Exclusives
    • Financial Analysis
    • Corporate Stories
    • Interviews
    • Investigations
    • Metrics
    • Economy
    • Nairalytics
  • Markets
    • Currencies
    • Cryptos
    • Commodities
    • Equities
      • Company Results
      • Dividends
      • Stock Market
    • Fixed Income
    • Market Views
    • Securities
  • Sectors
    • Agriculture
    • Aviation
    • Company News
    • Consumer Goods
    • Corporate Updates
    • Corporate deals
    • Corporate Press Releases
    • Energy
    • Entertainment
    • Financial Services
    • Health
    • Hospitality & Travel
    • Manufacturing
    • Real Estate and Construction
    • Renewables & Sustainability
    • Tech News
  • Business News
    • Budget
    • Public Debt
    • Funds Management
    • Tax
  • Financial Literacy
    • Career tips
    • Personal Finance
  • Lifestyle
    • Billionaire Watch
    • Profiles
  • Opinions
    • Blurb
    • Op-Eds
    • Research Analysis
  • Recapitalization
    • Access Holdings Offer
    • Fidelity Bank Offer
    • GTCO Offer
    • Zenith Bank Offer
Nairametrics
No Result
View All Result
Home Financial Literacy

How to invest for retirement

Kalu Aja by Kalu Aja
April 12, 2021
in Financial Literacy, Personal Finance, Spotlight
How not to worry about money in retirement
Share on FacebookShare on TwitterShare on Linkedin

“If you plan to retire in five years what should you be doing today?” That’s a question I got last week, and talking with the client, a lot came up which I have decided to share.

First off, What is retirement?

Nigeria’s public service has an official retirement age of 60 or thirty-five years of unbroken active working service, but in financial planning, retirement is a financial, not a chronological event. Retirement can occur when your passive income can meet your non-discretionary expenses.

You start to plan for retirement the day you start to earn an income. Your retirement plan will centre on how to generate passive income and reduce expenses. In Financial Planning, Four distinct stages are usually described in a so-called Lifecycle Chart. These are the Accumulation, Consolidation, Spending, and Gifting stages. Chart 1. Financial LifeCycle seeks to segment investing priorities, recommended asset allocation, and risk profile in a chronological timeline as the person gets older. I will take each of these stages and explain how they are linked to your retirement plan.

RelatedStories

Coronation Life Assurance Ltd

Things you must know before you retire

June 5, 2024
How not to worry about money in retirement

How to save and invest for retirement 

August 9, 2023

READ: How to choose the right Pension Fund Administrator (PFA)

Chart: Financial Life Cycle

Early years: Use Your Time and Make Money, (Accumulate)

The first stage is called the Accumulation stage. Imagine a 22-year-old who has just graduated and is a management trainee. He typically has a low credit score and assets and income are also substantially lower. What he has in abundance is time. So it’s important to deploy his time in the best way to make money. Hence in the accumulate stage, the goal is to generate cash flow either from a job, multiple jobs, working longer hours, saving, cutting unnecessary expenses, etc.

The key measure in the accumulation stage is the Savings Rate which is essentially how much of income earned or generated has not been spent. On average, the participants in the accumulation stage have fewer dependents and maintenance needs which should theoretically make it easier to save.

READ: This thread exposed everything that’s wrong with Nigeria’s VAT

Mid Years Use Your Money To Buy Assets (Consolidation)

In the consolidation stage the focus shifts from saving to investing. At this stage, the income earned and credit scores have improved. This is when the talk of buying a home or starting a business takes concrete shape because, at this stage, those dreams can be funded. Hence capacity to take on debt is improved, and debt is used to invest in assets like a home. Remember debt is simply front-loaded consumption, which means we are taking our future income to invest today, intending to repay with future income generated from today investment.

The key measure in the consolidation stage is the Rate of Return which is essentially how much has been generated from the investments made.

READ: How to choose the right Pension Fund Administrator (PFA)

Spending & Gifting Phase; Use Your Assets To Generate Cash Flow and Time (Spending and Gifting)

Why is it called the spending phase? Because that’s what the individual is doing, spending down accumulated investments. The spending will include buying annuities or perhaps relocating to another city, your dependant’s college needs, etc. At this stage, typically very few are still earning “new” income but are rather spending from the return of prior investments.

The key measure in the spending stage is the Withdrawal Rate which is essentially how much of investment can be withdrawn as cash annually to ensure we do not outlive our investments.

READ: How interest rates impact your wallet

Retirement is All About Passive Income

Passive income, which is the income we are making from investing from the accumulation and consolidation stage is now sufficient to generate income and reduce expenses to meet our expenses in the spending/gifting stage.

To give an example, assume we took a mortgage to buy a house in the Consolidation Stage, in the Spending stage, we pay no rent, thus we save cash, which reduces our Non-Discretionary Expenses. In essence, retirement is planning to eliminate your future expenses to the point where you need less income when you retire.

What Should You Invest In Before Retirement Or In Retirement?

Our objective is simple, Income. In retirement, we invest solely to make income to meet our spending needs, Risk profile is also very low because there are fewer recovery options if your investments sink.

The retirement portfolio is an income-generating portfolio that will be overweight in fixed income products. First, determine what the risk-free rate is. In Nigeria, we can take the yield on a ten-year FGN bond as a guide, this means we can have a target of 10% as our huddle rate for the long term. Thus I will recommend an 80/20 portfolio with 80% going to Fixed Income consisting of long term bonds, REITs, and other top-grade commercial paper.

However what happens if we lock in our funds for 10 years at 10% and rates jump to 20%, meaning a loss to our portfolio.  To avoid this risk we can create a bond ladder, where we break down the bulk sum and duration of our total bond investment outlay. Let us assume we have N10m in cash to invest, instead of one single lot investment of N10m, we split into 5 equal investments of N2m and place for 6, 7, 8, 9, and ten-year maturities. This means by the 5th year the first N2m will mature, if rates are higher, reinvest, if rates have fallen then reevaluate.

READ: 10 Side gigs to venture into while working a full-time job

What about Equities

Yes, equities also pay a dividend. In buying equities, we must ensure we are only buying stocks that pay a dividend above our huddle rate of 10% which is the 10-year FGN bond rate. Which Nigerian stock meet that huddle rate?

  • Lasaco
  • Zenith
  • GT bank
  • United cap

In closing, let us summarize. Retirement is not chronological age. The event occurs when our passive income pays our bills. Planning for retirement means planning to reduce obligation in the future by investing today. Investing in retirement is income-based with a huddle.


Follow us for Breaking News and Market Intelligence.
Tags: Financial Life CycleretirementWithdrawl Rate
Kalu Aja

Kalu Aja

Kalu is a Certified Financial Education Instructor and astute professional with extensive experience in capital market operations, Treasury, investment, asset management, and occupational pension services.

Related Posts

Coronation Life Assurance Ltd
Corporate Updates

Things you must know before you retire

June 5, 2024
How not to worry about money in retirement
Financial Literacy

How to save and invest for retirement 

August 9, 2023
RSA, Retirement
Business News

Why Depending on Only Your RSA for Retirement Is a Bad Idea

July 29, 2023
Build a worry-free tomorrow, today (retire comfortably with a life annuity)
Corporate Updates

Build a worry-free tomorrow, today (retire comfortably with a life annuity)

October 10, 2022
The important retirement surprises and how not to be wise too late (Part 4)
Personal Finance

How to carry your rich income with you into retirement

February 13, 2022
Nigeria’s pension fund assets tops N13 trillion in September 2021
Funds Management

Lessons from the US retirement system

November 25, 2021
Next Post
How five Nigerian tech-startups are tackling COVID-19 outbreak

Industries to watch for technology innovation in 2021

Comments 2

  1. IGWILO PATIENCE NGOZI igwipat says:
    April 17, 2021 at 7:44 am

    This is a well and self explanatory topic. Thanks for the information.

    Reply
    • Eberechukwu says:
      April 18, 2021 at 12:29 am

      Thank you very much for this

      Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Emple
nlng
first bank








DUNS

Recent News

  • BREAKING: FG declares Tuesday as public holiday to honour the late former President Buhari
  • Nigeria’s broadband penetration crawls to 48.81% in May, few months to 70% target
  • NucleusIS rebrands as RIGO, unveils ambitious plan to digitize Africa’s healthcare economy 

Follow us on social media:

Recent News

Breaking

BREAKING: FG declares Tuesday as public holiday to honour the late former President Buhari

July 14, 2025
Broadband infrastructure

Nigeria’s broadband penetration crawls to 48.81% in May, few months to 70% target

July 14, 2025
  • iOS App
  • Android App
  • Contact Us
  • Home
  • Markets
  • Sectors
  • Economy
  • Business News
  • Financial Literacy
  • Disclaimer
  • Ads Disclaimer
  • Copyright Infringement

© 2025 Nairametrics

Welcome Back!

Login to your account below

Forgotten Password? Sign Up

Create New Account!

Fill the forms below to register

All fields are required. Log In

Retrieve your password

Please enter your username or email address to reset your password.

Log In
Social Media Auto Publish Powered By : XYZScripts.com
No Result
View All Result
  • Home
  • Exclusives
    • Financial Analysis
    • Corporate Stories
    • Interviews
    • Investigations
    • Metrics
    • Economy
    • Nairalytics
  • Markets
    • Currencies
    • Cryptos
    • Commodities
    • Equities
      • Company Results
      • Dividends
      • Stock Market
    • Fixed Income
    • Market Views
    • Securities
  • Sectors
    • Agriculture
    • Aviation
    • Company News
    • Consumer Goods
    • Corporate Updates
    • Corporate deals
    • Corporate Press Releases
    • Energy
    • Entertainment
    • Financial Services
    • Health
    • Hospitality & Travel
    • Manufacturing
    • Real Estate and Construction
    • Renewables & Sustainability
    • Tech News
  • Business News
    • Budget
    • Public Debt
    • Funds Management
    • Tax
  • Financial Literacy
    • Career tips
    • Personal Finance
  • Lifestyle
    • Billionaire Watch
    • Profiles
  • Opinions
    • Blurb
    • Op-Eds
    • Research Analysis
  • Recapitalization
    • Access Holdings Offer
    • Fidelity Bank Offer
    • GTCO Offer
    • Zenith Bank Offer
  • Login
  • Sign Up

© 2025 Nairametrics