The current retirement landscape in Nigeria will change in the next couple of years as the aging workforce is becoming increasingly visible in businesses, government, politics and sports. Besides, with or without employment, the retirement phase will surely come for every individual. However, persistently high rates of unemployment have been a serious concern in the country over the years, without any visible unemployment benefit, insurance or social policy. The reality is that many in the unemployment category will equally be reaching retirement age and transiting in few years. So, the impact of unemployment should be seen as long term and life-long, because it affects living standards even in retirement, when the active age and work life has passed with no palliatives or support.
It is not uncommon for employees, politicians, entrepreneurs and the unemployed to live more than 20 years after the retirement age of 60 but the issue is usually the sustainability of wellbeing, livelihood, lifestyle, status, and social demands. The longer the time spent in retirement, the harder it becomes to be certain about the adequacy of resources to keep the livelihood and lifestyle going. For those that care to know, individuals will need to have enough funds, assets that generate steady income, family support or investments saved to last even beyond 20 years. Unfortunately, with a recent survey in Lagos State of a cluster of entrepreneurs and older adults, majority may not have enough to meet and maintain their standard of living in an era of uncertainty, increasing inflation, harsh economic environments and much more at retirement.
This piece presents insights from business owners and businesses around Lagos State, the economic capital of the country, on retirement planning. A follow-up survey in Computer Village, Ikeja was carried out where respondents (entrepreneurs) indicated that they will only be willing to grow and expand their businesses at the expense of retirement planning. How ironic? Few mentioned that the only way they can be confident enough to retire is if their businesses succeed.
One of the key findings in the survey was that only a fraction of businesses are aware of the importance of pension and retirement plans. It was a stiff struggle identifying businesses with adequate arrangement of pension for staff, owner manager or the business operator. Even though a retirement plan through pension arrangements can help ensure that business owners and their staff have enough funds to live on in their later years, this all important scheme is missing in majority of small busineses in Lagos State. Recall that small businesses make up over 90% of existing businesses in the country and provide employment, sustainability and livelihood for majority of households. Many entrepreneurs are so busy growing their businesses that they put off planning for retirement, which is worrisome. As important as a retirement plan is, aging business owners and operators rarely consider it imperative.
The survey further indicated that majority of the businesses, especially the self-employed, do not have retirement savings plans, and 40% of business owners in the survey are not confident that they will be able to retire before the age of 65. Nevertheless, the good news is that the small business owners have more options available to them than traditional 9 am to 5 pm office employees, yet this advantage is not explored. For them, retirement can either be considered early or later. In some cases, business owners might choose not to fully retire. The flexibility gives entrepreneurs the option to determine exactly when to stop working, yet majority continue to operate without cease.
Indeed, according to the survey, 70% of the self-employed and entrepreneurs in Computer Village do not save regularly for retirement. The reason given for this phenomenon is that they do not receive a steady salary pack. The survey further found that some of the small business owners intend selling their businesses to fund their retirement and relocate to the village when the time arrives. However, the risk of this option is that entrepreneurs and small business owners can overestimate the value of their businesses and eventually run at a loss. Counting entirely on the sale of the business to fully fund a long retirement is very risky.
The survey also found that many business owners would appreciate guidance when it comes to retirement plans because they lack knowledge of it. It is important to note that before death, especially under normal conditions in life, there is the old age phase: a period where entrepreneurs have almost exhausted their intellectual values and strength. Consequently, there is a need to prepare for that phase with adequate retirement planning and business succession plans.
Retiring is a real-life changing phase with far-reaching implications. Most entrepreneurs would rather not hear or discuss this reality. However, it is inevitable. Business owners cited cost and lack of resources to administer the plan as the leading reasons why they do not have a retirement plan in place.
Please note if you are a small business owner reading this, you are likely busy running your business and have not had the time to research the best retirement option. While retirement may not be on your mind currently as an entrepreneur, the sooner you start planning for this all-important aspect of your business, the better. Here are simple steps entrepreneurs and small business owners can take right now to prepare for retirement.
A good start is by implementing the 10% rule, which is a lot easier than you think. It is achievable by simply setting up an auto-transfer system with your bank, automatically transferring 10% of your earnings out of your business account into your savings account every month. Then you can place the accumulated fund into a low-risk investment at intervals and allow compounding interest to grow your fund. This applies whether you are an entrepreneur or not. It is a simple trick to grow your wealth and support your retirement plan. Real estate investments can also help give succour in retirement, but professional guidance needs to be sought.
Another approach is to develop an exit strategy for your business. That is, have in mind right now what will happen to it when you retire, when you intend to eventually quit, and set up strategies to guarantee retirement income. One other important factor to consider is what will happen to your business when you retire. Will you pass it on to family or sell the company to another business or owner? Will you have someone currently working for you take over? A simple retirement model can give you a simple leeway, but you have to plan for it and stick to it. Because retirement age varies so drastically, small business owners need to evaluate their lifestyle, savings, and the company’s overall performance to determine an ideal retirement option.
In conclusion, a bit of research, adequate planning, and seeking advice can help with achievable retirement goals. A professional can also help streamline your business and help with the necessary details required to have a comfortable retirement. Good luck!
Dr. Timi Olubiyiis an Entrepreneurship & Business Management expert with a Ph.D. in Business Administration from Babcock University Nigeria. He can be reached via Twitter, @drtimiolubiyi, and email,drtimiolubiyi@gmail.com, for any question, reaction, and comment.
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