Early Retirement In Nigeria, How To Achieve It In 2 Step

Early retirement before age 65 in Nigeria is possible, should be planned for in two parts: before retirement and after retirement. You can move toward an early retirement with more confidence if you plan for each step. It does not take much to do, just read along and you would understand. The younger you are reading this, the better for you.

Early Retirement, Phase One: Getting ready for retirement

Most of the time, when people talk about retiring early, they talk about FIRE, which stands for Financial Independence Retire Early. You need to think about more than just which retirement accounts and brokerage accounts to use and how much you need to save.

1. Your Plan for Retiring Early

The very first thing to do is that you need to have a clear picture of your life in retirement before you start planning for it. You cannot hit a target you have not pictured. Everything would feel like a goal if you do not define with specificity what a goal is from get go.

A lot of people say they want to retire early, but they don’t really explain what that means for them. You don’t want to get to the top of the retirement ladder only to find out it was tilted the wrong way. You would only end up disappointing yourself.

It has been found that people who are close to retirement don’t measure how emotionally ready they are to stop working.

Watching TV and going to club meetings are fun things to do in your spare time, but what will you do with the rest of your time?

You need to find something else to do for the 40 to 50 hours a week you used to work.

You might not be ready to replace the psychological and social benefits that your job and work environment gives you. That means, among many other things, thinking about what kind of part-time or volunteer work you might want to do, what hobbies you might want to pick up, and where you might like to go.

How much you need to save for an early retirement will also depend on what your goals are.

2. Plan for your health care

Health insurance is the thing that people most often forget to plan for when they want to retire early. In Nigeria, healthcare is already so bad that going into retirement without a healthcare insurance plan is as good as deciding to gamble with your life at every health challenge that comes your way.

You should plan your health insurance contributions for at least 20 years into your retirement into your retirement savings while you are still working.

3. Plan where you will live if you want early retirement.

Most people who are getting ready to retire focus on getting investments ready. But you should also pay attention to getting your home ready while you are still working and making a good income. Do not wait till you are retired, then you dip heavily into your retirement savings to build yourself or buy yourself a home to live in for the rest of your life. Pick a location and buy a home. If you cannot afford a full down payment, get a mortgage plan from a bank and spread the payment as far as you possibly can. This is best done while you are still up to 20 years away from retirement. This way, you can pay monthly to own your home the same amount you would have paid to rent a house you would never own.

For different people, getting your home ready for retirement could mean different things. To get your home ready for when you retire early, you might:

Pay your mortgage off as quickly as possible.

Make your home smaller.

Make major repairs (replace your roof or sewer main, invest in tuckpointing) (replace your roof or sewer main, invest in tuckpointing)

Complete renovations (kitchen, bath, landscaping)

If you would prefer moving to a different location than your current one, look into homes in your dream location.

To protect your home equity, plan to pay off any and all mortgages before you retire.

Your first priority should be any major repairs you’ve been putting off as you want to avoid tapping your retirement savings to finance repairs. Major home repairs in the first few years of retirement can do a lot of damage to long-term investments. Do it all before your retirement.

4. Plan to Keep Earning Income

Early retirement is not about stopping to work. It’s about getting full control of your time. When you quit your 9-to-5 job, you should find part-time or gig economy jobs that fit with your new lifestyle and give you a small income to help pay for living costs. Some of these jobs may also come with benefits, like health insurance, that can help you get by until you can retire fully.

If you plan to keep working, you can retire much sooner because you won’t need as much money saved up in investments to support your lifestyle.

Think about the kind of work you’d like to do after you retire when you’re planning for it. Take the time to look into your choices. Knowing you have options for retirement income can help ease your worries that you might outlive your savings or make you feel uncomfortable about the idea of spending the money you’ve saved over a lifetime.

5. Set aside money for the next 10 years of your early retirement.

You should set aside enough money at least five years before your early retirement date to pay for your first five years of retirement. This will give you a 10-year cushion between the money you need for early income and any market changes that could happen in the five years before you retire.

This buffer helps you safeguard the wealth you’ve accumulated by setting it aside from your main retirement savings. You could do this by opening a new individual retirement account (IRA) and rolling over the recommended five years’ worth of income. Then, you can put this money into a portfolio that helps you keep your capital, such as one that focuses on cash-based investments like Treasury Bills or bonds.

By keeping the money you’ll need early in retirement separate, you give yourself a cushion in case the market goes up and down. Under this plan, your remaining investments will have years to recover from any losses before you need to use them.

Phase 2 of Early Retirement: Managing Money in Early Retirement

Early retirement is more like the start of a new journey than a place to go. You can’t just let your money take care of itself just because you don’t work full time anymore.

1. Set Guidelines for Your Spending

If you want to early retirement, you need to know how much money you need to live the way you want to live. Your spending is the most important part of financial planning that you can change,. Because of this, you need to set spending “guardrails.”

We suggest you pick a tight budget (left guardrail), a medium budget (middle of the road), and a loose budget (right guardrail). “Most of the time, you’ll drive in the middle of the road, but it’s helpful to know how far left and right you can go while still being safe.

This kind of planning ahead will help you worry less about spending and give you permission to spend more on things you really value, as long as you stay within the boundaries.

2. Change assumptions about the rate of return

If you’re counting on huge rates of return in retirement, it might be smarter to lower your expectations. Considering that the average rate of return for the S&P 500 over the past 90 years has been 9.8%, you may want to model your portfolio with a lower rate of return.

Instead of annual returns of 10%, you could estimate 5% or 6% as a safe bet. You should also keep in mind that you probably won’t have a portfolio made up of only stocks when you retire, so even in a perfect market, you wouldn’t reach 10%.

You should focus on “reliability of income” instead of “return on investment” during retirement. This means changing the way you invest so that you keep your capital and focus on income. It doesn’t mean you have to give up all of the market’s upside potential, but your returns are likely to be lower than if you only had stocks in your portfolio. Instead, your steady income should be the main thing that guides your investment decisions.

3. Think about splitting up your savings.

You may think about bucketing your savings to try to capture market upside while preserving the money you need for income in the near future. Some early retirees may find it helpful to divide their early retirement savings into five-year portfolios and invest accordingly. This lets you invest more aggressively with funds you won’t need for 25 years than with funds you’ll need in the next five to ten years.

4. Don’t forget to have fun with your early retirement.

When people retire early, they shouldn’t be too busy to enjoy their money. People who were good savers usually have trouble becoming good spenders. This can be helped by making a plan for how to spend money in retirement.

Retirees usually spend in a U-shaped curve, with higher spending in the early years when their health and energy are high, then a natural slowdown, and in some cases, an increase in spending in the later years when health care becomes an issue. This is why one of the very first points in this article was about securing a good health insurance plan. Having a written retirement income plan that is tailored to your actual spending goals gives you the confidence to spend and enjoy your retirement.

You’ve saved it up, and if you achieve early retirement, you want to have more time to enjoy it.