This was interesting because this train of thought isn’t only restricted to a dozen people. A lot of people feel this way about pension contributions.
When they think about retirement and the amount that they would need to be comfortable enough, it always seems large and intimidating. So instead of tackling the issue, they decide to shy away from it. Usually, their next response is when I get a better job. That way they can make much more substantial contributions than small amounts.
If this sounds like you, then you need to change the narrative. The more time you delay, the more money you’re eating without even knowing it.
Think of your retirement as a marathon and not a sprint. It could be 20, 30 or even 40 years before you plan to retire. That time length is what you need to take advantage of.
How Compound Interest Works
It has been said countless times that money grows money and one of the proofs of that is compound interest.
Albert Einstein once defined compound interest as the eighth wonder of the world and that is coming from a renowned scientist. Compound interest is simply the interest you earn in addition to interest earned from your savings.
It works by accumulating money over a long period without touching the sum. Instead of paying out the interest on your savings, the interest is reinvested with the initial sum.
With this, even little contributions can lead up to huge amounts over a long period.
If that seems complicated, here’s a practical example of how important compound interest can affect your pension fund depending on how early you start.
Let’s say you contributed N10,000 every month to your pension fund with a 10% interest rate that compounds annually. At the end of the first 10 years, that would be N29,900 which seems like a small amount.
But let’s assume that you put the same N10,000 for 30 years, that same amount would gross 219 Million. This is only a rough estimate, not taking into consideration that the initial monthly sum may increase (due to promotions you might have or salary increase in successive years). That’s no small amount for a contribution of 10,000 per month.
Since this is only an example, the rate of returns can vary depending on how your pension fund is managed.
You might be thinking, ‘I still have more than enough time. I will simply invest a higher amount at a later time in life. Even if you do, think of all that money that would have compounded, but is now lost because you delayed.
Following the same example that we used earlier, assuming you did contribute N40,000, a much higher sum, every month when you turned fifty. In 10 years, that initial sum would have amounted to N119,620. An amount much lower in comparison to the first.
This is the power of compound interest. Time is one of your greatest assets. That’s why you can’t afford to waste it.
Any delay will cost you a lot more
If you planned to hold off till you’re ready to contribute large amounts. Doing that will cost you a lot more. This is why you need to start regardless of your income.
Choosing the right Pension Fund Administrator (PFA) is also vital. You must choose the right PFA with experienced pension fund managers that will provide you with the best value for your contributions. This is because they make investment decisions that determine how well your pension fund performs.
If you already have a retirement savings account, but you feel you are not getting the value that you should, then you should make a switch to another Pension Fund Administrator. You can read this guide for a better understanding of the importance of switching to the right PFA.
Make the Switch now
At Premium Pensions, we take pride in helping various people plan their finances and prepare for retirement.
If you already have a retirement savings account, but you feel you are not getting the value that you should, then you should make the switch to Premium Pension, To make the switch, click https://datarecapture.premiumpension.com/expressinterest/Home/PPLProspect
You can also call 09 461 5700-4 to make the switch. A customer care representative will aid you in the transition.