As a Soon-To-Be Retiree, How Can I Avoid Being a Burden to My Children?

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Friday letters are usually dedicated to taking questions from our community. Do you have a question for us? Please feel free to send an e-mail to [email protected] or a DM to any of our social media channels.

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Question

I am due for retirement in two years time. At this point, two of my children will have graduated form university, but four of them will still be in high school and college. What ventures will you suggest for me to invest my savings of ?10 million, so I can be guaranteed a steady inflow of income to train my other children, without being a burden to their older siblings

Answer

In order to ensure that you are well catered for while also ensuring you are not a burden to your older children as a result of paying the younger children’s fees, you need to draw up an estimate of the following costs:

• An estimate of your annual living expenses.
• The amount you need to pay as fees to send the younger children through high school and college.
• The amount the younger children require as upkeep on an annual basis while you send them to school.

When you draw up an estimate, it helps give a clearer picture on how much you need to aim for, and whether you would actually need some support from your older children. If this estimate ranges below ?10 million to slightly above, then you know you don’t have to bother your older children. If, however, your estimate is way above ?10 million (say ?12 million or more), then you know you actually need some support from your older children.

More likely than not, even ?12 million cannot be sufficient to send four children through school. You may therefore need to withdraw from your gratuity or existing investments, if you have these. If these options are not available, you may need to consider extending your retirement date for some extra years, if there is any possibility of doing so.

Now, the question of how to grow the ?10 million savings comes in. The best time to start retirement planning is while one is much younger so that the money has a longer period to grow and can compound. Besides, that's a time when one can be a little more aggressive with investment choices. Now that retirement is around the corner, your ?10 million is quite delicate and is best suited for a minimal risk investment portfolio. An investment portfolio is a combination of investments held by a person. Ideally, your portfolio should contain a mix of low-risk investments (e.g. high yield savings account, fixed income securities like bonds, treasury bills), medium-risk investments (e.g. ETFs) and high-risk investments (e.g. stocks, REITs).?

In order to draw up a portfolio that is well suited for you, you would need to consult a financial advisor. Please make sure not to fall victim to Ponzi schemes or scams while trying to invest your money.

To manage your expectations on how much your money can grow through investment, the stock market has grown on an annual average of 10%. Following this, your ?10 million has the potential to earn 1 million extra each year, leaving you with a total of ?12.1 million at the end of the 2-year period, if you compound.

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Question

I am a 400 level student of a federal university in Nigeria, and I have a side hustle that fetches me ?15,000 monthly. This year, I decided to take on the challenge of saving ?10,000 in a thrift scheme per month.?

I’m curious to know if saving up in this thrift scheme is the best or I should I rather invest the money. I should also mention that I have no knowledge of how or what to invest in.?

Answer

Well done to you on taking responsibility for your finances at a young age! Truly, building healthy financial habits should not be a thing delayed until adulthood.?

The question here is, should you save your money in a thrift or invest it? In order to answer this question, let us explore what advantages and disadvantages these options pose.

For thrift, it’s a good idea that has helped people cultivate a healthy savings attitude. It also makes loans for large sums of money available, depending on your monthly contributions. However, this type of savings method is an interest-free one. That is, in the real sense of it, your monthly contributions are not yielding any extra value.

For investments, this is a great avenue for one to earn money and protect the value of one’s money. Investments come in a spectrum of risk, varying from low-risk to high-risk investments. When it comes to high-risk investments, there is the potential of making sizable returns. There is also a potential risk that one may lose some money, especially if investments are done for a short period, rather than for the long-term.

Having said this, it is advisable to invest your money rather than save in a thrift, so that your money can actually increase in value. However, you need to first acquire the knowledge of how to invest before dabbling into it. The good news is that you don’t need to have a degree in economics or any finance related field before you can gain knowledge like this. You can join a community that exposes you to knowledge such as this. The MoneyAfrica Student Community for example, engages university students such as yourself with investment knowledge. This way, students know how to build investment portfolios that suit their financial goals. They are also able to start cultivating healthy financial habits.

The MoneyAfrica Student Community has a FREE 3-day virtual personal finance workshop coming up on the 15th to 18th of May. You can tune in, to give you insight on how to start your investment journey. Simply tap here to sign up.?

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Should you have any questions regarding your personal finances, simply fill the form below. Don’t worry, your responses are kept anonymous.

https://forms.gle/jxGkG24kMBYc6wVh8?

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