Writing down retirement plans

Retirement Planning in Kenya

Retirement is wonderful if you have two essentials: much to live on and much to live for.”

Gene Perret 

Retirement planning is necessary because we don’t have an infinite amount of energy and so we have to plan our finances for when our bodies “slow down” so to speak, and we cannot be as active as when we were younger.
Investopedia describes retirement planning as financial strategies of saving, , investment, and ultimately the distribution of money meant to sustain one during retirement.

Some of the reasons why we need to plan for retirement include:

1. You will not be able to work all your life;

As suggested earlier, as much as many of us believe that we will always be able to work, it is just not possible to work with the same amount of energy at say 70 years as when we were 25 years. It is important then, to put aside some of your earnings to cater to what

2. Enjoy sunset years without financial worries.

When you retire or leave active work, the one thing you will have is an abundance of time. You will have a lot of time and it would be good that you do not have financial worries. Obviously, there is no shortage of things to do if you had all the money you wanted in the world.
However, the goal at retirement is to not only be in survival mode but to thrive. For some, this is the time to travel and explore new places, enjoy fine dining, pursue abandoned hobbies and even volunteer by giving both time and money.
All these can only be achieved if you plan ahead and in good time.

3. Ensure investments can meet the growth in expenses

Retirement comes with a different set of needs for every individual. For example, it is expected that there will an increase in medical expenses owing to the gradual failing of one’s health. So medical expenses should be catered for, accordingly whether through Medical insurance or self-insurance. 

In contrast, some costs are expected to reduce. Costs, such as commuting costs from one place to another will reduce significantly. The plan is to ensure that every expense is properly catered for, as well as inflation being factored into all investments.

4. To give you dignity in sunset years and be self-reliant upkeep

One of the biggest elephants in the room in retirement is the lack of proper planning. Where we are in the position to afford to join a pension scheme and contribute consistently yet we choose not to, then it is highly likely that we will have some regrets at retirement.

We may choose to say that we will rely on our children for survival, throughout our retirement years but this will rob us of our dignity. You can imagine if you have been independent though your adult life and now having to explain to someone why they need to give you money for food, or even giving an account every time, you spend money. 

When it comes to retirement planning, hope cannot be our only strategy. We’ve got to be intentional and plan meticulously.
It then follows that we need to have a strategy on how to plan for retirement.

How do we  plan for Retirement?

There are various issues to be considered and addressed in planning for retirement some of them include;

a) Consider your current living expenses

The best indicator for the amount of money and investments you will need in retirement is your current living expenses. The reason being that this amount is known and you can easily project forward to give a good estimate for what your future expenditure will be. To get a good feel of this, write down each expense. The chances of leaving out an item are greatly reduced when you have a written-down list. Remember to also include your seasonal expenses such as insurance and annual subscriptions.

b) Evaluate your Assets

This is a listing of the assets you have that can generate an income for you. List down all your financial assets. Incidentally, the asset need not be tangible. It could be your skills and talents that you can leverage to earn an income. Realistically project how these assets will contribute to your retirement income.

c) Review Debt and other liabilities

Debt usually poses a challenge in achieving financial independence. It reduces the amount available for saving and investing. Even in dealing with “good” debt, we must be intentional in tackling it, otherwise, it will make for a rough retirement.
The process should begin with listing down, every debt you owe. This will help you know the total debt as well as give you a picture of how to start repaying it.

d) Time

Time is your greatest ally in planning for retirement. The younger you start saving and investing for retirement, the lower the amount you will have to save in the long run.
Retirement is a long game and it needs years of consistent saving and investing to achieve the desired result.
This is not to say that if you did not start to invest early, that all is lost. Far from it! Age is still an advantage because you have bigger and hopefully better networks. You can, easily leverage your experience to get better paydays for both your main hustle and your side hustle.
So, whether you are young or old consider what you can easily bring to the table.

e) Finally, but not least, project and simulate what you will need to live on. 

Get actuarial charts that show the projected lifespan. Calculate the present value of amounts that you will need in the future. This step is very crucial in retirement planning. I would advocate that you engage the services of a professional e.g., an Actuary, Accountant, or Investment specialist to help you with this process.

Where should you invest your retirement funds?

In Kenya, the Retirement Benefits Act prescribes investment funds through which funds can be channeled to invest retirement. 

It is important to invest in schemes that are under the oversight of the Retirement Benefits Authority because the savings are safeguarded by various checks and balances put in place by the Authority. There are also some tax benefits.

Retirement countdown

The National Social Security Fund

The Government has a compulsory Social contribution fund for every person who earns an income. Income earners are required to contribute to the National Social Security Fund (NSSF)
The NSSF was established through an Act of Parliament in 1965 as a Provident fund. A Provident fund allows a one-time lump sum withdrawal to a contributor, at retirement.
In 2013, The National Social Security Fund Act was signed into law, transforming NSSF from a Provident fund into a Pension Scheme. So, the Fund is both a Provident Fund and Pension Scheme.

In Kenya for pension schemes.Where an employee is a contributor then upon retirement, the employee can access up to 1/3 of benefits in lump sum. Where it is only the employer who was contributing to the fund, then up to 1/4 of benefits can be paid in lump sum. The rest is paid- off as an annuity. 

Currently, salaried employees contribute Kshs. 200 while employers march this with an additional Kshs. 200 making the total contribution per person Kshs.400. NSSF allows for additional voluntary contribution over and above the prescribed contribution.

More Retirement investment options;

Investing in a Retirement Scheme, in my opinion, is the bare minimum you should do as an income earner. Retirement can be a gruesome journey if you are not well prepared. Other investment vehicles that should be part of your retirement portfolio are;

1. Unit trusts; 

There are as many types of unit trusts as there are investment funds. But they generally gravitate towards:

i) Money Market Funds;

Investment schemes put investor’s funds in short-term Treasury bills and Commercial paper. Money Markets are a low-risk investment

ii) Growth / Balanced Funds; 

These investments are a combination of Equity funds and Money Market funds. These are considered Medium risk investments

iii) Bond funds; 

The investments here are largely in Treasury bonds.

iv) Equity funds; 

The investments are made to quoted and unquoted stocks. These are aggressive and high-risk investments.

Generally, Unit trust funds are great for the investor who lacks the time or who does not have the necessary know-how to engage with markets directly e.g. the securities exchange for purchase and sale of equities or the Central Bank of Kenya for purchase of Treasury Bills and Bonds.

2. Treasury Bonds

If you are very close to retirement, I would recommend investing in Treasury Bonds mainly because they are low risk and have an almost guaranteed interest income every half year.

3. Equities; 

For the younger income earners, Equities though riskier than Treasury bonds, allow the investor to earn more in the long run. Of course, you need to assess if your risk profile permits you to take such risks.

4. Real Estate; 

Developing houses and apartments for consistent rental income can be a great way to have a good and guaranteed income, to supplement the monthly payout from a pension.

In conclusion, the best time to have started retirement planning and investing is yesterday. The next best time is today. I urge you not to put it off any longer. As I usually tell you, start small, start clueless, but just start. You will figure it out eventually. You’ve got this!

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