In 2010, a Financial Consultant by the name of Jacob retired at the age of 45. He had been investing in mutual funds since the year 1990. By the time he left the office, he had acquired the equivalent of KES 25.2 million in profits after tax and was well on the road to retirement.
Having left the rat race for good, he settled down to a life of rest and relaxation. Gone were the days of waking up early to work to pay for a house he barely lived in. Jacob would no longer have to put up with office deadlines, approved memos and other work-related activities.
Some Kenyans fail to plan for their future. Others make plans which fall short of their goals. Few manage to hit their actual targets. In some cases, others put all their trust in the most common of pension plans. Kenyans tend to bet most of their savings on the National Social Security Fund (NSSF).
The Fund currently pays out benefactors in lump sums, which often leads to mismanagement of pensions among the less educated members of society. However, there is hope for more efficient policies as the Fund’s Board of Trustees and other interested parties work to establish a Bill that will regulate the retirement scheme.
In the mean time, it pays to know what the future has in store for those who choose between an early retirement or society’s more common pension plan for those in their golden years:
Early Retirement
A lot of people want to have all their financial problems sorted long before they retire. Most of them set goals and make investments hoping and praying that their returns will be sufficient. Some fall short of their target while others see their dreams come alive.
An amendment to the Retirement Benefits Regulations by the Ministry of Finance in 2010 gave hundreds of early retirees the opportunity to withdraw half of their pensions ahead of the previously stipulated age of 60. The amendment was also considered to be a windfall for those who had faced retrenchment and had since been unable to find employment. This reflects on Kenya Airways employees who recently accepted a similar package shortly after they were sacked.
One of the benefits of early retirement is the freedom it offers. It opens up the retiree to a world of possibilities. They get time to spend with their family or travel for leisure purposes. Early retirees can also take up hobbies that they would otherwise be too old to do if they waited for a later pension.
Despite its appeal and illustrious potential, early retirement doesn’t necessarily come easily. Someone retiring in their 20’s or their 30’s will have to have a reliable pension plan or a self-sustaining business model. One possible option is investing in stocks and bonds.
For those willing to gamble, the stock market can be seen as one of the country’s biggest casinos. As long as the retiree has a reliable stock-broker managing their money, they can keep reaping the profits given that the investment holds steady and the economy remains stable.
Treasury bills are a more secure form of investment based on their fixed returns. Investing in government bonds is relatively safer than the stock market. However, the retiree will still be forced to employ an expert to invest on his behalf. This is an added expense among many others which will include the person’s daily upkeep, travel expenses, utility bills and entertainment costs.
Late Retirement
On the other hand, the Organisation for Economic Co-operation and Development (OECD) notes that late retirement holds more returns than early retirement, which can be an expensive endeavour. The organisation reports that those opting for the earlier alternative are forced to save significantly more than their mainstream counterparts.
Late retirement can lead to a stock-pile of disposable income. This, of course, depends on what scheme the policy holder chose earlier in life. Jubilee Insurance offers a scheme that grants the pensioner KES 30 million in 30 years.
Despite having years of accumulated cash, the retiree has a limited amount of time to enjoy it. Money is their biggest asset. They just have to live long enough to fully exploit its benefits.
The Central Intelligence Agency (CIA) Fact Book reports that life expectancy in Kenya is about 63 years. Males average at 62 years while females have a life expectancy of 65. This means that early retirement can rack up a lot of expenses depending on how soon a person decides to close shop.
So when you’re planning for your retirement, take note of the fact that it will probably cost you more than you expect, regardless of what path you choose. Weighing your options will help you rationalise your expectations.
For those within a few years or months of retirement, there is the proposed NSSF Bill. If it is passed, it will allow them to earn their pension like a monthly income. This will ensure that retirees spend their pensions in increments as opposed to the current lump sum which can be lost as fast as it is earned. For any young person with time still on their hands, the best they can do is save and invest as much as they can, before it’s too late.