Benefits of using sacco savings scheme to plan retirement

Today, saccos are doubling up as alternative schemes for retirement plans unlike initially when they were used for loan facilities. FILE 

By ISAIAH OPIYO

In Summary

• Many income earners want retirement plans that provide a regular source of income and one that can be used as collateral.

Last month, while I was watching the IAAF Diamond athletics competition, I noticed some unfortunate event occurred on the track. In one of the marathon competition, a leading athlete in got exhausted and dropped off the race on the last lap to the finish line.

It appeared ridiculous that an athlete who had put many years and a lot of effort into preparation for this marathon competition would drop off the race.

Similarly, this is what happens to many income earners who spend many years doing personal financial planning in order to enjoy their desired lifestyle – only to get exhausted at the finishing line - by not having a retirement plan in place to cater for their livelihood during the sunset years.

Just like any marathon athlete would not wish to start on a high pace only to lose energy on the last lap to the finish line, any income earner would not want to work forever and savings is therefore critical to retirement planning.

Many a times in our daily endeavours, we are confronted with two major fears that largely influence the nature and choice of our personal financial plans. This revolves around the fear of premature or untimely death and the fear of prolonged life.

The former is associated with the financial loss and the inability that comes when death occurs prematurely before one accomplishes his financial ambitions.

The fear of prolonged life on the other hand is usually mute and only emerges at a later time in life when one is retired, weary and old to fend for his financial needs. This is what creates the need for retirement plans such as pension schemes and annuities as a means of financial livelihood for the retired.

Lack of such plans makes life at old age unbearable and many retirees at this stage loose the focus in any financial ambitions and mostly rue the essence of long life spans.

With the heightened economic conditions, many income earners are looking for retirement plans that would not only provide them with a regular source of income to afford a decent lifestyle at their sunset years but one with a cash value that they can use to as collateral for any lending or for their mortgage in their lifetime.  

This double benefit is what lacks in many convectional retirement plans. Many of these convectional retirement plans are tailored only to cater for the benefit of providing the retiree with a regular source of income and sometimes limited to be used as collateral only for mortgage plans.

This limitation affects many potential income earners who would wish to use their retirement plans to secure lending for their other personal financial plans.

With all these challenges, many income earners are now shifting from convectional retirement plans to saving for their retirement through sacco savings schemes. Unlike initially when sacco schemes were only used as avenue to access affordable loan facilities, today they are doubling up as alternative schemes for retirement plans.

Let’s take the case of Jack, a 32-year-old employee who wants to retire from active employment by 2040 with a regular monthly retirement income of Ksh.50,000. Assuming that Jack opts to plan for his retirement through his sacco scheme, he will be required to make monthly contribution to the sacco.

Assuming that his sacco would give a conservative dividend of 10 per cent per annum for the next 28 years, if Jack opts to cash on his yearly dividend income without reinvesting the same, he would be required to have accumulated Sh6 million by 2040.

With an accumulated deposit of Sh6 million and at a conservative dividend of 10 per cent, Jack will earn Sh600,000 per annum which translates to a monthly retirement income of Sh50,000 each year.