Planning for retirement

A whopping 80 percent of the Kenyan labour force is not saving for retirement. FILE PHOTO | NMG   

By DANIEL MAINYE

Retirement should be a time to sit back and enjoy the fruits of your labour. It is when you spend more time at that house you built in ushago (rural home), go on that dream vacation, play with the
grandchildren, or take up that hobby you always wanted to learn but were too busy for. However, you choose to spend your time, the one thing you should not have to do is live hand to mouth.

Sadly, the reality is different. A whopping 80 percent of the Kenyan labour force is not saving for retirement. This means that when it’s time to retire, this group will not be able to sustain itself despite having worked for decades. If you do not want to fall into this category, here are a few tips on preparing for retirement:

START TODAY

If you are in your 20s or early 30s, retirement seems ages away, but it is the best time to start saving. More likely than not, you have fewer financial obligations than someone in the latter stages of his or her career. Join a pension scheme as soon as you can and benefit from the compound interest. If you are not a beneficiary of an employer’s pension scheme, then join your own. Many firms offer personal retirement benefits products for individuals. Do not let the most productive years of your life go to waste.

GET A PENSION SCHEME THAT OFFERS MEDICAL COVER

Most insurance companies do not offer medical cover for people above a certain age bracket or with pre-existing conditions. Having just retired from a job that has been catering for your medical bills, you do not want to experience the shock of paying out of pocket when you go to hospital. This can get pretty expensive pretty quickly, eating into your savings and leaving you with nothing to live on. This is why it is crucial to join a scheme that offers medical cover as part of the package.

DON’T TOUCH YOUR PENSION UNTIL YOU RETIRE

When you transition from one firm to another, your former employer will probably give you the option to withdraw your pension. This is done under the assumption that the pension arrangements will be different at your new job. Ideally, you are supposed to deposit those funds into your new scheme. However, unless you are very disciplined, you will end up spending it. Furthermore, withdrawing from your fund prematurely may come with penalties, such as forfeiting up to 50 per cent of your employer’s contribution.

STAY LIQUID

During retirement, having access to cash is necessary to help with your current expenses. If your retirement savings are tied up in assets that take a long time to sell or require a substantial loss in value to be converted to cash, it will affect your ability to pay for your upkeep, a holiday or an unfortunate emergency. You also don’t want to depend on other family members for support. Financial freedom is key for a peaceful life when you retire.

PAY OFF ALL YOUR LOANS

Retirement should be a time to kick back and relax, which you will not be able to do if you have pending loan payments. Start paying off your biggest loans way before then. Keep the possibility of an earlier-than-expected exit in mind once you hit your 40s or 50s. Moreover, be cautious about taking on new loans if you can avoid it, especially where the repayment plan depends on you having formal employment.

PLAN YOUR EXIT

We spend a lot of time making plans for the future, but we forget how unpredictable life can be. Have you written a will? Planning for your death is considered taboo in Africa, with many people seeing it as an invitation for death. However, writing a will is the only way you can ensure that those you care about the most will be provided for in case of your unexpected demise. It guarantees that your assets will not lie idle or rot away while people fight over them. Start by having a simple will that you can update whenever there are changes in your family — a birth, death or marriage, for instance. Preparing a will might seem like a hassle, but that’s nothing compared what your dependents will go through if you die without leaving one.

To conclude, preparing for retirement isn’t something you start to do a few weeks in advance. It is something you should consider much earlier; as soon as you start working, if possible.

The writer is senior manager Cytonn Investments.