The future is not too far, plan for your nest egg now

Most people are dealing with retirement stresses because they did not sufficiently prepare when they had time to. Photo/FILE

A happy and fulfilling retirement may mean different things to different people.

For some, it may be transiting from full-time employment to a part-time job where you do not have to report to an office at eight every morning.

To others, it may mean spending more time with family and friends or leaving employment to concentrate on business, or even playing some golf and enjoying other forms of freedom in life.

Whatever retirement means to you, one thing is for certain: you have to be financially prepared for it.

For many people, especially those who do not plan adequately for it, retirement presents a hoard of financial challenges.

A recent survey by the Retirement Benefits Authority confirmed that saving does not feature on the priority list of most Kenyans.

It indicated that in the society, the young and trendy dread retirement and therefore, many prefer not to think about it until it happens.

Mr Patrick Wameyo, a financial literacy educator and coach at Financial Academy, says the misconception, especially among the young public, is that life will get better as you grow older because they expect income to increase.

But Mr Wameyo observes that as you grow older, your financial needs get bigger and today, most retirees in Kenya are either dependants or have gone back to work.

“Life after your job requires you to have more resources to meet your increasing expenses as a result of old age problems such as health complications. At the same time, your energy is diminishing so you cannot be productive enough to match your expenses,” adds Mr Wameyo.

For instance, many parents are paying school fees from their pension, which has eaten into the quality of their lives.

“Children are the most expensive and longest lasting financial obligation of a family. In an average family, parents have to provide for the child’s food, school fees, dressing, and other expenses at least up to age 23 when they leave college,” says Mr Wameyo.

The problem is that most people are dealing with retirement stresses because they did not sufficiently prepare when they had time to.

“With good preparation, retirement is meant to give you a nice rest after your long life of working hard for money,” says Mr Wameyo.

“It ought to be in your mind immediately you get your first job that you will one day retire, but most of us wait until it is triggered into our minds by a situation such as loss of a job or even advancing age itself, which reminds us that we are just about to retire,” he says.

According the educator, parenting should include a constant reminder about retirement to instil alertness in children’s mind that one day they will retire so that they can start contributing to the kitty when still young.

But, of course, it has to start with defining your retirement plan. This includes determining when you want to retire and what you need to have by the time you are ready to retire.

It will give you a more vivid picture of what you need to have in place to give yourself financial peace in old age.

“For instance, the retirement plan of a person who intends to shift to their upcountry home will be different from that of the one who plans to move to a First World country or one who wants to continue living where they are,” Mr Wameyo says and advises you not to trust in your pension. It will not cover all your financial needs in retirement, he says.

“Pension should only count as a constituent of your big retirement plan. With pension alone, you cannot meet all your old age expenses, especially because of the likely rise in health expenses, which tend to increase as your body ages and high inflation rates that eat into the purchasing power of your money,” he says

People should, therefore, put a retirement plan in place, calculated towards ensuring that retirement and old age is enjoyed without losing sleep over financial uncertainty.

Mr Wameyo gives the following tips, which you can apply to secure yourself a financially comfortable life in the old age:

Change your attitude towards retirement

Many people think retirement should be thought about in later stages of life.

The fact that most people retire at between ages 50 and 60 should not mislead you into thinking that you should not bother about it until you are almost hitting these ages.

Retirement should click in everyone’s mind as soon as they receive their first payslip. It will ultimately happen to everyone, even the self-employed.

At some point, your body is no longer able to wake up in the morning and do the things that you can do now. Therefore, adopt preparation for retirement early.

Establish a good retirement plan

With the help of a financial adviser, you can establish a retirement plan that suits your old age financial needs.

In contrast to common misconceptions, a good retirement plan is not that insurance cover you bought.

It is not even that pension you expect to be receiving in your old age and neither is it that money you have accumulated in a savings account. It consists of all these things.

A good plan should have a source of stable income such as rental income, a source of cash flow like an insurance policy, dividends from the stock market, and returns from your business.

Invest when young

Start out when you are still young so that you have enough time to invest and make corrections where you go wrong. Business is all about taking risks.

If your business fails when you are still young, you have time to make up for that and venture into better alternatives.

Identify the business you want and go for it when you are still rich, with opportunities to make amendments if things go wrong.

You could consider securing a loan to help you raise capital for your business when you are still young.

This will also help you maximise the time value of money. The longer the time you invest your money, the higher the responsibility of creating a reasonable pool of funds from small consistent investment.

You can place a standing order with your bank to deduct an amount from your salary, which you can then use as capital for your business venture.

If you are late, invest in stable income and low risk ventures

For those who delayed in making good preparations for their retirement, you can still do something to better your old age.

Create small investments with stable incomes and low risk.

Unlike the young who can invest in aggressive risk ventures since they have time to make up for it if it does not work, you are not willing to struggle making up for a fallen business at age 60. Such an investment could be building rental units upcountry.

It will cost you less to buy land and develop the rental property there, yet the income will be stable. If variation occurs in returns, it is likely to be upward rather than downwards.

Other safe investments are low risk unit trusts such as money market and bonds that have lower maturity periods.

Avoid get-rich-quick schemes since they expose your money to high risk with no time to recover from losses.

Prepare for retirement mentally

Ability to cope with retirement is highly dependent on mental preparedness. It is this preparedness that enables change of attitude and financial behaviour.

If you intend to run a business in retirement, it would be wise to try it out at least five years before you leave employment.

This will give you a little experience with the business in terms of the demands it lays on you.

Reduce your social expenses, which include funding your extended family or paying school fees for your grandchildren.

By denying grants to your grownup children, you are also teaching them to take up responsibility.

This, in turn, reduces your expenses to a family level which, with a good portfolio, you are able meet comfortably.

A good retirement plan is not having enough money in your bank account but building a reliable source of income that will cover your expenses.

For young people, prepare for your retirement when you are still young.

This is when you can organise and re-organise your financial fortunes comfortably since you have ample time.

It will pay to make small consistent investments from your first pay cheque.

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