Bills hardly stop when the salary stops at retirement, yet a monthly pension does not match your last salary.
My name is Gilbert from Nairobi. I retired five years ago and I have been trying to invest in agribusiness. However, I have been losing too much money and I don't see myself sustaining my livelihood this way. In the next couple of weeks, I will be getting around Sh520,000 from NSSF. I would like to invest this money wisely but I am afraid I might end up in another money pit. How do I plan for this money, budget, and invest it for a sustainable retirement?
Benjamin Cheruiyot – Engagement Lead at Abojani Investments, a personal finance and investments advisory firm
It is often recommended that you carve a niche years before retirement. Your networks in employment can help you set up a thriving business while still on the payroll. Therefore, planning to start a business at retirement depends on your knowledge, skills and experience. Cases of retirees losing their retirement savings to “quick fortune” schemes are common. Others get into the lure of rentals, expending all lump-sum payouts to projects without detailed building cost plans. The result is unfinished structures.
Agribusiness requires proper market research lest you get stuck with produce. If done well, there are endless opportunities for wealth creation. Unlimited value addition to farm produce will also give you a ready market to satisfy. Your skills and passion, even at low seasons, will determine the extent of your success. Where exactly are you losing the money? Is it in production? Is it in bookkeeping? Is it in revenues that don’t tally with the invested funds?
As you answer these questions, you will also need to understand the type of agribusiness you are involved in and why.
Your wish to invest your NSSF benefits of Sh520,000 should be well thought out to avoid losing it again. What business are you thinking of? Traditional business models are fast disappearing. E-commerce has taken over. If you are not internet-savvy, you could miss out on opportunities. In any case, rushing to open a new business will most likely result in failure as the majority of new businesses in Kenya hardly survive past their second or third birthdays.
Bills hardly stop when the salary stops at retirement, yet a monthly pension does not match your last salary. You need to scale down your lifestyle since inflation will always reduce your purchasing power. The first thing to do is to maintain comprehensive medical insurance. Old age attracts reduced body immunity, especially with underlying conditions.
Relocating upcountry where you will grow your own food will drastically lower living costs, besides providing you an opportunity for healthy eating. Do not carry your job title into retirement. Cases of retirees trying to maintain their pre-retirement employer-funded privileges abound. You may no longer afford frequent travel as fuel costs are always looking up. Expensive eat-outs will also drain your finances. If possible, limit outsourcing services that you can do by yourself.
With Sh520,000, you are looking at another 30 years or more to live on the interests generated. Will this amount last you that long? Assuming a monthly budget of Sh30,000 with no income generating investment, this amount only equals 17 months’ worth of living costs. With inflation, this can reduce even further. You need to invest this amount to earn you more interests.
Investing in a safe but meaningful returns vehicle like government bonds will earn you a regular income. If put in a treasury bond returning 16 per cent per annum, you will earn Sh41,600 every six months. This averages Sh6,933 a month. It is definitely not enough to live on. Other options like money market funds will earn you Sh4,800 monthly in a fund returning 13 per cent per annum.
Your options are limited by the amount. Take your time to understand the financial markets, especially treasury bonds, as they are relatively safe and give better interests. Also, depending on your physical and mental fitness, consider working a job in your expertise if you can get one. This doesn’t have to be a regular formal job. It could be a part-time consultancy. For example, an individual who formally worked as a headmaster at a public school could offer his services in the form of managerial consultancy to one of the many private schools.
Despite being in retirement, creating an extra income stream that can supplement the return on investment for the half a million you are looking to get will boost your ability to sustain yourself financially.
I assume you have a family. If so, you need to factor them in when organising your finances. For example, if you have a spouse, is she working or retired? How can you join hands to uplift your current financial status? If you receive black tax assistance from your children, you might consider sitting down with them to consider how this black tax can be better utilised.
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We have our own home and a combined net income of Sh265,000; should we relocate from Kenya?
My name is Beatrice. I am in my mid-30s. I am married and a mother of three. My husband and I both work and have a combined net income of around Sh265,000. My husband is in the medical field and I am in the private sector. We have our own house in Kiambu. Our monthly family budget amounts to around Sh50,000. We have investments in Saccos and also run two separate Money Market Funds. We are also servicing a loan of Sh1.3 million. We have about seven months to complete our repayment obligations. Over the past year, we have been toying with the idea of quitting our jobs and relocating to Europe or North America, specifically the US, UK, Canada or Germany. We feel that we have the capital and ability to fund the relocation, and reckon that such a move would be good for our children’s education. However, I am scared that this could be our Achilles heel. Please advise.
Josephine Murage is an investment banker and personal finance consultant
Why do you really want to relocate? This is the primary question you need to ask yourself. What do you want from the US, UK, Germany or Canada? What is your objective? What is your target?
If you are thinking of relocating simply because you have an acquaintance who has also relocated or because these countries have been presented as the ultimate heaven on earth, the reality on the ground might be disappointing.
From the breakdown of your finances, you are not in a bad position. Your net income is on the positive and you appear to have sorted the family unit’s primary concern, which is housing.
Relocation comes with a series of financial, career and emotional implications that you will need to be aware of. One of these is your academic credentials and career accreditation.
In the countries you are interested in, fields such as medicine are highly regulated. This means, for example, that if your husband is a medical doctor, he will not just walk into a hospital and start practicing the moment you relocate. He will have to go through dense red tape to have his credentials assessed, accredited, and acknowledged. This can take years, and in some instances in North America, he may even have to go back to school. The credentials and experience you both have in Kenya might mean nothing in the jungle out there. Research shows that in some of these countries, immigrants who worked in hospitals as qualified doctors in their home countries now drive Ubers because they just can’t seem to get accredited – mark you, this is despite major shortages of medical practitioners in some of these countries. This is not to scare you but to prepare you. Also, understand that the purchasing power that a net income of Sh265,000 gives you in Kenya will not be the same in the US, UK or Canada. How financially and emotionally ready would you be for this?
Small budget
One of the options you can explore is visiting these countries to see if they are really what you imagined before relocating. You do not need to rush this. You could set aside a small budget for it as you process the necessary paperwork. For instance, out of your various investments, you could allocate yourself some ‘dividends’ to explore these places. This means that your working capital (your invested funds) will remain intact even as you travel out to explore these possibilities.
If you still decide to relocate, beware of rogue agents. There is an increase in immigration fraud targeting Kenyans seeking greener pastures. Go for licensed immigration consultants who are verifiable and authorised to practice immigration business by their respective governments. These are not local travel agents. Their licenses should be verifiable on official government portals.
It is also worth mentioning that there are offshore dollar investment opportunities that you can tap into without packing your belongings and relocating to a new country. One of the motivating factors for relocation is your children’s education. This is a valid concern. Depending on the outcome of your visit, and your children’s academic prowess, you may want to set up an investment fund that can take care of their college education abroad. Granted, studies are one of the easiest ways to be integrated and accredited abroad.
It is commendable that you want to expand your horizons. Whichever outcome you choose, consider upscaling your individual skills and qualifications. This will not only maintain your bottom-line but also sustain your marketability and boost your chances of increasing your family’s net earnings. There are short investment masterclasses that you should consider taking to be fully aware of your financial situation, your actual net worth, your shortcomings and potential investments you can tap into for passive income. For example, out of your income of Sh265,000 you are left with Sh215,000 after your household budget. Once you make your loan repayments, where is the rest of this money invested? Do you have investment standing orders or is it left lying somewhere in a current account? What’s the biggest passive income return you are getting and is it the best in the market?
If you have any money problems, send us an email at [email protected] and leave your number for contact. Money questions will be answered in this column.
