Crafting a retirement plan: Bolts and nuts

Peter Kiptanui did not survive three years post-retirement. Although he had been earning in job group N in the civil service, his retirement payout was a dismal Sh. 13,000 per month which was not enough to sustain the lifestyle he was used to. Life became expensive and he relocated to his rural home in Kapsabet where he became a herder. Weighed down by the loss of friends, income, and the change of lifestyle, Peter grew weary and old. He died in November 2019, two and half years after retirement.

Peter’s story illustrates the importance of having a retirement plan. A workable retirement plan will safeguard your future, the future of your family, and help maintain your quality of life when you retire.

How do you plan for retirement?

Retirement age

Decide the age and type of lifestyle you want to lead once you retire. Godwin Simba, the Group Executive Director at Octagon Africa says that you should estimate how much you’ll need and begin with 80 percent of your present living expenses. Your retirement lifestyle will depend on your present contributions. There are online financial calculators such as the CalcXML you can use to estimate how much you should save from your annual pay at your current age to attain your desired retirement figure.

Inflation

The money you think you should save today may not be of equal value in the next 15 to 20 years. The lifestyle you are living today will cost you more in ten years due to inflation. If you are planning to retire within the next 20 years, you must create a plan that will give you an income that is close to what you are earning today to ensure that your income replacement rate is as stable as possible. “If you are earning Sh. 100,000 today, you will need at least Sh. 60,000 coming into your account every end month at age 55 to ensure that your lifestyle adjustment is not drastic,” says Simba.

Types of schemes

You can opt for pension schemes or provident funds. With a pension scheme, your contribution and your employer’s contribution plus the accrued interest shall be used to buy a pension policy. When you retire, the insurance will pay you a specific amount of money every year. With provident funds, you will get paid in a lump sum similar to a golden handshake. Simba cautions that lump sum payments are easier to misuse. “Cash lump sums paid by pension schemes are usually exhausted in the first three years,” he says.

Consultancy in retirement

If you are a professional, you can transfer your skills into a consultancy after retirement. This is easier than using your retirement money to start a business. This will also earn you additional income beyond your monthly or annual life insurance payout while you keep busy and active. For example, if you work in a financial institution’s credit department, start thinking of how you can gain skills that you can repackage into a consultancy helping SMEs get access to credit after retirement. If you are an investment advisor, start planning to become a personal finance or investment consultant upon retirement.

Mental health

After retirement, you will experience loss of a stable work routine, you’ll lose regular friends, get overwhelmed with boredom, and fear that your place as an authority in society and family is diminishing. “These sudden losses can be too much to process. They can lead to bad emotional and financial decisions with far-reaching mental repercussions,” says Ken Munyua, a psychologist. “The best way to guard yourself is to keep your health in check and to find a professional who can walk with you.”