I'm aged 60 and set to retire this December with a pension of about Sh15 million. My expenses after retirement will include school fees of Sh450,000 per year for the next six years and monthly expenses of Sh70,000. I have a rental house with an average income of about Sh70,000 per month. I plan to invest Sh3 million of the pension to add more rooms to the rental house and increase the monthly income to about Sh100,000. I also want to use about Sh2m to build a retirement house back home and invest another Sh1 million in poultry farming, which will hopefully generate about Sh40,000 every month. That will leave about Sh9 million for investment. What are my investment options?
Benjamin Cheruiyot – the Engagement Lead at Abojani Investments, a personal finance and investments advisory firm
Planning your time in retirement depends on your knowledge, skills, and job experience. One ought to identify an interest to pursue years before retirement to avoid losing retirement savings to "quick fortune" schemes, or using the payout to build rentals or engage in projects without detailed cost plans. The result is unfinished structures, tied cash, and mounting distress.
At 60 with Sh15 million, your biggest job is not growth; it is to make sure money outlives you, and you don't have to go back to work. Your monthly expenses amount to Sh840,000 per year. In addition to the school fees costs, you will need Sh1.3 million annually for the next six years. Your current income streams and planned projects can successfully cover your projected expenses as follows. Rental (Sh100,000 per month) brings in Sh1.2m per year, Poultry brings in Sh480,000 per year at Sh40,000 per month, which totals to Sh1.68 million per year.
With Sh3 million directed to increasing rental units, and Sh1 million towards poultry production, you will remain with Sh11 million. Proceeds will cover your living expenses and school fees if the houses run at 100 per cent occupancy and poultry production operates favourably.
A retirement home for Sh2 million is moderate. Build a simple, low-maintenance house. Don't build a mansion that will cost you Sh30,000 every month to maintain. Build what your 75-year-old self can comfortably maintain.
On rental expansion, the Return On Investment is 12 per cent per year, which is better than MMF today. However, get a proper Bill of Quantities. In Kenya, finishing often goes 20-30 per cent over budget. Only do it if you have titles, approvals, and you can finish in four to six months. Keep rent collection professional. Vacancy for two months easily erodes your 12 per cent return.
Poultry is the riskiest venture. This project requires putting up structures, stocking feeds, and ensuring a good water supply. With a solid establishment, there's a ready market for eggs and meat. A Sh1 million layers project for Sh30,000 net profit needs 500 to 700 birds, perfect management, and your daily presence. Feed prices, disease, and market price can wipe out profit for months. Start small. Use Sh400,000 for 200 birds as a pilot for six months, then scale. Don't put the full Sh1 million.
The remaining Sh9 million is your real pension fund. Don't touch the principal. Let it generate income and be your backup. Also, don't put it all in one place. Split it into three buckets. Put one bucket of Sh1.5m in an MMF for school fees for the next three years and 12 months' living expenses if the rental is empty. You'll earn between Sh120,000 and Sh140,000 in the first year, depending on your chosen fund manager.
Bucket two, of Sh6m, should be for your guaranteed monthly income. Put it in Treasury Infrastructure Bonds, which are tax-free. Current IFBs are paying 12-14 per cent per year. If you put Sh6 million at 12.5 per year, you get Sh375,000 every six months for the bond tenure, without touching the principal.
Bucket three, of Sh1.5m, is to be used to beat inflation. Keep it in a fixed income fund or carefully selected NSE stocks, for example, Stanbic, Standard Chartered, Williamson Tea, and BAT.
Growth of assets through compounding interest will set you up for a comfortable retirement. Increasing income sources provide more cash to meet long-term goals. This money you don't touch for at least seven years to make sure inflation doesn't exhaust your Sh9 million.
If you have any money problems, send us an email at [email protected] and leave your number for contact. Money questions will be answered on this column
