Capital FM (Nairobi)

10 January 2013

Kenya: How Ready Are You for Retirement?

Nairobi — Jane Muteo* is a 26 year-old who entered fulltime employment three months ago. Other than paying back the Higher Education Loans Board (HELB) you'd imagine there would not be much strain on her finances given she has no children.

But that's not to say she has no dependants. "My mum was retrenched 12 years ago and never really got over it. Since then I've had to support the both of us. When she turned 50 she accessed her NSSF (National Social Security Fund) savings but there wasn't much."

"She had no other retirement plan and so being an only child I have to meet her every need. I wonder what will happen when I get married. My dad is nowhere in the picture and we have no home up country."

Isaac Njuguna is the Head of Investments at Zimele Asset Management Company Limited and has experience spanning 14 years. In those years, he has come to learn that Jane's dilemma is not exceptional.

"You have this young person who has just started working; the parents retire and they expect this young man or woman to take care of them. When you consider that this individual is in the process of establishing their life, it becomes an unfair burden."

"The young individual may not be able to achieve certain goals within his working life because his finances are under too much strain."

The cost of not planning for your retirement, Njuguna is quick to add, goes both ways, "I see your number and I don't pick that call because I know what you will ask me. I see a text message from you and I can almost tell what it is about, please send me a 'k' (Sh1,000)... I am in a fix."

"Even your children whom you raised, it gets to a point when you start becoming a bother. That is the reality. For the sake of your dignity, don't overburden your loved ones by failing to plan for your finances."

Nobody knows that better than Jane's mum, Beatrice* "She (daughter) is so tight fisted. I tried business but it is just not meant for some people. I raised her; why can't she take care of me in my golden years? I have nothing and no one else."

Most people, according to Njuguna, start to think of pension plans three to five years prior to retirement, "at that point they have kids they are taking through college and they simply do not have much left over to pump into a retirement fund."

The earlier you start to plan for your retirement, the longer you have to save and the smaller the amount you need to invest into your old age per month.

Currently, only 500,000 Kenyans out of 11 million earning an income either through employment or in the informal sector, have private pension plans and only three million making contributions to the NSSF.

These numbers paint a bleak picture of the country's future, "In the past, our parents would at least retire having taken possession of a house. Today, only 17,000 Kenyans are on their way to owning their homes through mortgages because they are so expensive."

"The average Kenyan's life expectancy has also risen from 55 to 63 in the last two years. Ask yourself if you'll be able to maintain your current status of living for that long after your pay cheque stops coming."

Wanjiru Njuguna is a 26 year old who first started working for her aunt's tour company in 2005. Fast forward to 2013 and she hasn't put a shilling aside for her retirement, "I save but I save to buy things I want that are too expensive to purchase on one pay check. I don't think of retirement. I think I'll just go upcountry when I'm too old to work."

Even that, Njuguna cautions, is no longer a viable option, "The land upcountry is currently so sub-divided what are you going to subsist on?"

Twenty-five year old John Kamau* runs his own printing company and like Wanjiru, he's has hardly given a second thought as to how he'll support himself in his old age, "I'll be working all my life. Only the intensity of the work will reduce."

"If multi-millionaire Mitt Romney is said to have up to a hundred million dollars saved up for his retirement, who are we not to? " Njuguna counters.

The benefits of having a retirement plan, Njuguna adds, go beyond providing a safety net in old age; pension deductions are made before tax and returns made from invested pension savings are not subject to tax either. Your pension savings can also provide collateral for a loan.

As a rule of thumb, between 10 and 20 percent of your monthly income is meant to go towards your retirement so the Sh320 payment you make to the NSSF, Njuguna says, simply does not make the cut.

"Assuming you work for a period of 30 years, you'll end up with benefits of Sh144,000. Today most people will not be able to maintain their standards of living for a long stretch on that."

"I hear people say they'll invest that money in buying a matatu to see them through. Buy one and you'll have no need to join a gym. Every time the driver calls you it won't be because he's made you a lot of money."

*Not their real names.

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