Your company pension fund will not fund your retirement. I could end this article right now having said that because that is the key message I would like readers to appreciate. A lot of us are living life thinking that our retirement years are taken care off because we have a nice job with pension. Others may be thinking that a “deal” will come along at some unspecified point in time in the future and sort this out. As part of the course I run, I do a module that helps people actually calculate how much it would cost to retire. The fact is many of us if we do not seriously change our financial habits and mindset will not afford to retire. One of my students realised that with a lifestyle of Kes 100,000 today (and retirement in 10 years), she will need well over Kes 400,000 per month for the same lifestyle then (i.e. at the point of retirement). The amount of traditional investment assets she will needs will have to be over Kes 40 million and this will literally need to be in investments that actually generate an income for her such as property otherwise she will deplete the value of the portfolio very quickly.
Establishing your investment strategy for retirement has to begin now. Your investments need to first and foremost be placed in areas which will grow the value of your money i.e. give you capital appreciation. You need your Kes 100,000 to grow to Kes 200,000 then Kes 500,000 and so on. The reason you need to first and foremost increase the value of your Shilling, is so that it can later on be able to generate more income for you. With Kes 100,000 you may be very limited in the amount of income that can generate but with Kes 5,000,000 you probably have more available options to generate a reasonable level of income. The amount of Kes 40 million mentioned above may look large but remember it is because you are thinking with today’s money in mind. You will keep being able to earn more and hence invest more. Kes 40 million in 10 years time is the equivalent of having about Kes 10 million today.
Living off income generated by your investments as opposed to the capital is one of the key principles of wealth creation. For example being able to live off the rent from your properties as opposed to having to sell the property and live off the proceeds. When you can survive on the income, the property continues to appreciate in value, rental income continues to increase (hence helping you keep up with inflation), and it is an asset that can be left to your dependants. Retirement planning is not a passive goal that you delegate to your pension fund managers. It is something that has to be at the forefront of your financial plan. Your pension/provident fund at work can be part of it but it cannot be your only plan for retirement. When I speak of “Retirement” I do not mean that you will be doing nothing at the time. But it is the comfort of knowing that you are not dependant on someone else giving you an income to survive.
Waceke Nduati- Omanga
waceke@centonomy.com | www.centonomy.com