ABCs of building retirement wealth

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Put at least 20 percent to 30 percent of your gross earnings into savings. FILE PHOTO | SHUTTERSTOCK

Why are a majority of Kenyans above 60 years still in active employment?

A recent jobs report showed that about 82.1 percent of senior citizens who ought to have retired are still in active employment, raising questions over wealth accumulation in old age.

Wealth managers say the challenge lies in the failure of a majority of Kenyans to build a nest egg, big enough for retirement.

It can be daunting to think of cash flow in retirement after leaving the labour force when unprepared.

In retirement, the aim is to ensure you will have adequate income and to manage resources efficiently. In this harsh economy, the financial insecurity caused by inflation has forced many older adults to make difficult decisions including delaying retirement.


Put at least 20 percent to 30 percent of your gross earnings into savings. FILE PHOTO | SHUTTERSTOCK

Paul Njoki, the head of wealth management and affluent for Kenya and East Africa at Standard Chartered Bank says planning and starting early is important.

Avoid the twin mistakes

“First, there’s a mistake we are making individually and as a nation by not saving, secondly we are saving and not investing,” he says.

The time value of money makes it important to save for retirement early.

“The biggest enemy is inflation which now everyone understands. We look at the price of basic commodities going up. So, what Sh1,000 could have afforded a few years ago is now getting you half the basket,” he adds.

Not investing, Mr Njoki emphasises, is a grave mistake.

“So, if we project into 65 years, if you’re 35 years now, you can imagine what that Sh1,000 will afford in 30 years if you’re just saving to take it out later.”

Identifying income sources, sizing up expenses, implementing a savings programme, and managing assets and risks are part of retirement planning.


Paul Njoki, Head of Wealth Management, SCB during the launch of the SC Shilingi Funds at Standard Chartered Bank Offices on February 15, 2022. PHOTO | DIANA NGILA | NMG

Plan, plan, plan

“Another mistake people are making is not planning, you need to look at your life plan and what your financial obligations are going to be in each life cycle,” says Wanja Michuki, the founder and managing director of Be Bold Consulting and Advisory, a family business consultancy.

Planning for retirement helps one prepare today for future life to avoid cash flow problems and to meet goals and dreams away from the workforce.

“Start by looking at your income, your expenses and how much you can put aside, then how old are you? If you’re a young investor then you have a longer time horizon and you can balance your investments,” she adds.

Since you have a longer time horizon, Ms Michuki advises investing in equities and fixed income, with a leaning towards the former.


Put at least 20 percent to 30 percent of your gross earnings into savings. FILE PHOTO | SHUTTERSTOCK

She adds that looking at how long of a holding period and how much you have to invest are key in making these investment decisions.

Diversify your investments

“For people who are retiring, fixed income securities are what you want to look at because of the low risk since equities have a higher element of risk and if you invest in mutual funds you’re diversifying and not putting all your eggs in one basket,” she adds.

Fixed securities include government bonds that offer lower risks among the asset classes and have traditionally served as ballast when stocks falter.

“Put at least 20 percent to 30 percent of your gross earnings into savings and this will help cultivate the discipline. The younger you are too, the easier it is to put into long-term assets,” adds Mr Njoki.

Consider ROI over inflation

As you invest, he says you also look out for the assets that are returning (return on investment (ROI) at a rate higher than the inflation.

“I’m talking about long-term inflation so the money you’re putting aside is not losing value,” the expert adds.

Take a good health cover

Ms Michuki says that since retirement could come with health-related issues, a good insurance policy in place would come in handy in the event of a medical emergency.

Plan your finances to maintain the desired lifestyle, and take care of your health.

Can cryptocurrencies such as bitcoin, and ethereum be a new class of investment for retirees?

Consider new assets liquidity

While Ms Michuki is cautious about venturing into new territories and unregulated currencies, Mr Njoki views it as an opportunity to explore.


Bold Consulting and Advisory Limited certified coach, writer, speaker, private wealth management consultant Wanja Michuki. FILE PHOTO | COURTESY

“Firstly, if you want to invest in digital currencies, limit it to less than five percent of your earnings. This is because you don’t quite understand it,” he explains.

“You have to go back to the basics of valuation, how are you making your returns from, say, non-fungible tokens (NFTs), we’ve also seen major crashes of these digital currencies which wiped out major savings so make sure you understand it first,” says Ms Michuki.

She adds that liquidity is paramount in retirement and some of these currencies are not liquid.

“Make sure part of your portfolio can be easily converted to cash in case of an emergency because life happens.”

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