I retire in two years. How do I invest my retirement lump sum to earn Sh80,000 per month?

Thinking on how to spend your time in retirement depends on your knowledge, skills, and active job experience.

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My name is Patricia. I will retire in 2027 with a lump sum of Sh10 million. My wish is to earn Sh80,000 every month from this amount during retirement. What should I invest in to achieve this target?

Benjamin Cheruiyot, Engagement Lead at Abojani Investments

Planning for retirement requires clarity about your interests, skills, and experience. Thinking on how to spend your time in retirement depends on your knowledge, skills, and active job experience. One ought to identify an interest to pursue years before retirement.

Many retirees lose their savings to "get-rich-quick" schemes or overspend on projects like rental properties without proper budgeting, often ending up with unfinished structures and financial distress.

Retirement brings financial changes: while your salary stops, bills remain, and pensions rarely match your pre-retirement income. Inflation further reduces purchasing power, so scaling down your lifestyle is crucial.

Key steps for retirement planning

1. Prioritise medical insurance:
Health concerns increase with age. Ensure you have comprehensive medical cover to avoid financial strain from unexpected medical bills.

2. Adjust your lifestyle:
Avoid clinging to pre-retirement privileges like frequent travel or dining out. Instead, embrace cost-saving habits like limiting outsourced services.

3. Explore agribusiness:
If you own a farm, research markets before investing in agribusiness. Success depends on adding value to your produce and leveraging your skills and passion.

4. Relocate to reduce costs:
Consider moving to a rural area where living expenses are lower, and you can grow your own food. City living might prevent you from pursuing other interests.

Making Sh10 Million work for you

Your Sh10 million can generate income, but it needs to be invested wisely. Without investments, it would only last about 10 years at Sh80,000 per month—and inflation could shorten that period further.

Government bonds:
Investing in bonds can provide stable income. For instance, a Treasury or Infrastructure Bond offering 17 percent annual returns could yield Sh140,000 monthly. However, these bonds lock your capital for the bond's duration.

Money Market Funds (MMFs):
MMFs offer flexibility and liquidity. With a 10 percent annual return, Sh10 million could provide Sh85,000 monthly.

Diversified investments:
A balanced approach may look like this:

  • Sh3 million in an MMF: Earns Sh25,000–Sh30,000 monthly.
  • Sh3 million in a Treasury Bond: Pays Sh255,000 bi-annually (Sh42,500 monthly).
  • Sh4 million in a special fund earning 18 percent annualised: Provides Sh180,000 quarterly.

Combined, these investments can yield about Sh130,000 monthly, exceeding your target.

Insurance income plans:
An income drawdown plan from a life insurance company can provide fixed payouts at regular intervals, offering financial stability.

Finally, consult a financial planner to adjust your portfolio based on market conditions and economic forecasts.

If you have any money problems, or if you’d like advice on managing your finances, feel free to get in touch at [email protected].

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