Personal Finance

Use your bonus to boost savings for a better future

Think about the future as much as you want to enjoy today’s pleasures. FILE PHOTO | NMG
Think about the future as much as you want to enjoy today’s pleasures. FILE PHOTO | NMG 

Despite a mixed bag of performances, some organisations will still go ahead and implement their motivational and retention strategies for rewarding employees.

More often than not, the reward takes the form of a bonus, or in some quarters popularly known as the 13th salary cheque, upon conclusion of annual reports. This bonus is the most sought after and exciting reward in any business.

To those firms that will make the cut and offer bonus for their employees however little, kudos. To the ones that are unable to get around to do so, there is always a next time.

Regardless of the bonus employees receive over the coming weeks or months, a strong urge to spend is heightened due to accumulated festive debts, promises or New Year resolutions.

Truth be told, one is inclined to spend on the good things in life when these funds hit the bank account. I have in the past experienced colleagues salivating at new car, new furniture, the latest curved 55-inch TV complete with a surround system, fine whiskey, cognac and wine, the latest set of handbags, shoes or the much desired spa treatment.

It is alright for one to spend the extra cash on whatever they want. This is because money will always find needs to take care of.

Unfortunately, the last thing that most people consider is retirement savings. Rarely do we think of making hay while the sun shines for long- term goals.

Strangely the concept of living for the moment is so ingrained in today’s working population that most people do not have the remotest imagination that one day they will not have the energy to work as they do now, and they will need to somehow keep a semblance of their current lifestyle standards when they advance in age. In short, most people don’t have a retirement philosophy.

According to the Retirement Benefits Authority (RBA), less than 20 per cent of Kenyans actively save for their retirement. The industry regulator has previously warned that this means nearly 80 per cent will end up retiring into poverty, putting pressure on their extended family to take care of them in old age.

It also means that the current government monthly cash transfer programme to citizens aged over 70 will come under greater pressure as people live longer than expected due to advances in the medical sector.

This may force the government to either raise budget funding or worse, withdraw the welfare as an austerity measure further deepening the crisis. But it can all be avoided if concerted effort is made by employees to increase savings for their retirement years.

While staff may celebrate getting a boost of cash that’s outside of salaried income, it’s important for individuals to put this money to work for retirement.

The best way to boost your retirement savings is to place all or part of the additional money in a retirement benefits fund. Fortunately, Kenya has a robust retirement benefits industry that is well structured and governed.

The downside of not saving sufficiently for retirement today is that most people will overdepend on relatives in old age and face early death. Best practice in financial advice dictates that 50 per cent of one’s bonus be put in a retirement benefits fund or long term investment assets targeting retirement.

A retirement benefits plan has the benefit of low risk and seldom will the principle be touched. A retirement savings typically earns a compound interest, thus the need to start saving early.

Simply put, the compound interest rate that a salary bonus invested in a retirement plan will earn is higher than the annual salary review rate. In this case, the bonus is a worthwhile investment for the sunset years.

So, think about the future as much as you want to enjoy today’s pleasures for it was not raining when Noah built the ark.

Ezekiel Owuor is Managing Director, CIC Life Assurance Ltd.