Nothing beats a stress-free retirement

Lucy Njine-Maina, in her late 50s, is retired from active employment and now devotes her time as a retirement planning expert with Naveah Capital:

I retired from active employment at the end of 2014, having put in 25 years in the corporate world doing finance planning and risk management.

I am currently enjoying my life in retirement and actively pursuing my passion of speaking, teaching, coaching and mentoring in the field of wealth creation.

You should start planning for retirement the day you start earning an income. When it comes to retirement planning, time is your best friend.

Early planning gives you the opportunity to implement both financial and non-financial measures that matter a lot in retirement. This preparation will include thoughts and plans around where, what and how you will spend your life in retirement.

It’s unfortunate that many of us leave retirement planning until very late in our working life, thus missing out on the benefits that accrue over time especially those directly associated with compounding of interest on retirement investment.

Your first step should be to confront your reality. Have you ever contemplated your life in retirement and how you hope it looks like? How much per month or per year will you need to sustain the life you dream of?

The second step is to consider the investments you have made so far and whether they will give you adequate returns when you stop actively working. In the event that you do not have any plan in place, then you should search for the options available and which suit your current financial status.

Retirement planning calls for a lot of financial sacrifice, hence you have to be psychologically prepared that the pursuit of financial freedom is worth the sacrifice and that it is part of your day-to-day priorities.

What percentage of your salary you save for retirement, depends on your financial freedom target and the time you have before retirement. The ideal income replacement ratio is 0.75.

This means that in retirement, you will need at least 75 per cent of your current income to sustain a lifestyle similar to what you are enjoying today. As a rule of thumb, in your 20s, you should save at least 10 per cent of your gross income to a retirement investment program.

The percentage increases as you grow older and that is why it is important to start early before you acquire other competing demands on your income. The amount you save for retirement should be invested in a program or scheme that guarantees the safety of your principle and gives a return that is above inflation.

There are great investment options available for retirement savings. The first is National Social Security Fund (NSSF). The government of Kenya has made it mandatory to save for retirement for those in formal employment.

Following closely are employer/employee contributory schemes which are regulated by Retirement Benefits Authority (RBA). All the registered schemes are listed on the RBA website and the greatest advantage of these is that most employers will match and save to the account of the employee, the same percentage an employee contributes to the scheme.

Furthermore, all contributions to a registered retirement scheme up to Sh20,000 are exempted from pay as you earn (PAYE) tax.

Besides these, you have other investment options like the stock market, both local and international, government bonds and treasury bills, insurance policies and other such funds.

Other investments to consider in retirement planning would be real estate and business. The goal is that at the point of your financial freedom, you should have a minimum of five streams of income that pay you whether you are asleep or awake.