Old age will surely catch up with you - start saving for retirement

Being self-sufficient and having more control over your life for the future is important. [iStockphoto]

The word retirement is associated with frail, aged individuals who have left the active work life to rest and enjoy their sunset hassle-free years.

While the mandatory retirement age of 60 years seems like a long time coming, especially to the young 21 to 32-year-olds, it is advisable to start saving as early as possible for old age.

Nowadays people want to enjoy their money now; buy their dream cars or travel to their dream destinations. There is nothing wrong with the You Only Live Once (YOLO) tag.

But being self-sufficient and having more control over your life for the future is important. The passage of time is indiscriminate and the young will eventually grow old.

Psychologically, most people have refused to accept the fact that they are growing old, deceiving themselves that ‘there is still time’ to invest for retirement. They procrastinate and get shocked by their level of unpreparedness.

Looking back, they are filled with regrets, remembering how life was enjoyable when they were young and energetic. Serious financial problems kick in; household bills, medical emergencies or loans to offset. They have to rely on their now grown children to assist them financially.

While many have a solid savings culture, for instance, for school fees or emergencies, developing a habit of investing in retirement savings will do the heavy lifting.

Unfortunately, there is a perception that individual pension plans are only tailored for those in the formal sector who subscribe to the National Social Security Fund (NSSF), leaving out those in the informal sector.

Future goals

On the contrary, there are various individual pension schemes regulated by Retirement Benefits Authority (RBA) designed for all, including those in the informal sector.

According to the 2021 FinAccess Household Survey, the overall Financial Health Index of the adult population deteriorated to 17.1 per cent in the 2021 survey compared with 21.7 per cent during the 2019 survey.

This implies that only 17.1 per cent of adults were able to meet the minimum set of criteria indicating the ability to meet their day-to-day needs, cope with shocks and invest in future goals.

The informal sector in Kenya accounts for 83.4 per cent of the total employment outside of small-scale agriculture, an estimated 14.5 million jobs according to the Kenya National Bureau of Statistics (KNBS) Economic Survey 2021.

Lack of information on how to subscribe to an individual pension plan has contributed to low uptake in the pension industry. There is need to enlighten all age groups on the significance of saving and investing in pension schemes.

It is important to simplify your investment management by providing a clearer picture of your total retirement assets.

For example, if one saves as little as Sh500 per month when he or she is 18 years, and gets a return of 10 per cent until he or she reaches the age of 60, the retirement fund will have accumulated to Sh3,398,010 (before taxes).

Besides NSSF, privately run pension schemes incorporate those in the informal sector. The Orient Personal Retirement Plan, for instance, offers an individual the ideal opportunity to save for long-term retirement income, with a guaranteed return on funds.

One needs to start this journey early in life for maximum growth of funds to ensure a comfortable lifestyle in retirement.

Financial freedom and security should be top on everyone’s agenda. We should save money to help us when old age knocks or if we are compelled to go for early retirement due to an unfortunate illness.

As you put your savings in different types of investments, also prioritise a long-term retirement savings goal. This is a ‘fixed deposit’ option where you are not required to withdraw your retirement savings until maturity, depending on the agreed options from your insurance provider.

It is worth noting that withdrawing the funds before maturity may make one lose tax benefits or pay withdrawal penalties.

It is time to change our perception about saving for retirement. Anyone above the age of 18 should take charge of their financial future today.

Endeavour to become that economically stable elderly person in the society who secured his or her retirement while young by reducing unexpected shocks, financial instability and contributing to a pension scheme today.

Mr Muli is the General Manager and Principal Officer, Kenya Orient Life Assurance Limited.