In the twenties, very few people think of retirement planning. After all, it is way too far in terms of years, making it a distant imagination. This is often the period when many young people are taking off in their careers, and top mind is living a good life.
Yet this is indeed the best time to not only start thinking about retirement but also start doing something about it. Investment experts say how you spend or save your money as a young person will very much determine how comfortable you live your retirement years. “The secret to retirement saving is to start as soon as possible,” says Alex Kirigo, a pension expert based in Nairobi. “Most people wait for too long and start late.”
Kirigo offered the insights on Youth Forums Series powered by Co-operative Bank of Kenya seeking to empower students and young Kenyans in employment and self-employed. This particular forum focused on retirement under the topic Retirement Starts Now; Why 25-Year-Olds Should Already Be Thinking About Pensions.
Starting early means you contribute little amounts over a longer period. This way time is on your side both in terms of contributions and accumulation of compounded interest on your savings. “Starting early and contributing small amounts makes the journey to retirement saving peaceful,” he says. “When you start late it means you have to save up a bigger amount to accumulate something substantial at the end of your working life.”
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In the current world where time flies and careers aren’t as stable, prudent saving for retirement can provide the much-needed cushion. And for those who secure jobs, retirement comes almost automatically through the statutory National Social Security Fund (NSSF).
Depending on the employer, more savings for retirement can be achieved through a pension scheme. While NSSF is compulsory for all employers, Mr Kirigo advises workers to save through private pension schemes run by organisations. “If you are getting employed it is good to find out if the company has a pension plan or scheme. In most cases, though, the employment letter will state the pension arrangement,” Mr Kirigo says.
Under this an employee contributes to the scheme and the employer matches the contributions, expanding savings for permanent and pensionable workers.
It should be noted that each company has its own rates, with some recommending up to 10% of the salary. A salary of Ksh50,000 would, therefore mean, that an employee saves up Ksh5,000 monthly, hugely boosting their retirement kitty.
In Kenya the early retirement age is 50, normal retirement is 60 while late retirement is pegged at 65 years. So, depending on which point you want to exit, retirement saving should always be part of your career plan.
“Overall savings will have compounded interest over time so you will withdraw with interest. It is the power of time multiplication based on your savings,” says Kirigo.
In retirement planning, there are two types of pension schemes: Provident Fund and Pension Fund. In a Pension scheme, the retiree is allowed to withdraw one-third of the savings in lamp sum and then gets monthly payments from the balance. In the provident arrangement, at the other end, you can withdraw all the savings or just part of it and buy an annuity for monthly payments.
“You can only access your pension when you retire or leave active employment,” says Mr Kirigo. “Before you hit 50 years, you can access up to 50% if you change employers.”
The self-employed, too, can save for retirement through NSSF or individual pension plans. As it were, the trick is starting early and growing the fund over time. “In case you die, the benefits will go to the nominated beneficiaries,” he says.
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