Retirement planning

What’s your goal during retirement? To maintain the same lifestyle or travel the world and tick all those destinations from your bucket list? Whatever the goal, have you started your retirement planning process? Your retirement life is as good as your planning during your younger years. Here are 5 steps to safe retirement planning for a secure and fun future;

What’s Your Time Horizon?

The first step to planning your retirement is understanding your time horizon. The longer you have to retire, the more time you have for your investments to increase in value. If you are lucky enough to have an employer with a pension scheme, try to increase your contributions. There are numerous individual pension plans (IPP) from many firms to choose from for those without employer pension schemes.

Not only will you be benefiting from long-term compounded interest but also getting tax relief for retirement contributions. In Kenya, you get a tax relief of your actual contribution, up to Ksh. 20,000.00 of your monthly contribution, or 30% of your monthly income, whichever is lower.

Example: Comparing monthly contributions and PAYE effects using KRA’s PAYE calculator 

A monthly contribution of Ksh. 2,000.00 gets you a PAYE of 3,966.45 while a contribution of Ksh. 8,000.00 lowers your PAYE to Ksh. 2,766.45.

There is the belief that younger individuals have a longer time horizon, hence the ability to allocate a large portion of risky assets like stocks in their portfolios. However, current research proves that stocks and bonds seem to have the same return over a long-term horizon. Whichever assets you decide to invest in for your retirement, ensure that they can outpace the inflation rates to maintain your purchasing power. 

Also, consider breaking your retirement plan into several components that factor in the different time horizons, planned milestones, and liquidity needs. It will help you with your asset allocation and the constant rebalancing of your portfolio. 

For example, if you plan to retire in 5 years, and you still have a few milestones to achieve, like sending a child to college, draw an investment strategy that considers these two. Your retirement kitty will still need regular contributions, but you also need to save for college expenses like tuition and accommodation. 

Think About Your Retirement Needs 

For better retirement planning, it’s ideal to have a realistic outlook of your retirement needs. Yes, we are all saving to have a comfortable retirement life, but what does that entail? You might think that your retirement needs will be lower by at least 70% than your current needs but have you factored in other issues?

Think about expenses like unexpected medical problems, home repairs, mortgage repayments, debts, travel expenses, among others. With the cost of living increasing each year and a longer life expectancy, consider having retirement needs closer to your current needs.

When planning your retirement needs, one of the greatest factors to consider is your withdrawal rate. An accurate list of your expenses can guide you on how much you need to withdraw from your retirement portfolio. It will also guide you on what investments you need to make to ensure you have enough income to meet these retirement expenses. Ensure that you update your retirement plan often, at least once a year, to keep track of your savings. 

Your Investment Goals vs. Risk Tolerance 

Whether you’re managing your investment portfolio or have a professional manager, ensure your asset allocation matches your risk tolerance and investment goals. How much risk are you ready to meet your financial and investment goals? 

As mentioned here, the more risk you are willing to take, the higher your investment return. Ensure that you’re comfortable with the risk you or your portfolio manager take when investing.

Don’t be too haste to react to market volatility. With more years to retirement, like 10 to 40, you can afford to sit still and not sell your investments. If the market is falling, buy rather than sell your investment assets. 


Retirement contributions might lower your current income tax liability, but when it’s time to withdraw, that money will probably be taxed. So, when planning your retirement, consider the real after-tax rate of return of your retirement investment. It’s the real return from your investments after taking into account the current tax rates and inflation.

Why is this important? Well, you need to know whether the income you receive from your retirement portfolio after inflation and taxes will be enough to meet your retirement needs. Early retirement planning offers one the advantage of growing their portfolio to protect against a realistic return rate. While markets have proven to give 10% to 12% in annual returns, the realistic rate of return ranges between  5% to 8% when you factor in taxes and inflation.

What’s Your Exit Plan?

We make so many plans for the future, including retirement planning, but few of us have an exit plan. Do you have an estate plan or a will? Contrary to popular belief, having a will is not just for the wealthy. 

It’s best to plan for the few assets you own rather than leave your beneficiaries and other unwanted parties fighting over them. In the worst-case scenario, without a will and your beneficiaries have no idea of the assets, the state claims these assets. 

In Kenya, the UFAA (Unclaimed Financial Assets Authority) administers unclaimed assets. It’s currently sitting on about Ksh. 3B of unclaimed assets. Do you want to leave your beneficiaries running through government offices to claim your assets back? It might be an easy process, but still, articulate planning can save them from this hassle.

Just because your employer doesn’t provide you with a retirement pension scheme doesn’t mean you cannot plan for your retirement. Even if you contribute to NSSF and have an employer pension scheme, I’d still advise you to open an individual retirement plan and start your retirement planning early. Let your money start earning your returns through compounding interest. You can use this retirement calculator:

Retirement Savings Calculator



  • Frank Marangu

    October 29, 2020

    Doing a great Job – Personal finance management is agreat monster to most. Few have understood how to navigate.


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