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How Much Money Do You Need to Live on After Retirement?

Updated on March 1, 2020
Emmanuel Kariuki profile image

Emmanuel Kariuki has been an Art and Design lecturer and an Exhibition Designer in a Museum. He has also authored several story books.

Antique clock
Antique clock | Source

What is Your Current Lifestyle

How much money you will need to live on after retirement will depend on your lifestyle. How much are you spending per week? Per month? Per year? If you will not change your lifestyle, the figure that you arrive at now is roughly, what you will still need when you retire. A change in lifestyle may mean quitting some or all of the following:

  • Don’t drive your own car – take the bus, train or walk.
  • Don’t live in a leafy upmarket neighborhood – move into a flat (apartment building).
  • Stop eating out in restaurants and drinking expensive wines and spirits – Eat healthy food at home and don’t drink at all except tea, coffee and water.
  • Quit that expensive club – Do menial jobs around the house, jog and do pushups to remain healthy

If you will live in your own house and will no longer pay rent, then you can deduct the rent money. But if you will still pay rent, you must consider that property prices usually appreciate and your rent will be higher. Look at the increase in property values in the last ten years to get an idea of what the appreciation will be ten years from now. Add that inflation rate to the money that you will require in each decade of your retirement and plan a source for it, or save it now. The best situation however is when you live on your own property with an annex that has tenants. The rent from those tenants could go along away in keeping you out of penury.

Do You Have a Health Insurance Cover?

Medical cover

If you already have a medical insurance cover that is a good thing, because you can stay with your current provider even after retirement. But note that as we age, we have aches and pains, and the insurance companies are warry of that so the premiums are higher. You can talk to your health providers and insurance company for an estimate of what the increase in insurance could be as you age. If you do not have a cover now, some insurance companies will deny you the cover after a certain age, so you had better take one now. If you are working for a company that gives you a health cover, go for annual check ups so that any condition that could deny you a health cover in future is treated now at no expense to you. Men need to get prostrate check-ups as that is one complaint whose risk increases with age. 70 % of men in the age of 70 have that complaint - 80 % of 80 year olds and 90 % of 90 year olds. They say it is the same ratio for men in their 40s and 50s but I know enough men in that bracket to dispute those statistics. The truth is that men cannot ignore the prostrate gland.

NHIF in Kenya

The National Health Insurance Fund (NHIF) registers all Kenyans above the age of 18, whether employed, self-employed or in informal employment such as hawking. Registration for those in the formal sector compulsory and the employer deducts before issuing the salary and remits to the NHIF. For retirees and those in the informal sector membership is encouraged but is voluntary at only Ksh.6000 ($60) per annum. Currently, the government is attempting to have a Universal Health Cover through NHIF, but the plan is still in its teething stage.

Do You Have Dependants?

If you will still have dependents as often happens, you must factor them in - maybe a last born still in college? Work out how much the college and other upkeep money will cost before the dependent(s) are out of your hands. That includes their health cover too. Sometimes it is easy to tell which of your dependents may depend on you for longer due to special circumstances like divorce or even joblessness. If they are your children, they will forever be your children even if they are married.

How Long Will You Live After Retirement?

Some people live very long after retirement. You can actually plan now how long you want to live, accidents aside. You can start changing habits that may shorten your life, like smoking, poor nutrition and lack of excercise. Maybe you can live another 30 years after retirement (depending on when you retire, you could live longer.) Multiply the amount you need per year for sustenance by the 30 years (or whatever your estimate was) and the whooping figure is what you need for the period of retirement.

The National Social Security Fund

In most countries, their is a compulsory Retirement Fund. Kenyans who are employed in the formal sector Contribute to the National Social Security Fund (NSSF). Their employers also contribute a fraction for every shilling deducted from the employee. Upon retirement, the employee claims these funds together with the accrued interest. Unfortunately, this fund has had its fair share of scandals through the misuse and misappropriation of the funds. Many companies augment this fund by taking a retirement insurance scheme from reputable insurance companies. Though this amounts to double contribution for the employee, it works out to be a god-send on retirement as most often NSSF pays much later than Insurance companies. Most recently, NSSF has started encouraging workers in self-employment and in the informal sector to make contribution through their phones.

If you do not have a Retirements Benefits Scheme, see your insurance company for such a scheme. Most governments encourage every worker and employer to contribute to retirement schemes.

What Exactly is Retirement?

Assuming that you are working for someone right now, retirement is when your employer no longer needs your services because he can pay a younger more energetic person less than you are currently earning. Showing you the door does not mean that you can no longer work. In other words, there is a working life after retirement, if you plan now. I once attended a retirement workshop and one thing I learned was that you should start planning for retirement the day you start working. If you did not do that and you have a few years to retirement from employment, start doing things in your free time that will contribute an income when you stop working for a company such as:

  • Writing hubs (blogs); books or articles for magazines.

According Paul Richard Kuehn in one of the comments, writing on hubpages has given him a another purpose, interacting and imparting knowledge to the youth. Boredom is not in his vocabulary. His advice – Do not have the attitude that you are old and useless and about to die. That is the recipe of a short retirement life.

  • Turn your hobby into a business – whatever your hobby is there is someone who needs it as a service. Do you love dogs? Help other to acquire or train them. Do you keep fish? Help others with making tanks, cleaning etc. Do you knit? Turn that into a business now. Do you cook well? Kentucky fried chicken was started by a man who retired from the army at the age of 60!
  • Watch your every minute. You cannot afford to waste time. If learning a new skill will ensure that someone else can give you a job when you retire, go back to college – be an apprentice in a workshop, a garage, a canteen – anywhere but do not waste any more of your precious time.

In other words, do not do anything in your free time that will not contribute to your retirement days.

I have not given any figures because, as I stated earlier, the amount of money you will need upon retirement will depend on the lifestyle that you will want to lead. I hope that the above points will help you to start planning now.

Is Your Pension Administrator Giving You Raw Deal?

When the retired start to receive a pension, they rarely go into the math of how their annuity was calculated. In the Kenyan situation, your employer will get into a contract with an insurance company to manage the pension fund. Depending on the amount you and your employer have contributed towards your pension, the insurance company will sell to you (the pensioner) an annuity. This is a financial product that will pay you a regular amount of money every month. Because your pension funds are not only invested by insured as well, the annuity covers you for the rest of your life, whether you live only five years after retirement, of even forty. It is not surprising that some insurance companies may short change you by calculating a payment that is less than what you deserve and having seen one instance, I have no doubt that it is a widespread illegality in many countries. If a million pensioners are defrauded a small amount, that is a windfall for the insurance company.

Here's an example

Kenya's Retirement benefits act specifies that if the calculated monthly payments fall below 50% of the gazetted minimum wage, the pensioner should be given their total pension as a lump-sum and not in monthly installments. This makes sense because, there is no point of paying a pensioner an amount that is only sufficient for daily newspapers and nothing else. If they are given the total Pension as lamp-sum, they could invest the money in real estate, or even a business, something they cannot do with peanut monthly pensions.

So when your pension trustees give you a breakdown of your annuity, just check to see that they are within the law. For more on this topic, read online about "trivial pension payment" to see what your country states as the minimum annuity that your pension managers can pay you without trampling on your rights.

In Kenya, if you suspect that your pension has been wrongly calculated, start a written communication with the insurance company that manages your funds. If they are adamant that they are doing the right thing but you are not convinced, copy the correspondence to the "Retirement Benefits Authority" in Upper Hill area and request for arbitration. RBA decision will be final.

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

© 2012 Emmanuel Kariuki


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