One of the most neglected things in Kenya in my view is saving for retirement. In fact i can safely say that a majority of Kenyans hardly spare a thought for retirement at all until maybe when they are within striking distance of age 55. This could be for a number of varied reasons, mainly the fact that living for today is in itself a hustle for most people, with school fees and rent to pay, parents and distant relatives to support and food to put on the table. For most, retirement savings consist purely of the pension contributions put in by their employers. For those with non-mandatory contribution schemes, even putting in their own tax free contributions is not an option, preferring to rely 100% on the employers contribution.
However, sooner or later it dawns for most people (some not even until they are actually retired) that their meagre pensions will not be able to sustain them in their sunset years, not even those who had well paying jobs. For most people, the thought that in addition to your pension funds, you can actively save through stocks, mutual funds and bonds for your sunset years does not feature at all.
Personal finance advisers will never tire of reminding you of the power of compound interest that you lose out on when you fail to start your retirement savings early. Recently the Retirement Benefits Authority (RBA) has actively been reminding people of the need to save for retirement from as early as their first paycheck. How many actually heed this advice is another thing altogether. I know that at 25 i could hardly be convinced to put a single dime towards retirement. The folly of youth indeed!
A friend sent me a link to a interesting calculator that enables you to see how much your Networth would be if you started putting aside some money each money till, say the age of 60 when you finally get your last paycheck. Although the currency is shown in British Pounds you can safely ignore that and input your figures in Kenya Shillings.
Amazingly, riding on the power of compound interest, if you started putting in a monthly sum of Ksh. 20,000 at the age of 27 (when most people have sort of settled in their first or second jobs) and continued puttting away this amount till the age of 60 (a total of 33 years), you would have savings worth a whopping 19,735,720 assuming a conservative 5% annual growth rate. Yes, that a cool 19million bob for your sunset years! Now the even more interesting is the fact that out of the Ksh.19m your actual contribution would be only Ksh. 7,920,000 while the balance Ksh. 11,815,720 would be interest earned. Hows that for amazing? Now those of you with an eye for detail would point out that inflation would obviously erode the value of your savings, the growth rate may not be guaranteed and that Ksh.19m thirty three years from now may not be exactly as mindblowing as having the same amount today. All this may be true but the fact remains that having a 19m cushion in your old age is nothing to turn your nose at. And Ksh. 19m ten, twenty or thirty years from now is definitely better than a Ksh. 3,000 pension cheque per month!
Now most of you would be nodding in agreement at this point but at the same time shaking your head and asking. Ksh. 20,000? Where would i get that kind of money to put away every month. That question i will adress another day.
My Road To Wealth 