How will you retire? Start with a budget!

The National Social Security Fund Act 2013 provides for old age benefit (pension) when the insured person (male or female) attains the age of 60 years, or retired from regular paid employment. For many, this is their final doomsday verdict but for a select few, this is the life of bliss and comfort while they enjoy the fruits of their early years labor.

A person is eligible for retirement pension on attaining the pensionable age (of 60  years) or attaining the age of 50 years in case of opting for early retirement. A member may elect to have the value of his Pension Credit Fund at the date of his retirement applied to the pension payable to the member.

I have endlessly been amazed at how often financial advisers focus only on managing money in the market as people approach retirement. Nothing good happens to people in retirement without a proper income plan, and yes, that involves assets that grow, but it also requires intense scrutinization of cash flow and expenditures. Retirement plan starts well early as soon as someone finishes their college and into the job market. The simplest plan comes from the choice of career and life savings.

Yes, it is important to have assets, and yes it is important to obtain a satisfactory rate of return. Still, if expenditures are not properly balanced for the amount of assets the persons have, the end result can be disastrous. Unfortunately, I do not see most retirees take the time and effort to actually review their clients’ budgets to determine whether expectations for the assets are adequate or not.

Did you know that some Millionaires Can’t Afford to Retire?

I meet with people on a regular basis, and rarely do I find them to have a budget. Do you have one? Even though they have worked with a number financial advisers for years, they are still guessing how much money they actually need in retirement to cover, not just their basic needs, but also their desired lifestyle. People come to our CrystalPerk office, usually as excellent savers. Professionals who have faithfully put away hundreds of thousands of dollars (often millions) in their NSSF or other similar plans, and yet they are not sure they have enough. Just like a business, your retirement plan needs a ‘business plan’ a ‘strategic plan’ and most importantly, a ‘savings plan’ so that you can be able to figure out what is enough. As part of our Kuza Biashara Account, CrystalPerk has laid out plans for retirees that will benefit at whatever age someone is.

Why is that? Well, there can be many reasons, but they have at least one thing in common: No budget. I have seen people with Ksh 15 million, and as it turns out, it is not enough — because their spending is too high for the assets they have. Yes, they have enough to “get by,” but a person or couple who have saved that much often have a lifestyle they want to maintain in retirement as well. Had they just looked at and created a budget, they would not be so surprised that they will not be able to live the lifestyle they are accustomed to now they are entering retirement.

Oh yes, even your financial Advisers Sometimes Drop the Ball

Their current financial adviser consistently reviewed their return rate on their investments, but it rarely went beyond that. They never checked the “what ifs.” What if I die too young? What if I live too long? What if a pandemic comes along? What if my taxes go up in retirement? What if the market drops dramatically early in retirement? What if my spouse goes into a nursing home or we get divorced? How much of a pension is left if my spouse passes away?

I think you get my point. It starts with a budget and goes forward from there.

Retirement is all about cash flow! When a spouse passes away, taxes go up on the remaining spouse. How do you keep the cash flow intact? Cash flow, cash flow cash flow.

Investments are just a part of the equation. Managing risks to the cash flow is another part of the equation. Knowing and managing expenditures is part of the equation. Unfortunately, it is commonly ignored by financial advisers. If yours has ignored it, bring it up yourself. Get your concerns addressed, and for heaven’s sake, get a budget.