Retirement is closer than planned

By Joseph Wachira Kimani

Imna and Jimnah Insurance Agency

Many Kenyans aiming to work to and past the retirement to cushion their savings are seeing those hopes foiled. The employment ground is shifting and if the statistics in the country in 2019 are anything to go by, we need to be prepared! By the term work, both entrepreneurs and employed are included. What next if you will no longer able to work? As an entrepreneur, your work is such a big part of your life that it may be hard to imagine not doing it. But if, like many people, you are planning to keep working past 60, available statistics may give you pause. The share of workers reporting that they expect to work past retirement age is rising. However good and noble this plan is, such intentions often go awry. In fact, an increasing number of workers are retiring earlier than they had planned.

Although employees and entrepreneurs pride themselves on being self-sufficient and independent, they are not immune to these circumstances, so let's drill down into them a bit further.

• Health Shocks 

Better health is central to human happiness and well-being. It also makes an important contribution to economic progress, as healthy populations live longer, are more productive, and save more. Many factors influence health status and a country's ability to provide quality health services for its people. You may be in great health in your work and entrepreneurship journey but then develop major health problems unexpectedly that force you to stop working sooner than you had hoped. Failing health may force anyone to retire early.

• Employment Shocks 

Kenya's ranking in ease of doing business in 2019 by the World Bank improved to 61 out of 190 economies globally. Notwithstanding the improvement, thousands of families are staring at tough economic times following a wave of employee layoffs affecting many companies. At least 2,000 workers have lost their jobs since July 2019 and many more companies have announced intentions of getting rid of hundreds of workers before the end of the year. Technology disruptions have played some role where automation has led to some skills being declared redundant, outsourcing of particular job categories, increasing competition from imports, rise in the digital economy and outright shrinking of the economy. The job cuts further suggest the economy is not growing first enough to absorb millions of job seekers who are joining the job market annually.

Individuals may lose a job due to a layoff or business closing and not be able to find new employment. Or they may find another job only to discover it is not a good fit and be forced to quit. If you own your own business and have planned properly, this one probably doesn’t apply to you. However, if you are a solo entrepreneur depending on a few major clients who no longer need your services, you may find yourself in the same boat with laid-off older workers.

• Family Shocks

This can include a spouse’s employment or retirement, changes in marital status, having to care for an aging parent, educate a sibling or take care of a grandchild or other upheavals that make it unrealistic to keep working. When family members are experiencing failing health, work and business will be affected, making continuous engagement impossible. These can and do happen to anyone and often upset the best-laid plans.

• Financial Shocks

These are defined as large fluctuations in a person’s wealth. When the net wealth of an individual or family is affected by the existing financial state of the economy, disruption, a growing digital economy may bring to a halt prospects of continuing to work irrespective of the planning done. Making plans is great. But stuff always happens that changes the trajectory. If you own a business and experience a major financial shock later in life, you may be forced to close and stop working sooner than you had planned.

• Legislation shocks

Through legislation and government projects, businesses and livelihoods are being disrupted: some for the better but most, unprepared ones, for the worst. The Kenya Standard Gauge Railway (SGR), billed as the biggest transport infrastructure project in the country’s history, seeks to provide inexpensive and efficient mobility of cargo and passengers. The project is a flagship project of the Kenya Vision 2030, the SGR extends from the port of Mombasa and currently terminating at Naivasha. With reduced travel time and costs, coupled with safer travelling conditions, the SGR has become the preferred mode of transport for passengers and cargo owners hence taking a huge percentage of them off the roads. Unfortunately, these positive aspects of the project have diminished business and loss of income for truck and bus owners and job loss for drivers, turn boys and truck loaders. As SGR edges out trucks in long distance cargo transport, towns and market centres heavily reliant on trucks for business opportunities are in danger of economic downfall as establishments such as hotels, bars, lodgings and garages collapse due to lack of customers. The biggest casualty is Mombasa town that was fully reliant on port activities. With their ruin, loss of livelihood extends to shop owners, mechanics, oil recyclers, and waiters being forcing them to migrate or change profession.

What next?

You can’t avoid all the shocks, but you can take steps to cushion the blow. Fortunately, there are steps you can take to help plan for an uncertain future, including operating under the assumption that you will have to retire early; saving more each year (10 to 20% of income just for retirement and not risking what you can't afford to lose. Some investment can be very volatile and this can be a recipe for disaster if markets collapse just as you are preparing to retire. This is one reason why it is so important to diversify. 

Start by saving a big chunk of your money where it’s guaranteed to be safe against market risk and where you’ll get competitive growth. How do you know you are set for retirement? Multiply your total annual expenses by 25 to determine how much you'll need to have saved by the time you retire.

And to paraphrase another oft-invoked saying, hope for the best and plan for the worst, because when it comes to deciding when to stop working, you may have that decision made for you by circumstances beyond your control.

Let us have a chat on investments and retirement on info@iandjinsurance.co.ke