Planning for retirement when self-employed in Kenya

Old age poverty is a scary thing. You do not have the energy and zeal to do manual jobs. Your children or relatives may neglect you. How do you protect yourself from such uncertainties? When you are in formal employment, your employer may be contributing to your pension since it is a mandatory exercise required by law. But what if you are self employed in Kenya? What are your options?

More than 45% of Kenyans are self-employed in Kenya, according to a 2018 report by IPSOS Kenya.

Being self employed in Kenya may not be as lucrative as it is in advanced economies. The purchasing power of Kenyans is low and they only make necessary shopping moves. Moreover, most of the self employment opportunities are in the informal sector due to the high cost of starting business.

As a result, the self employed do not usually save for retirement. Some of the reasons that can explain this observation are the lack of financial literacy, little disposal income to meet daily needs, the negative belief that saving for a retirement is not a good move.

Should you plan for retirement when you are self-employed?

Everyone, whether employed or self-employed, should plan for their retirement. Most people in the working class retire after the age of 65 years but with little to no secure package to sustain them.

High dependency in most households put a huge strain on the few individuals that are lucky to secure a job in Kenya. Even after working for several years and being a respectable member of the community, languishing in old age poverty is possible if you do not plan for retirement.

The situation is different when you are self-employed and most of your income does not meet your needs and wants. With the right information and a dedicated saving plan, you can be sure to have financial freedom and security after you have retired.

What factors affect your retirement plan as a self-employed individual in Kenya?

A good retirement plan depends on:

  • your desired retirement age

You may retire at any age you want; however, the government controls the retirement age for public servants. As a self-employed person, you have the freedom to decide what you want to achieve before you can retire. Each person has their unique aspirations and targets.

  • total amount of money you want to have upon retirement

While you may want to have loads of money in your bank accounts and several valuable assets, others are just comfortable with an amount to sustain necessary daily expenses and emergency funds.

What are the ways you can use to save for retirement when you are a self-employed person in Kenya

1 Saving with a micro-pension plan

You can use a micro pension plan to with very little money, even as less as 50 shillings. The savings plans under these category may require some paper work while others do not as they let you pay using mobile money services from anywhere in the country and at any time.

With this option, you may be allowed to nominate beneficiaries to your kitty too.

2 Saving with an individual pension scheme (individual retirement plans)

The best time to start saving for a retirement is immediately after you have an income source. In such a way, you will accumulate more money in the pension kitty. It is a good approach to guaranteeing a similar or better lifestyle in the future. There are two types of plans you can implement: pension and provident plans.

The schemes will let you choose a retirement age and upon reaching it, your benefits will be paid to you depending on the options you selected at the inception stage.

This option is good for even the employed people in occupational retirement schemes that want an alternative schedule to contribute to. Still, there are some plans that are solely exclusive to self-employed persons in Kenya.

As a way to encourage saving for retirement, all contributions to a retirement planĀ  are tax exempt, meaning they will be deducted from your income before taxable income is determined.

3 Having a solid target for your retirement plan

When you are self-employed, it is difficult to commit some money to your retirement. Rather, the money can be used to scale up your current business or to meet some of the daily expenses. But if you wan to secure a comfortable retirement, you should set aside some money for retirement.

Once you have decided to save for retirement, it may prove a challenge sticking to the plan. Always remember your future life depends on it. Never lose focus, commitment is key.

Bottom line

Having a retirement plan as a self-employed person is the best personal financial decision you can make. It will help you know what you want to achieve and when you should. When you achieve your retirement goals, you will be assured of a fulfilling comfortable life. A financially secured future is possible if you take the necessary steps to avoid old age poverty — a dreaded situation.

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