My name is Ambrose. I am 57, a father of three adult daughters and three sons, and a grandfather of four. I am single. My wife relocated to DRC in 2004, leaving the children who were still young in my care. Her existence is doubtful as there has been no communication with her since she ran away with her lover.
Currently, I do menial jobs in Eldama-Ravine, Kenya for a living. My children are hustling separately elsewhere in the country. I expect a lumpsum amount of Sh2 million from my former international employer in three years’ time. When this money comes, I will be too old to do menial jobs or engage in any stressful businesses. Can you give me advice on how I could use this money to get monthly interest to live off comfortably? I want to be prepared and financially mature to avoid suffering in old age.
Inziani Khasiani, financial consultant and the Executive Director at Klientele Kenya
Congratulations on the expected lumpsum pension fund from your former employer. Planning for your future is a wise decision and I hope some of the suggestions below will help you achieve financial stability in old age using the expected money.
Your investing journey starts with a plan and a time frame. When you know how long you are investing for and what you hope to gain, you can put the structure in place to achieve it.
Successful investing is a journey, not a one-time event, and you will need to prepare yourself as if you were going on a long trip. The first step in personal finance is taking control of your finances through budgeting. Budgeting is the foundation of personal finance. It is the process of creating a plan for your money, outlining your income and expenses, and tracking your spending.
Creating a budget starts with identifying and documenting your income and expenses. Once you have identified your income and expenses, you can create a budget to make decision-making easy. Start this process now. You have less than three years to build this foundation. Seek the assistance of a third party for accountability and consistency. And when the money comes in, do not be too quick to spend outside the plan. Avoid investments that promise what isn’t realistic, for instance, shylocking or forex schemes promising unrealistic monthly returns.
The decision to start a business in old age with retirement funds has often been discouraged due to the high failure rate. Starting a business in old age with retirement funds can be risky. However, with careful planning and consideration of safe, low-risk business ideas, it can still be a rewarding experience for you in your retirement years. A good business can give you a steady source of income in retirement.
A successful business can provide you with additional income to support your retirement lifestyle and fulfil your financial goals. Running a business can keep you mentally stimulated, socially engaged, and physically active, promoting overall well-being and a sense of purpose.
Eldama-Ravine in Baringo County is well known for quality honey because of its favourable tropical climate for beekeeping. Beekeeping requires low investment. The running costs involved are also low, which will leave you with adequate capital that you can invest in other options. There are many private and government institutions that help farmers in beekeeping. There are also many marketing channels for selling honey.
You should consider registering for readily available training opportunities in beekeeping and if suitable, you can start beekeeping when funds become available. Joining a group of farmers who are already in that business will provide support.
Beekeeping is an example of a safe, low-risk business approach that can help you enjoy the benefits of running a business in your retirement years. If you work with financial advisers, you might discover other opportunities to consider.
One other safe channel to invest the expected amount is in money market funds. MMFs are among the most popular investment vehicles in Kenya. This is because they invest in highly liquid securities like cash equivalents, government securities and highly-rated debt-based securities, therefore they have a high degree of safety. They also offer relatively higher returns to investors than traditional savings accounts. Interest, paid monthly, can be used for living expenses.
The last investment option that you should consider is the annuity fund. Annuities are ideal for individuals with a low-risk appetite and liquidity is guaranteed to the member in retirement. Annuities are designed to provide long-term income for individuals during their retirement years.
Annuities work by paying a stream of payments, typically every month, over a set period or for the remainder of an individual’s life. The payments received can be used for living expenses.
When you make the final decision about where the expected funds will be invested, you will need to set aside some funds to cover potential healthcare costs. The recommended health provider will be the government NHIF or proposed successor to this. You will need to set aside funds to meet premium payments. The premium amounts payable in subsequent years must be covered in the budget planning.
You should consider and set aside a portion of the lump sum as an emergency fund to cover unexpected expenses or financial setbacks. Aim to have three months’ worth of living expenses saved in a liquid account that can be accessed at short notice. The living expenses amount will come from the budget tracking.
As your knowledge of investments grows, you may enlist a properly qualified financial advisor who can direct you on how to invest in other instruments such as infrastructure bonds which are tax-free but with high yields.
For instance, a Sh1 million investment in these at a rate of 18 percent which has already been offered in the market would fetch Sh180,000 annually, equivalent to Sh15,000 monthly.
Last, discuss your financial plan with your children to ensure they understand your wishes. Consider involving them in discussions about your financial goals.
If you have any money problems, send us an email at [email protected] and leave your number for contact. Money questions will be answered in this column.
