OPINION: The obstacles a Kenyan must overcome for successful retirement

A blissful retirement doesn’t happen by chance. It requires deliberate planning and sacrifices during your working years and the journey is not an easy one.

There are numerous challenges that one must overcome to secure their well-being in their sunset years. Addressing these obstacles requires self-awareness of individual financial behaviours, a comprehensive understanding of the economic landscape, and the evolving pension system.

Kenya's economy has witnessed fluctuations over the years, impacting employment stability and income levels.

A recent status of the labour sector indicated that Kenya’s unemployment crisis had deepened to levels last witnessed during the peak of the COVID-19 pandemic.  

Businesses took layoffs to beat the high fuel and taxes that have increased their costs and eaten into their profits. Therefore, job market dynamics caused by difficulties in the business operating environment, technological advancements, and shifts in industry demands, have led to uncertainties in career trajectories.

As individuals plan for retirement, the unpredictability of economic conditions and job uncertainty pose a considerable challenge.

Kenyans still struggle with a poor savings culture and according to a past report by Enwealth Financial Services, only 12% of us have an established savings culture. Thus, layoffs pose a threat to pension contributions.

Only a small percentage of the population has an emergency fund to cover 6-12 months of living expenses as they look for a job. With competing financial priorities and the perception that retirement is a distant concern, many resort to withdrawal of their pension contribution as permitted by the law.

Continually dipping hands into their retirement pot reduces their total pension savings which can become seriously inadequate if they don’t catch up after finding new employment. Fostering a culture of regular savings from an early age is essential for building a robust financial foundation for retirement.

Tough economic conditions are usually accompanied by the inflation monster. The eroding impact of inflation on the purchasing power of money is a concern for retirees.Inflation can diminish the value of savings and reduce the real value of pensions over time.

Considering inflationary trends and incorporating inflation protection strategies into retirement planning is vital for financial resilience. However financial literacy remains a barrier.

Many Kenyans may not fully understand investment options, risk management, or the significance of diversification. Bridging the financial literacy gap through educational initiatives and accessible resources is essential to empower individuals to make informed financial decisions.

While efforts have been made to enhance pension coverage in Kenya, a significant portion of the workforce, especially in the informal sector, still lacks an adequate understanding of pension provisions.

Even with the various incentives to save to the National Social Security Fund (NSSF) and the availability of personal pension schemes, informal workers are yet to fully embrace pensions. Expanding pension coverage to include more workers is crucial for a comprehensive retirement support system.

In some cases, such retirees who lack a pension may rely on family support as a safety net. While familial bonds are integral, dependence on family for financial assistance can strain relationships and may not be a sustainable solution. Encouraging self-sufficiency and independence in retirement is crucial for individual well-being.

Longevity risk has also become a ‘concern’ nowadays. Increased life expectancy, while a positive development, introduces the risk of outliving one's savings. Longevity risk requires careful consideration in retirement planning to ensure that individuals have sufficient financial resources to maintain their desired lifestyle throughout their extended retirement years.

There is also the risk of medical expenses escalating during retirement and consequently impacting the financial well-being of retirees.

While the National Health Insurance Fund (NHIF) provides health coverage, additional healthcare costs, especially for specialized treatments and long-term care, can strain financial resources. Planning for healthcare expenses is integral to a comprehensive retirement strategy.

Government policies and regulations play a pivotal role in shaping the retirement landscape. Continuous evaluation and adjustment of policies, such as pension regulations and tax incentives, are necessary to create an environment conducive to retirement savings and financial security.

By navigating these obstacles with strategic planning, collaborative efforts from stakeholders, and a commitment to financial well-being, Kenyans can aspire to enjoy a fulfilling and secure retirement.

Simon Wafubwa is the Managing Director, Enwealth Financial Services Limited