Let’s be honest, being an entrepreneur is not easy. In one moment you may feel like you are on cloud nine, and in the next moment you may feel like you are drowning. There is always something competing for your complete and undivided attention, so much so that you forget about yourself and planning for your retirement. And that is understandable. I know for a fact that retirement planning was not a priority for me when I left employment. Survival was my priority. Every cent I made was directed to funding the operations of Mirror Wealth Coaching. Retirement planning felt like an unnecessary luxury. However, I can no longer ignore the fact that I need to start focusing on my retirement plan once more. Why? So that I can live my life like its golden, in my golden years…pun intended!
What Are The Benefits of Planning For Your Retirement?
Tax Benefits
Who does not want to pay less taxes? I know I do! In Kenya, contributions made to a retirement benefits scheme are tax exempt up to a monthly limit of KES. 20,000 or 30% of your income, whichever is less. In addition, because retirement benefits schemes are tax exempt, all investments done through the scheme are tax exempt.
Affordable
You do not need a big lump sum to start investing for your retirement. All you need is a little money set aside consistently every month.
Compound Interest
As you invest in a retirement scheme, you earn interest. This interest is reinvested and earns more interest…and the cycle continues until you retire. This allows your investments to grow quite a bit!
Regular Income
If you invest in a pension plan, upon retirement, you will be entitled to a lump sum payment equivalent to a third of your total pension fund (less taxes). The balance is converted into a lifetime monthly pension.
Safety
Retirement schemes are highly regulated. In addition, there are some schemes that have a 100% capital guarantee. You already take a lot of risk running your business, retirement planning is one area where you do not want to take risks.
Where Do I Begin?
Calculate your income replacement ratio
This is the percentage of your current income that you will need to earn in your retirement in order to maintain your current standard of living. The Retirement Benefits Authority recommends a income replacement ratio of 75%. To determine your income replacement ratio:
- Calculate your average monthly income
- Multiply that income by 75%
Therefore, if your average monthly income is KES. 100,000, you will need to ensure that upon retirement, your income is at least KES. 75,000.
This is an important step, as it will help you determine how much you need to start to setting aside now, for your retirement.
Determine your retirement age
Perhaps you may be thinking that you have no intention of retiring. And that is okay. But, at what age would you like to have the option of not working?
Why is this important?
The closer it is, the more you will need to set aside towards your retirement nest egg.
Speak to a registered pension fund manager
As an entrepreneur, you may invest directly in an Individual Pension Plan, which are provided by registered pension fund managers. Speak to the fund manager about your income replacement ratio, your desired retirement age and your current investments. They will be able to calculate for you the amount of money you will need to start setting aside now, in order for you to meet your specific retirement goals.
Budget for it
Be intentional about your retirement plan. Consciously set aside money in your budget for your retirement.
Start now
Set up a standing order that goes directly towards your Individual Pension Plan. Even with an irregular income, you can consciously ensure that your account is always funded with your monthly retirement contribution amount.
Have any questions? Feel free to reach out to us on email at mail@mirrorwealthcoaching.com.