How to manage retirement cash

Helen Njeri

Sometimes, the many years you spend saving, the financial sacrifice you make and how you defer gratification to secure a better life after retiring may seem not worth the trouble.

Professionals such as fund managers and actuaries also take their fair share of resources to ensure that retirement savings are not only safe but also yield high returns throughout the years. The saving is meant for securing your future after retiring.

It is assumed that once you attain the retirement age, you will be able to continue with the current lifestyle when the salary is no longer there. However, it is not a secret that most pensioners don’t know how to manage large amounts of payouts after many years of saving.

Many soon realize that what takes so many years to build often does not last long enough or serve the intended purpose, which is to provide financial security in the sunset days. Here are some tips to help reduce the risks involved in handling retirement benefits.

 Investment

Most retirees tend to venture into business with their retirement benefits. While it doesn’t sound like a bad idea, research shows that most end up losing their savings within a short time. If you have never started a business in your working life, then when you retire is not the right time to do so.

If you have never bought shares in the last 20 years, it is certainly not a good idea to do so when you retire. Investment is a very risky affair and you can easily lose your savings. Your retirement benefits are not meant for investment capital. They are meant for securing you financially when you stop working, and all you need is a sustainable income.

Equally, unchecked spending, especially in the early stage of retirement, can ruin the entire benefits. Many retirees have fallen into this trap and ended with big cars and other extravagant things, at the expense of a sustainable regular income. If interested in investing, start early before retirement and start small to reduce the risk.

 Inflation

Inflation is a sustained increase in the price level of essential goods and services over a period of time. It appears to slightly increase the costs in the short-term, but in the long-term, the impact is relatively high.

Inflation in Kenya is currently at an average rate of 4.35 percent.

An average annual inflation rate of 4.35 percent reduces your purchasing power almost by half in 10 years, and by more than 20 percent in only five years.

Even a modest inflation rate of below four percent would have a serious ramification on your savings over a long period. Inflation poses a serious risk to retirement benefits and should be an ongoing concern for retirees. To cushion yourself from inflation, you can sustain passive income investments that are of low risks: meaning your investments will continue working for you long after you started them.

 Longevity

Since 1900 the global life expectancy has doubled and is now approaching 70 years. Research has shown that Kenya’s average life expectancy is now at 66.7 years and getting better. Various factors have increased lifespans and now you can live 20 to 30 years in retirement.

In fact, in some cases you might live longer in retirement than your working years and are likely to live longer than your retirement savings. A good retirement plan should last for several decades after retirement.

What happens if you run out of funds long after retirement? There are many strategic plans that you can adopt based on your risk profile, the number of benefits you have, among many other factors.

You can purchase an annuity, a long-term investment plan offered by an insurance company designed to protect you from the risk of outliving your retirement savings.