How to live comfortably in retirement thanks to income deductions

Personal finance

How to live comfortably in retirement thanks to income deductions


The retirement environment in Kenya has slowly improved over the years. Research, however, suggests a pension crisis could be looming. This situation is exacerbated by two obstacles.

First, only about a quarter of working Kenyans are saving for retirement, and about 12 million of them have no savings plan to fall back on when they retire.

Second, those with retirement plans are likely to earn much less income in retirement compared to their pre-retirement salary.

The first hurdle is due to systemic issues that will take time to correct – and this involves concerted efforts by government, regulators, insurance companies, individuals and households to encourage saving for the retirement.

The basic questions

So how do you make pension benefits available to everyone, no matter who they are, where they work or how much they earn? What is the solution to increase participation in pensions in Kenya? Should the government step in and make pension contributions mandatory?

Is it possible for the industry to benefit from greater tax breaks so that Kenyans can benefit from tax-advantaged savings to invest and grow their money? These are the fundamental questions of our time.

The second obstacle is at the root of retirees’ concerns. They wonder if their retirement savings can translate into steady income growth in the face of volatile economies and market returns, and if they’ll have enough money to carry them through the rest of their golden years.

Armed with this knowledge, the insurance industry must design innovative retirement solutions and maximize the return on investment of assets, so that retirees can achieve a decent retirement with their hard-earned money saved during the working years.

To help individuals make investment decisions that increase long-term returns to cover their specific retirement situation, an innovative approach is needed that not only rethinks traditional one-size-fits-all solutions for retirement investments, but also to adopt different account risk profiles of individuals.

Why Drawdown Income?

To meet customer demand for increased long-term returns, regulators around the world have implemented regulations that allow retirees to use their retirement savings to purchase retirement income through a guaranteed annuity or an income withdrawal fund.

Income withdrawals allow clients to decide how much income they need each year from their accumulated retirement savings. This amount withdrawn annually is then subtracted from his retirement savings account, while the balance continues to generate investment income.

The main advantage of this solution is to benefit from an investment growth according to the evolution of the market. If the fund is well managed (with regular advice from financial advisors), you can live on investment income before consuming the invested capital (accumulated pension fund), for several years.

For example, Liberty Life has an income levy called (Boresha Ustaafu) which provides clients (50+) and differs from a regular annuity as it allows the retiree fund to earn investment income while providing a income (to be drawn for a minimum period of 10 years).

The balance can be accessed by the client as a lump sum cash or can continue to be drawn down as pension income.

In changing economies, retirees need sound advice on retirement strategies to get the most out of the solution and enjoy a sustainable retirement lifestyle.

Ultimately, a retiree’s decision is based on their vision for retirement: is it to provide them with an income in retirement, to leave a financial legacy for their family, or a combination of both? This decision is entirely up to their own circumstances and tastes, but now there are additional options to ensure a comfortable retirement through a supportive environment.

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