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How Much Money Does a Kenyan Need to Retire at 45?
How Much Money Does a Kenyan Need to Retire at 45?
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How Much Money Does a Kenyan Need to Retire at 45?

Tony Mukere
October 14, 2022

A youthful comedian recently got Kenyans talking after announcing his bold plan to retire at 45. It was quite a unique dream that triggered the imagination of Kenyans.

The retirement age for civil servants is 60, while some public officials - such as judges and lecturers - retire at 70 and 75, respectively. Despite the social norms, early retirement is getting traction among millennials worldwide. In the United States, the FIRE movement has gained traction over the past decades - prompting research into the lifestyle model that is an acronym for financial independence, retire early. 

Those who desire an early retirement consider the perks of leaving formal employment while still in their prime. They want to travel the world, spend more time with their families, and explore their hobbies and social courses, among other reasons. The big question for those planning to retire early is what amount of money do I need to retire early? - often referred to as the FIRE number. While no universal number works for all, financial experts have developed some theories and models that help guide the path to early retirement. 

If your dream is to retire at 45, the 4 percent rule is a recommended guide on the amount of money that you need at the time you retire. A group of three American professors introduced the concept in 1998 - their acclaimed theory was that retirees need to spend 4 percent of their accumulated portfolio per year to have financial freedom in retirement. 

Also Read: How to Plan for Retirement While in Your 30s

The 4 Percent Rule in Action

Assuming you are planning to retire next year and you are 45. You have a house that requires Ksh20,000 monthly maintenance, you pay an insurance cover of Ksh100,000 annually, and your other monthly expenses are Ksh40,000. 

Your FIRE number is calculated as follows: 

Your total annual expenses are 

(20,000*12 = 240,000)+100,000+(40,000*12 = 480,000)

Annual expenses = Ksh820,000

The Ksh820,000 should be 4 percent of your FIRE number, thus to get the full number, multiply the annual expenses by 25 (to get 100 percent) 

Ksh820,000 multiplied by 25 amounts to Ksh20.5 million. 

Another important aspect of the 4 percent rule is that the FIRE number is never calculated in terms of liquid cash - but a mixed investment in bonds and stocks. In situations where the stock markets are not as predictable, as is the case in Kenya, some changes have been made to the rule - including reducing the expenses or investment choices to those that are suitable to the specific geographical location. 

Regardless of the number you arrive at, there are some important considerations to make as you accumulate your magic retirement sum. 

Read Also: 9 Ways to Financially Prepare for Retirement in Your 20s

Passive Income

Retirement means taking a permanent break from the active source of income - say, a job or business. At 45, you have a long life ahead of you, and it is advisable to have investments that guarantee you some passive income as opposed to the liquid cash that is heavily affected by inflation. 

For instance, if your FIRE number, as illustrated above, is Ksh20.5 million, you could consider a balance of real estate and bonds at Ksh10.5 million and Ksh10 million, respectively. 

Ksh10.5 million can afford you a mansion in Athi River or one of the satellite towns in Nairobi. A spot check with real estate agents shows that a Ksh10 million house will have an estimated monthly rent of Ksh60,000. 

This would translate to Ksh720,000 a year. In retirement, we factor in a 10 percent agency fee and another 15 percent in maintenance and other related expenses. This would leave you with about Ksh540,000 per year. 

The latest 15-year bond announced by the Central Bank of Kenya had a 13.9 coupon rate. If you invested Ksh10 million, you would receive Ksh1.39 million every year or Ksh115,000 per month - exclusive of 10 percent withholding tax. The two investments would generate about Ksh1.5 million annually - and sufficiently cater for your annual expenses as per the 4 percent rule. 

Also Read: 5 Tips to Help you Prepare for Retirement as a Couple

Avoid Unnecessary Expenses

A happy retirement requires some advance planning. Indeed, the first part of the FIRE acronym is financial independence which has seen many of the proponents of the philosophy engage in aggressive savings ahead of their early retirement. 

It is, therefore, prudent to be frugal with the savings - in full realisation that you will not be seeking any formal gainful employment in the future. If you have a young family, there is a possibility that your kids will still need you to pay for their education by the time you turn 45. Thus, you can take some education insurance schemes to take it off your back. 

As people age, their bodies become more vulnerable to diseases, and it becomes necessary to have medical cover in retirement - not just for yourself but for your dependents. 

The same applies to a retirement home. The Kenyan market has high inflation in the real estate sector. If you are sure you will spend the rest of your life in a certain home, it may make sense to buy rather than rent - to safeguard your life savings from the vagaries of inflation. 

Read Also: Family Health: How to Financially Prepare for Medical Costs in Retirement

Choose a Strategic Retirement Location

A big factor in the comfort and expenses associated with retirement is the geographical location you choose to retire in. In Kenya, Diani, Malindi, Mombasa, and Nanyuki have stood out as popular retirement towns for retirees. The small towns have certain factors that make sense to retirees including the warm weather which offers an ideal escape to the many health problems that come with age - and get worse in cold weather. 

Retirement can be a lonely affair - and a community of retirees or the presence of relatives in a certain location can make a huge difference to your quality of life in retirement.

For instance, towns such as Diani and Malindi are filled with retirees from around the world. Amenities such as entertainment establishments, hospitals, and social clubs that are friendly to retirees have developed. Depending on preferences, some Kenyans choose to retire in their rural homes to be surrounded by family and friends. Whatever works for you - make the world your oyster. 

Read Also: 7 Biggest Mistakes Couples Make in Retirement Planning

Have a Plan on How to spend Your Time

 Retirement planning is not just about saving money. Experiences from those who retire early demonstrate the importance of planning your time during retirement. You will have years to yourself and sometimes - loneliness is the biggest threat to a happy retirement. Theories of ageing confirm that our bodies age - mentally and physically - when there is disengagement. 

As you exit from the busy life in your main job, make a transition plan on how the majority of your time will be spent. Passions and hobbies offer an easy start - according to experts. For instance, if you love to cook - you could consider running a small restaurant in retirement that will keep you engaged as you enjoy retirement.

Also Read: 7 Reasons Why Retirement Planning is Important 

Wrapping Up

There is no fixed amount of money you need to achieve the dream of early retirement. The money needed is dependent on your specific goals and expenses. However, it is advisable that as you pursue your retirement dreams, you make solid plans with regard to the time, money, and investments that will see you realise financial freedom and a happy life as you head to old age.

Research and advice from wealth managers and financial advisors would also offer invaluable tips on the rate of returns from various investments that would best suit your retirement plans. 

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Mukere is a digital journalist based in Nairobi. He is passionate about writing and shaping stories that make the world a better place. Connect with Mukere on LinkedIn.

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