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Planning for Retirement: Key Factors to Consider

Planning for Retirement: Key Factors to Consider

Planning for retirement should be as important as taking care of the family, getting an education or buying a house. Many of life’s demands put a toll on finances at hand making retirement planning one of the common casualties of procrastination

While, for many, retirement may seem to be a little far from near, delaying retirement saving can prove to be a big mistake later in life when the reality dawns. However, it is still never too late to save up and plan for retirement if you make the right adjustments and adhere to them. 

How can you get started on your journey towards retirement?

Well, one of the key factors is understanding what kind of retirement you want. There are three kinds of retirement that you can choose from depending on what you want and where you are at in life. The main types of retirement include:

Temporary Retirement

There are people who decide to sandwich their careers between mini-retirements. In this case, one takes time away from work for a certain period and then gets back to work after their break.

For this to work, it requires a bit more complex financial planning since with the temporary retirement, savings for retirement never quite accumulate as high. The beauty with this plan is that even without the retirement account growing big, there is no need to worry since the mini retirements do not last very long.  The downside is that your retirement savings are withdrawn sooner, thus they do not have much time to grow and compound.


With the changing nature of work, people are also choosing different ways of enjoying their lives while they work under flexible schedules.

For people who choose semi-retirement, the idea is that they leave their chosen careers but they continue working in some form after they leave their jobs. In this kind of retirement, people scale back and adopt flexible hours that let them spend more time doing other things that they enjoy.

The beauty about this kind of retirement is that it can extend one's retirement savings which also enables one to have a smaller retirement kitty and still maintain a comfortable lifestyle.

Since there is an income, one is able to reduce withdrawals from their retirement savings which makes their money go further.

Traditional Retirement

This is the most familiar form of retirement where once you hit a certain retirement age (either of your choosing or as set by the government), you move from active working (employment life) and never look back.

Probably a norm that is no longer exactly part of today’s world, traditional retirement involves saving up for the entirety of one’s working life and settling down to a slow life of enjoyment with monthly stipends from your retirement schemes that sustain your lifestyle. 

With rising life expectancy and the fact that fewer and fewer people work, or able to work, for one employer for their entire life - coupled with the fact that outside the government, only a handful of employers offer pension contributions/schemes save for NSSF, traditional retirement is quite different than it was three decades ago. 

Since people will typically live longer after retirement than decades ago, doing nothing for years could actually be detrimental to someone’s mental and physical well-being. Those who have managed to save up enough for retirement can explore and enjoy other activities or even do some jobs without really worrying about the paycheck. 

If you are looking for this kind of retirement, consider saving as much as possible towards your desired standard of living - since, and this is true - you may live for another few decades after retiring. So, to retire in the traditional sense, starting saving as early as you can is of utmost importance.

With the different kinds of plans for retirement, it is worthwhile choosing the one that best works for you. Just like with any savings scheme, planning for retirement is critical.

Many people who are planning for retirement have different strategies some of which could be long term where one works as long as possible while still contributing to their retirement kitty or in some cases a plan to quit gainful employment as soon as possible and start an early retirement life. Whichever the case, both need careful consideration and planning so that your set goals and targets are achievable in a measurable way.

The beauty about planning for retirement is that regardless of when you started saving, it is possible to retire with some assured financial security. The only challenge is that if you want to retire early and you start saving late, then you will have to save much larger amounts than if you started saving early.

Planning for retirement

Retirement, at whatever age, is the desire of many and to achieve it, there has to be a strict adherence to laid out plans. These may include:

1.  Calculate your annual retirement spending

It can be relatively easy to predict how much you will need once you are retired through estimations. Depending on your lifestyle, the possibility is that nothing much will change even in retirement, so plan according to your current spending which could be monthly or yearly. In this estimation, consider what could increase or reduce and add what might be needed then but you are using now.

If you take the monthly spend approach, multiply that by 12 and you will get your annual retirement needs. You could consider increasing your estimates by 10% to 20% for miscellaneous needs which could pop up.

As you plan for retirement, also consider taxes and health care and have the two incorporated into your calculations.

2. Adjusting your current budget

To achieve your goal of saving for your ideal retirement life, it may become very necessary to reduce money outflows currently, allowing you to save more, painlessly.

Evaluate your monthly income and expenditure and identify opportunities for cutting down on expenses. You should then, consider channeling as much as you can from those expenditure cuts to your retirement fund. In fact, if you have been making overly unnecessary purchases, you may find it possible to fund your retirement solely from these cuts. 

Another important factor to consider is debt management. While we have argued before that debt can be good, it can equally be bad for your finances if not well managed. If you are currently servicing a high-interest loan, for example the monthly payments you are making are taking away from what you are realistically able to save up for retirement from your income. The ideal situation is to try and clear the debt you owe as a priority and have more to fund your retirement plans. 

On Tips for living on a tight budget like a pro, we discussed how you can still enjoy a fabulous life on a budget by tightening expenditures on among others, housing, food, transport and utilities. Check out the article here for more detailed tips. 

Additionally, your retirement dream could benefit from your getting additional income streams, whether active or passive, that increase your overall income level and hence, your ability to not just save, but save even more. 

3. Compound interest

Albert Einstein is claimed to have once said that the most powerful force in the universe is compound interest and this is probably because of how it works.

Compound interest works by growing every cent you have invested in an account that allows compounding. Simply explained, compound interest works by ensuring that the interest you earn on your savings also earns interest. Or Benjamin Franklin described it “Money makes money. And the money that money makes, makes money.”

Here is how: If you have Ksh100,000 saved up in a compound interest account at a 10% interest rate, after the first year you will have Ksh110,000 (Ksh10,000 interest), after the second year your account will now have Ksh121,000 (Ksh11,000 interest i.e 10% of Ksh110,000) - Now, the sums could be even higher if the interest is paid biannually. But also note that, depending on the savings account, the figure could be affected by ledger, account management fees and other fees. 

Using The Rule of 72, you can make an estimate of how long it will take to double your investment as well as how many times over your saved money will multiply ahead of your retirement.  

With this in mind, and having calculated your estimated retirement expenses and including accounting for inflation and unexpected expenses, you can work back from the maximum figure you are aiming to save up to and calculate what you need to be putting away monthly to achieve that. 

Time is one of the greatest factors for the success of compound interest. This means that the earlier you start saving, the more your money can accumulate by the time you want to retire. But, even so, saving larger amounts if you are a little late should still get you there. 

Planning for retirement?

Before taking the plunge, consider:

  • What kind of lifestyle you want in retirement
  • What is your retirement budget is
  • What is your current financial situation is and,
  • What do you need to change about your lifestyle

When all these and other questions are satisfactorily answered by you, then, you are one step closer to retiring in peace.

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Njenga has over 8 years experience in multimedia and business journalism both as a writer, editor and producer. He has over 5 years of experience in radio broadcasting as a news reader, reporter and presenter. He is also a 2012 Earth Journalism Network-EJN Fellow.

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