Investment Options for Your Pension Upon Retirement

The idea of retirement means transitioning into a more relaxed lifestyle and having time to enjoy all the things we did not have time for before retiring, such as our hobbies, family and friends, travel, and recreational activities.

It is therefore important to protect what you have saved or invested to ensure that you will have enough income throughout your retirement; after all, you worked hard to get to retirement.

“To guarantee income upon retirement, it is important to join a Retirement Benefits Scheme while still in your working years and contribute towards your retirement” advises Cytonn Investments.

Once you retire, one should aim to have an income replacement ratio of about 75 percent. Currently, the average income replacement ratio in Kenya is below 40 percent and there is a need for people to enhance their retirement savings.

Depending on the type of Retirement Benefits Scheme you belong to, you may access your benefits as either a lump sum or a combination of a lump sum and periodic payments, depending on whether you were in a pension scheme or a provident fund:

• Members of pension schemes can access up to one-third of their benefits as a lump sum, and the balance can either be utilized to buy an annuity or is transferred into an Income Drawdown Fund.
• On the other hand, members of provident funds access the whole of their benefits as a lump sum.

Read Also: What Do You Need To Save Towards Your Retirement?

For more information on the difference between pension funds and provident funds, see Cytonn Investments’ note on Pension Funds vs Provident Funds.

Once you receive your benefits, you have many options at your disposal.

You might decide to take your lump sum, purchase a rental property and enjoy the rental income, you might decide to use your benefits to start a business, or even take that hard-earned vacation that you have been waiting for; the options are endless.

However, as you do this, keep in mind that the benefits are supposed to provide for you for the rest of your life and cater for any unforeseen emergencies or needs.

It is therefore important to choose an option that will protect your savings and afford you a sustainable income throughout your retirement years.

Currently, most people are not comfortable with their pension savings with statistics showing that 40 percent of retirees continue to work after retirement with the number of retirees who are financially independent at retirement being less than 5 percent.

It is therefore important that as a retiree, one considers a passive way of investment as a source of their pension income. The two main options recommended for members are the Purchasing an Annuity, or Transferring your benefits into an Income Drawdown Fund.

For More information on Annuity and the Income Drawdown Fund visit Cytonn Weekly #34/2019