Entrepreneurship and the Need for Social Security

Entrepreneurs, however small their businesses are, play a significant role in economic development and innovation. Although social security systems differ from one country to another, there is no doubt that self-employed persons do not get the same level of social protection privileges as those in the formal sector.

Extending social protection to self-employed people is often seen as social justice. Still, the benefits are enormous – it substantially contributes to the growth of businesses, startups, and the general economy. As such, giving self-employed people extra social security benefits is a matter of great importance.

It is, however, a challenge for an entrepreneur to save for retirement, particularly since the self-employed fall under the category of the informal sector.

In 2018, a survey done by IPSOS Kenya indicated that 45 percent of Kenyans are self-employed. Most of these young entrepreneurs fall under the informal sector and do not save for retirement. This is because of the little to no disposable income and the misconception that retirement is not an investment or a savings option.

Currently, the retirement age in Kenya stands at 65 years. Sadly, most self-employed people might hit that age with no little to no sizable nest egg for retirement. This is despite having slaved for years and eventually languishing in old-age poverty.

It is, therefore, safe to say that planning for retirement is a fundamental decision that everyone must make. Having a savings plan in place, whether you are in the formal or informal sector, guarantees financial freedom and security upon retirement.

Some of the biggest reasons self-employed people do not save for social security include insufficient income, inadequate savings, and lack of financial advice.

The readiness to save for retirement varies from one individual to another and largely depends on income and needs.

As many financial experts would advise, you will need about 70 to 75 percent of your income before retirement to maintain the same standard of living after you retire.

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Retirement readiness, therefore, is not only about saving for old age but involves putting aside sufficient savings. To achieve the desired level of retirement readiness, retirement planning is critical. If you are already a pension scheme member, you are on the right path to achieving the desired readiness.

As for the self-employed, it is paramount that you lay out a financially doable plan to achieve the ultimate goal of a comfortable retirement. The first step is to fully appreciate the fact that you will not be able to work for the rest of your life; hence, you may not always have a reliable income.

Businesses also fail, and that continuous stream of income you have enjoyed will trickle down to an inconsistent amount gobbled up by taxes, expansion prospects, and other responsibilities. In short, you also need to have a solid plan for your retirement.

The best way to move forward is to actively explore ways in which you can save towards ensuring that in retirement, you have sufficient income to cater to yourself without being a burden and without any strain.

This step should be taken with a lot of awareness, considering your income replacement ratio, which measures the extent to which your post-retirement income replaces your earnings before retirement.

The good thing is that there are many pension schemes that cater to everyone, including those in the informal sector. The Haba Haba na NSSF (National Social Security Fund) product is a good example. It is a convenient tool that accommodates everyone in the informal sector by allowing them to save for as little as 25 shillings a day, with the option of withdrawing these funds after 5 years of consistent contribution.

Like the formal NSSF product, there is no limit to how much one can contribute to their retirement savings. It all depends on how grand a life you want to live after retirement and how much you are willing to contribute.

The best part about such a plan is that one can make tax-exempt contributions to them. Secondly, your retirement savings earn a compounded interest that is not taxed until the point of withdrawal.

The above said, one ought to be aware of the features and benefits of the different retirement schemes in the country, how to choose between the retirement saving schemes, and alternatives to saving in pension schemes.

One must analyze their income and budget, talk to a financial expert, and commit to saving for retirement.

Ultimately, achieving the desired level of retirement readiness requires one to embark on a long journey of delayed gratification and savings discipline to have a comfortable, stress-free retirement.

Consistency in saving and leaving the savings untouched are encouraged to achieve the highest retirement benefits when the time finally comes.