Retiring into the unknown: Part 3

They will give you a wheelbarrow after 30 years of loyal service

Continued from part 2

We all would want to live our sunset years at peace and enjoying the money hard earned during our more youthful years. Picture watching your grandsons and daughters grow and letting your sons and daughters live comfortably without having to bog them down with your needs. Sounds good but it is not always rosy for majority occasioned by very poor planning, if any planning at all. Majority of Kenyans become dependents at old age when poor health takes a toll on them and all they can do is reminisce of the good times, recount unfulfilled financial goals and blames it on their kids, after all they utilized all the money as you educated them, clothed them and provided food for them. Sounds logical to say that they are the ones who ensured you never got rich, mind you it is a God given responsibility to take care of them. The expectation of people with such a mentality is that when the kids do well, it is payback time and they must take care of you during old age. However, we all know that it is not always the case especially when your kids start to see you as a liability.

So what do we need to do to prepare well for retirement?

1.            Understand that the Pension that you shall get (if any) will be of minimal value by the time you receive it and it will only help you keep afloat. I know of a guy who was a provincial prisons commandant (quite a big post) and all he got as lump sum payment for pension was a mere 2M and he receives monthly pension of 20k after working for 30 years. For such a guy, having not invested or even built a family house, his idea was to go to shags and use to 2M to build a house and survive on the 20k monthly pension for recurrent expenditure…wow.. What I know is that by the time you receive your retirement package (many years down the line), the amount will have been eaten up by inflation such that the value will be so minimal, and you won’t believe it. So quit relying on this amount…it should only complement your other cash if at all you’ll wait to retire at 55 years.

2.            Big Mistake: You retire and assume that you shall start a business that will keep you busy and earn you some cash? At least we know from some earlier posts that 90% of businesses fail within their first 5 years….you need lady luck to smile at you to succeed in your first attempt on business at 55 years. Succeeding on this one is like the proverbial camel going through the eye of a needle story…unless you success is written high up in the stars (one in a million chance). So brother /sister, start doing business as early as you get a chance, in your early years you can afford to fall flat in your first attempts, dust yourself and rise up…after all business is not for the faint hearted.

3.           Don’t you underestimate the power of saving and investing and especially when you are young and have all the time in this world. Picture saving consistently 5k per month (very modest) for 20 years…..simple calculations add to 1.2M …now assume you save 5k per month for the first 5 years, 10k per month for the next 5yrs, 20k per month for the next 5 years and 30k per month for the last 5yrs…..adds up to 3.9M…

Suppose then you introduce the element of investing you savings above…even if you got a modest profit of 25% per annum on you investments …compounded…I don’t want to imagine how the figures would be….20M…30M..50M perhaps.

Surely, you must do something..be it stocks, unit trusts and Treasury Bills..whatever..but so something

4.            Remember how important it is to buy appreciating assets… I once bought a plot in Syokimau like 10yrs ago at 80k..back then there were wild animals. But where did the wild animals go to…Imagine if I bought like 6 plots at the same price. I hear the current price could be 1.5M…*6 = 9M ….sounds juicy.

Go to Maasai land….where you can get an acre at 30k and hold for 10 yrs. They might label you a speculator..whatever.. but it is the forces of demand and supply in our crazy world of real estate that makes you the money…fundamentals notwithstanding.

5.            If you are able, you might get to this level where you have some rental units. It is not so hard. Somewhere in your working life, you can afford to take a big loan, buy a nice plot somewhere. Even if it means doing a single unit per annum..for 15 years you’ll have 15 units each getting you a rent of 15k..and that means at the age of 55 and above, you’ll not need to go round your sons and daughters places with a begging bowl. Heck, you will even afford to have something they’ll inherit, small fights notwithstanding, and a few generations will remember you for your hard work. Occasionally, you will even afford to organize some get-togethers for your big family and you eat some goats. Tell those grandkids who will care to listen about how life was when you were young and how organized you were.

But look at it this way. You might get to level 5 above when you are 40 years of age. I don’t see why you should even continue working as most educated slaves do. Therein lies a smooth transition between employment life with its own challenges and an independent life where you can dictate your schedule. How sweet it is to get off the shackles of employment at around 40yrs…It is very possible only with proper planning and taking practical steps towards early retirement.

Life does not follow a straight path and am sure some of us are in our 20s, 30s, 40s and 50s. Most importantly, we need to prepare for our later years and you surely must be able to do something well in advance before the day of reckoning when they bid you goodbye and give you a wheelbarrow and some gumboots. After all, how many are even lucky to get there especially with downsizing of companies, retrenchments thereon, contractual jobs and general job insecurities all over….prepare for that rainy day because chances of it coming are much higher than you think.

We will now break for a while and resume our lessons in the new year. When we resume, we shall look at inherited land, selling the same and crazy repercussions. It is our sincere hope and desire that we shall learn and most importantly practice what we learn.

Merry Christmas and a happy, blessed New Year 2013 to all our readers and followers. You are blessed!

Retiring into the unknown: Part 2

Continued from part 1.

John was a rather creative character and always won arguments, the type of guys who will always have a final word in any argument. However, he looked frail and was curiously listening to me. It is not easy to advise a guy who was my manager at some point because in his head he still had the mentality that am junior to him in terms of years and everything else. However, knowing his status at that point in time, I felt obliged to just say what I had in mind just to get the feeling that I did something to save the situation.

And so I asked him, “why are you so convinced that life in Taveta will be too hard for you, aren't there happy and rich men there, what is it they do?” He gazed at me and retorted, “my good friend, it is not as easy as it looks. People in the village know that I was a big shot in the Parastatal, I even assisted a few to get employment there. Going back to the village and having nothing to do there would not augur well for me. It is complicated because at the moment I am reliant on my daughter a lot who pays the rent and buys food.” he concluded.

  

I realized that it was even tougher for me to convince him otherwise. However, I insisted that he had to humble himself, swallow his pride and map out a way out of his quagmire. I told him to compare his current status that seemed to be inviting death and the option of going to the village where he would grow old gracefully watching his grand children grow. After all, the villagers will always talk, whether you are doing well or not. Macho ya chura hayo. After much probing, I realized that he actually owned a 3 acre piece somewhere in Taveta where his wife was residing. The land was idle. He further disclosed that his wife was working in some sisal farm as a farm hand and the last she saw of her was 2 years ago. I jokingly asked him whether he has a side dish of which he laughed uncontrollably and finally said that those things I feel them no more….whatever that meant.

The John I knew at the workplace was a creative guy who would get a solution to all manner of issues. I recounted how he used to motivate us and insisting that we should always think outside the box. I told him that it was his turn to think outside the box. You surely must get a solution to your mess. If you don’t, who will? I reminded him that in life, the biggest issue it to conquer oneself. The biggest stumbling block is what you have fed your mind. It was thus important that you start seeing yourself rising above this challenge.

Analysing his scenario, I made him realize that he was adding no value in his life by hanging around Nairobi where cost of living was really high and of course drinking off his frustrations was tantamount to burying his head in the sand. Realizing that I had no much time left before proceeding to my earlier destination, I posed and asked him the big question. “What do you think are the practical steps that you can take to get things going?”

It took him some hard thinking but he amazingly recounted what he would do. In summary he mentioned the following:

1.             That he’d go back to the village, after all he all along knew that he was doing nothing in Nairobi.

2.             That he’ll convince the daughter who has been supporting her to give her some capital injection aimed at doing something of economic value on his 3 acre piece in Taveta. Further, the few expected monthly pension amounts would go towards boosting what he’ll decide to do with at the farm and also build a simple house at the farm.

3.             Regarding drinking, he said that it would not be easy to stop but he’d at least stop taking the illicit type. Fair enough I thought.

The jokingly I asked him how he’ll deal with the villagers who thought he is a rich big man in Nairobi…He laughed and noted that he’ll distort the truth and tell them that he opted to trade his usual life of big cars and posh life in Nairobi to settling in the village now that he needed a breath of fresh air and to grow old gracefully.

I started feeling like I had achieved something, so after paying the bills, I stood and waved him goodbye but he stopped me and reminded me of the KES 100 he had earlier requested. I had been so engrossed in the conversation and had forgotten that bit. I removed a KES 1000 note, gave him and told him to mind what he had just said regarding the solution to his issues and was quick to remind him that one of the resolutions was to quit illicit brew. With the widest of grins, he said that 1k is more than enough for a few bottles of Tusker.

I took his cell phone number and quickly disappeared into the horizon hoping against hope that I he will take it upon himself to refocus his life and do something meaningful in his sunset years.

How many Johns do we have with us, some are our fathers, uncles, aunts, brothers, sisters and mothers? Troubles of the retired who never prepared well in advance. Where I come from, there is a proverb that says something to the effect that a tree is only shaped when it is small. We must plan for retirement and early enough.

In the next post we explore how best we can plan for retirement and actually retireearly.

Retiring into the unknown: Part 1

Guest post by Samuel G. Njenga

Around 2 years ago, I met John somewhere in Donholm Estate. At first I had not recognized him, in fact you’d not blame me for not recognizing him. John was my former boss in some Parastatal that I worked for 2 years in my early working life. He was a good boss, big bodied and exuded loads of confidence. But wait, the John I met looked much slimmer and the pot belly had shrunk and he looked much older. He smelt of cheap alcohol and I could barely stand next to him coz of the stench. I could not believe my eyes.

“Boss, haki maisha imekuwa ngumu. Hebu nipatie soo kuna kitu nataka kuenda kununua”, he said. This is the guy who used to order me around and looked like he was generally doing well. What I was seeing was totally beyond me. Of course I was very keen to get to know when the rain started beating him. I requested him that we get to some food joint so that we get a chance to talk as we eat.

John’s story was as sad as they come. As soon as I left the Parastatal, he retired having reached the mandatory retirement age. John came from Taita Taveta and had worked for the Parastatal for all his working life.

“But I thought on being retrenched you got your handsome retirement package and you probably receive monthly pension”, I asked him. He confirmed that he received some cash to the tune of 1.6M lumpsum and he also was getting some monthly pension of around 15k. So I asked him what happened with the cash. “Kusema ukweli, mambo haikuniendea vile nilikuwa natarajia”, he uttered the words in his coastal accent.

I probed him further and discovered that after retirement he stuck around Nairobi, bought a matatu which was run down and which he later sold at a throw away price. The balance on the lumpsum he used to pays school fees for his daughter’s university education. Then I asked him why he is still around Nairobi whereas he could have gone to Taveta and live there. His response was totally unexpected. “Wajua huko kumekauka, hakuna cha kufanya wala sina nyumba huko so sioni haja ya kuenda huko”.

To cut the long story short, I discovered that he was in Nairobi doing nothing but drinking himself silly. In fact the 100 shillings he was asking for was most likely to end up in some changaa den. From boardrooms to the crazy matatu world and finally to the bizarre world of drunkards of illicit brew. In more likelihood, the destination of this man would be an early grave. But being a positive thinker, I felt there was a way out of his not so pleasant situation.

After all the instances of the dress downs he may have given me as my boss, his authority notwithstanding, I saw a man who had lost it and was probably just waiting to die and had to reverse the roles. After all, before I could release the few coins he so badly needed to quench his insatiable thirst of alcohol, I had to give him some harsh and hopefully helpful word. His is a classic case of a man who had lost it, one who failed to organize his life despite being in employment for long and earning some not so bad cash.

Next post will dwell on the advice I gave him and how best those in employment can prepare for retirement.

Making Real Estate Part of Your Retirement Nest Egg

Guest post by Young

At one time or the other, everyone will retire or be retired (by organisation or by nature). You cannot continue to work with the same passion and strength forever. One day, you will be tired of work or the work will be tired of you. Faced with this inevitable end of work, you need to have a solid, reliable and stable retirement plan.

Many employees are discovering nowadays that most companies and organisations are more interested in employees taking care of their pension rather than relying on them.

Even more disheartening is the unfortunate realisation by those who were part of previous pension programmes that their money had been invested mostly in the stock market and other financial schemes and had been lost. This shocking discovery came to many when they had passed their peak working years.

One of the reasons for this unfortunate development is the fact that apart from real estate, only very few investments are under the control of the owners of the funds.

In real estate you are literally in charge. However, in several other financial investments, you are either at the mercy of the fund managers or those running the company you have bought into. That is why astute real estate investors keep a significant portion of their funds invested in real estate. So, if you are interested in retiring young, and rich, or you are already approaching your retirement age, then use real estate as a retirement vehicle.

One of the basic issues you need to decide is the amount of money you need annually to sustain or maintain your standard of living after your active working years. You will have to estimate the likely rate of inflation and other expenses that will come with it, such as increased school fees, feeding, transportation, health care and other utility bills.

The essence of this is to help you estimate the minimum income you need annually and set a real estate investment goal that will generate the income you need and more.

In addition to the above, you need to determine the real estate investment that seems best suited for your purpose. For instance, a person who has set an investment goal of having a steady cash-flow of 6 million every year could focus on residential properties located within certain environments that will generate the desired amount yearly, or is projected to generate such an amount yearly.

This individual could also focus on commercial properties such as shopping complexes, or event centres with a similar projected cash-flow. Whatever your goal, there is a suitable real estate investment vehicle for you.

There are several models that have been used and have worked for others. I believe you can adopt any of them and make them work for you. Some years ago, a property developer built a mini-estate of about ten (10) semi-detached duplexes in a GRA as a retirement investment. His aim was to rent them for residential purposes and use the income coming in to maintain himself and his family.

Another individual concentrated on buying prime properties during his working years. By the time he retired, he had three properties in prime locations including the one he and his wife were living in. By then all their children had completed their university education and were all settled.

He then sold two of the properties at very good prices and used the gain as a fixed deposit at his bank. The interest accruing on the money was always in excess of their monthly expenses.

These individuals were not dependent on any government pension plan for their upkeep and survival. This is the essence of planning for your retirement yourself.

Real estate fulfils several roles. It provides cash-flows as well as capital appreciation. Over time, real estate is usually the asset that will eventually outpace inflation in its capital appreciation.

With proper planning and sacrifice, an individual can focus on the number and type of real estate properties he or she would like to have as at the age of retirement. Those who successfully achieve this feat would have a peaceful and more relaxed old age.

Finally, you need to understand that practically any goal is achievable if you give it enough time and sacrifice. For most people, their earning years span between 20 and 30 years, during which a person could save and invest in having at least two or three rental properties.

The key is to start early, start now and stay focused. Using the law of compound interest, appreciation and leverage, and several other tools, an individual can secure his or her future with real estate as one of his retirement nest egg to compliment other asset classes.

But before investing in real estate, understanding /interpreting an agreement, understanding a search (cautions, restrictions, and encumbrances), caveat emptor and paying due diligence is necessary. This will be covered in the upcoming lessons.