Sunday, March 26, 2023

This is how you can ensure you’re not cash poor after retirement

Running out of cash is one of the main difficulties most retirees face after leaving formal work. Granted, you may have built up a stock of assets such as land or plots.

In most cases, though, the income from these assets is hardly enough to sustain the type of lifestyle you were used to. There will also be needs, wants, and emergencies that will demand liquid money to solve.

According to Waithaka Gatumia, the chief executive officer at Centonomy, lack of retirement cash flow is the reason why retirees keep on asking for cash from their children, despite having assets such as a house or land.

“Many people retire when they are asset rich but cash poor. In the past, land could have taken care of you, but in the modern world, cash is what keeps people moving,” he said in a recent video discourse on retirement cash flow.

So how do you ensure that after your retirement, you will have a sufficient flow of cash even as you enjoy the investments you may make in hard assets?

Pension vs needs

When you retire, your pension will not be enough to take care of all your needs. According to Gatumia, on average, you might have been saving 7 to 15 per cent of your income for retirement if you are employed.

This figure will not translate into 100 per cent of your needs no matter where they are invested. After retirement, your pension fund will cater for about 30 per cent of your needs at most.

For example, from a pre-retirement salary of Sh. 100,000, you may end up getting a post-retirement income of Sh. 30,000. If you have accumulated assets, the 70 per cent deficit will leave you exposed and at risk of selling your assets off to meet your needs.

“If you have invested in land but don’t have cash after retirement, you will likely find yourself selling your plots to meet your needs if you have no one to send you cash,” he said. “Once you sell off your asset, it will be gone and so will the money you will be paid.”

To measure your retirement cash needs, you should start by looking at how liquid you are today. If you are planning to retire within the next 20 years, you must then create a plan that will give you an income that is as close to what you are earning today to ensure that your income replacement rate is as stable as possible.

For example, if you are earning Sh. 100,000 today at age 55, you will need at least Sh. 60,000 coming into your account every end month to ensure that your lifestyle is not so radically adjusted.

This also means that you must know your targeted retirement balance and whether what you are saving or investing today will be sufficient to meet this balance.

Also, to have a sustainable cash flow, you will need to invest your retirement benefits without putting all your eggs in one basket. This means that you will need to identify various investments that can generate passive income for you.

The lump sum

When you retire, your pension may pay you in lump sum or annuity. The lump sum can be a great source of monthly income. However, to be sustainable, you will do well not to deposit it in a bank account where you will be making withdrawals whenever the need arises.

Assuming you get a retirement lump sum pay of Sh. 3 million. How you budget for passive income out of this amount will determine your financial liquidity.

For example, instead of depositing the amount in a bank account where it will earn interest at below the inflation rate, you can choose to put it in passive investments where they’ll earn above the inflation rate.

For instance, out of the Sh. 3 million, if you choose to put Sh. 1.5 million into a government bond earning an interest of about 12.5 per cent per annum, you will earn about Sh. 187,500 in interest per year or Sh. 93,750 every six months.

This will be equivalent to Sh. 15,625 per month. If you choose to put the remaining balance in a money market fund at a rate of 10 per cent interest, you will be earning an additional income of Sh. 150,000 per year.

The beauty of the money market fund is how easily you can access it and its low risk factor. According to Gatumia, the Sacco is also another way of guaranteeing your cash flow through dividends. “Most people look at Saccos as a place to borrow cash. But they are a good way of earning dividends too,” he says.

For example, if you put in Sh. 10 million in a Sacco that gives 10 per cent in dividends, you will be getting Sh. 1 million every year. Gatumia says that most people look forward to setting up rentals after retirement. But this may not always be adequate.

“If you are thinking about rentals, consider the occupancy risk factor, and the cost of building the actual rentals. Rentals will give you about five per cent in returns. This means you must diversify to other instruments such as bonds or the Sacco to top up,” he says.


Retirement heralds the dawn of chronic health complications. It is after retirement that most chronic illnesses begin to show. Oftentimes, these illnesses will cost you an arm and a leg to treat or manage.

According to the health research on retirement and health titled ‘How does retirement affect health?’, retirement is closely linked with the onset of chronic life diseases such as cardiovascular diseases and cancer.

This means that health insurance will come in handy. Get enrolled on the NHIF health insurance cover and back up your NHIF policy with a private health policy. This is because NHIF members who pay the minimum Sh. 500 are not as wholly covered as other members, especially civil servants, who pay higher premiums.


You may be very tempted to start a business after retirement. This is a risky move. New businesses are hard to break even, more so for retirees. 48 per cent of new businesses opened by retirees are unprofitable while 21 per cent of those started with a lump sum investment collapse.

Instead of opening a business with a high risk of failing to break even, you can transfer your professional skills into a consultancy that will give you extra income without using your retirement benefits. Godwin Simba, the Group Executive Director at Octagon Africa, says that this will be easier than opening an actual business.

Are there investments you can truly make money from and get rich quickly?

For example, if you work in a financial institution’s credit department, start thinking of how you can gain skills that you can repackage into a consultancy helping SMEs get access to credit after retirement. If you are an investment advisor, start planning how you could be a personal finance or investment consultant upon your retirement.

If you’d really want to start a business, the trick is to start it way before you retire and with funds other than your retirement benefits. The transition will be smoother once you retire. At the same time, avoid business ideas that don’t align with your skills.

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