Do you know how much you need to retire comfortably? It’s a question that might seem straightforward, but the answer is often far more complex than we realize. Many of us dream of a retirement filled with relaxation, travel, and time spent with loved ones. But have you taken the time to calculate how much money you’ll need to make those dreams a reality? For many Kenyans, the gap between their retirement dreams and their financial reality is alarmingly wide. Statistics have shown that 7 in 10 Kenyans will retire poor.
So then how do I calculate how much I need to have saved or invested?
One of the key tools I use to help clients like you is the Income Replacement Ratio (IRR). The IRR is a simple yet powerful measure that tells us how much of your current income you’ll need to replace after you retire to maintain your standard of living. Ideally, you should aim for an IRR of 75%. This means that in retirement, you should be able to replace at least 75% of your pre-retirement income.
But here’s where it gets concerning—many Kenyans are far from reaching this target. On average, the IRR in Kenya is less than 40%, which means that most retirees will only have 40% of their pre-retirement income to live on. This statistic is more than just a number; it represents the reality that 7 in 10 Kenyans will retire poor.
Why the Income Replacement Ratio is an Essential Tool
Think about the life you’ve built—the home you live in, the experiences you cherish, the little luxuries you enjoy. Now, imagine trying to maintain all of that on less than half of your current income. It’s a daunting thought, but one that many retirees face. Without a proper plan, the dreams you have for your older years—whether it’s traveling, spending time with family, or simply enjoying life—could be out of reach. Many of us will always have an excuse not to plan for retirement, no matter what your excuse is one thing is for sure you’re going to get old next year.
Let’s Break it Down: Understanding Your IRR
The recommended 75% IRR is not just a number; it’s the difference between a retirement filled with comfort and one filled with financial stress. To give you a clearer picture, let’s consider a simple example:
If you’re earning KES 100,000 per month now, your goal should be to have at least KES 75,000 per month in retirement. However, with the average IRR in Kenya being 40%, you might end up with just KES 40,000 per month—far short of what you’ll need to maintain your lifestyle. This shortfall could force you to make difficult sacrifices at a time when you should be enjoying life.
Lastly,
As a wealth advisor, my commitment is to help you navigate these challenges and secure the retirement you deserve. It’s never too early—or too late—to start planning. By focusing on your Income Replacement Ratio, we can work together to ensure you have a clear, actionable plan that aligns with your retirement goals.
So, let’s take the first step together. I invite you to calculate your Income Replacement Ratio today. How close are you to the recommended 75%? If you’re unsure, or if you need guidance, let’s have a conversation. Book a wealth advisory session with me, and let’s build a strategy that gives you the confidence and peace of mind you need as you plan for retirement.
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