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self-employed retirement plan

A Guide to the Self-Employed Retirement Plan

self-employed retirement plan

A Guide to the Self-Employed Retirement Plan

A retirement plan helps individuals accumulate savings over time to have a secure financial future. There is a global rise of start-up culture making it more important than ever for increased awareness of the self-employed retirement plan. The lack of a steady income is a common reason and misconception directly related to pension plans. Due to the power of compound interest, saving for retirement can begin with as low as Ksh. 50, which with a little creativity and discipline, can increase tremendously over the years

According to IPSOS Kenya, 45% of Kenyans are self-employed but a majority of these have not begun planning for their retirement. This article serves as a guide to help self-employed individuals plan for their retirement.

What Retirement Options do Self-Employed Individuals have?

There are some ways that freelancers and small-business owners in Kenya can prepare for their retirement and the advancement of technology has made it easier than ever to consistently save a few shillings every month. 

The retirement options available are:

a. National Social Security Fund (NSSF)

Offer social security to workers in both the formal and informal sectors. They receive contributions, manage the funds of the scheme, process and payout benefits. Self-employed individuals are required to register as voluntary members in the following way: 

  • In-Person: Visit an office with your National ID, Alien Card or Passport and pay a minimum initial contribution of Ksh. 200 to activate your card 
  • Online: Registration is done through their website

b. Individual Pension Plan

This type of plan is open to self-employed individuals, NGOs, or those whose employers do not offer pension benefits. Contributions are made voluntarily and members get to enjoy tax advantages.

c. Saving With a Micro-Pension Plan

These provide avenues for individuals to save with as low as Ksh. 50. The money contributed is invested collectively to yield returns. MOBIKEZA is a good example of providing a simple way to save money with most of the benefits offered in other types of plans

Strategies to Build your Self-Employed Retirement Plan

The aim of any retirement plan is to help one save for retirement in a tax-efficient manner. Everyone should design a strategy that is tailored to their needs to achieve this. Here are some ideas to help you get started: 

  1. Begin early- Ideally as soon as you begin working as the power of compound interest can help grow your nest egg over time.
  2. Be consistent- View investment savings as a monthly expense to ensure you set aside money every month 
  3. Have a solid target- Decide how you want to live post-retirement and be disciplined enough to work towards achieving it 
  4. Increase your contributions – There are several ways that you can increase your retirement contributions over time. When incorporated into your overall plan, these can help you greatly increase your savings.

Conclusion

The self-employed retirement plan is designed to help freelancers and small-business owners in the informal sector prepare and plan for their life post-retirement. Attaining your financial goal requires consistency and discipline in setting aside money to use as contributing toward your future. 

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