When planning for retirement in Kenya, Kenyans often depend on the National Social Security Fund (NSSF) offered by the government, work provided pension schemes offered by employers or other pension schemes offered by independent pension providers. However, with the recent rise in popularity in MMFs, some Kenyans have started considering MMFs as an avenue for retirement planning. Retirement schemes Both offer distinct advantages, but the choice depends on an individual’s goals, risk tolerance, and financial situation.
Money Market Funds (MMFs) are liquid and low-risk investment instruments. MMFs are attractive because their returns are stable and the funds are easy to access. They are ideal for risk-averse investors who are looking for investment avenues with low volatility. They are also ideal for beginner investors regardless of their income level and those that prefer a hands-off approach in investment. The returns may however not be high enough to offer enough growth for retirement savings in the long-run.
The usual retirement schemes such as pensions, provident funds and retirement benefit schemes are structured to provide income after retirement. The individuals under this scheme contribute a portion of their salary regularly. Unlike MMFs, retirement schemes provide a structured approach to saving for retirement and often include tax advantages. In Kenya, pension scheme contributions are tax-deductible, thus reducing the immediate tax burden.
Pension schemes often offer higher returns than MMFs with the schemes investing in a diversified portfolio. However, retirement schemes are less liquid and accessing your funds before retirement is often subject to penalties. This downside is actually advantageous than MMFs because in MMF one may end up with less retirement funds than what they aimed for because they withdrew their funds before they retire.
For those aiming at long-term retirement savings, the usual retirement schemes offer more benefits due to their higher returns, potential tax advantages and financial discipline. MMFs, however, are perfect for short-term investment plans due to their high liquidity. The recommendation would be using both options to balance risk and returns while still focusing on one’s retirement goals.
