Abstract

The rising cost of living, increasing life expectancy and high levels of old-age poverty in Kenya implies that many older people cannot afford necessities. Therefore, the need for individuals to plan for their future financial needs through planning for their retirement has become crucial. Unfortunately, most people who save for retirement in Kenya save with the National Social Security Fund (NSSF), which has a low replacement rate. Therefore, financial knowledge plays an indispensable role in influencing an individual’s retirement savings behavior. This paper seeks to establish the influence of financial knowledge on retirement planning in Kenya. The target population was members of the occupational retirement schemes, NSSF and individual retirement schemes in Kenya. A cross-sectional research design was used and a stratified sampling technique to obtain respondents. Using binary logistic regression and primary data from a sample of 332 randomly selected members of pension schemes in Kenya, the study found that financially knowledgeable individuals are more likely to plan comprehensively for their retirement. The study recommends the formulation of training and educational programs on critical financial concepts linked to retirement planning to spur pension schemes to actively participate in retirement savings. Keywords: financial knowledge, retirement planning, Pension schemes, binary logistic regression. DOI: 10.7176/RJFA/12-14-03 Publication date: July 31 st 2021

Highlights

  • Savings are an essential means of consumption smoothing during times of irregular income like the retirement phase of life as they help individuals maintain the same pre-retirement living standards

  • 5.0 Conclusions and Recommendations Pension scheme members who exhibited a higher financial knowledge and were found to be more likely to be comprehensive planners, with some taking up individual pension schemes to plan for their retirement and others taking up voluntary pension to add up to the amount of pension they would receive upon retirement

  • Pension scheme members that had lower scores in the different financial knowledge concepts were found to be basic planners who were mostly automatically enrolled to the pension scheme plans by their employers, and have not taken an active role in planning for their pension even when the amount of anticipated pension is low after retirement

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Summary

Introduction

Savings are an essential means of consumption smoothing during times of irregular income like the retirement phase of life as they help individuals maintain the same pre-retirement living standards. The responsibility of securing future financial well-being has shifted more to the individuals as new policies are increasingly shifting the responsibility of saving for retirement to individuals. Individuals are facing a daunting variety of financial decisions and an extensive variety of financial products, which means that gaining and handling economic know-how is becoming increasingly important. An individual can borrow money when they are young and working, no one will give you money to survive on in one’s old age when it comes to retirement. This can result in the individual suffering humiliation and becoming a burden on the children and family. The quality of life compounds the problem because recent scientific and medical improvements have caused people to survive for a long time, causing long-term reliance by individuals without pension plans (Githui & Ngare, 2014)

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