Investing in bonds guarantees income in your retirement
Every year, millions of people transition into retirement—some planned, others unexpectedly. The quality of this new chapter is largely shaped by the planning done during your working years.
A helpful framework introduces the “Four C’s” to consider as you approach this stage: Care, Community, Cash, and a Calling. While our focus will be on “Cash,” it’s important to briefly acknowledge the role of the others as well.
In retirement, the community you’ve cultivated becomes essential.
While work and shared activities often shape relationships during your active years, it’s the friendships forged outside these contexts that will prove most meaningful as you slow down. Make a deliberate effort to nurture friendships built to last in your quieter years.
A purpose or calling is also important in retirement, particularly for those who have poured themselves into their careers. Many, especially men, struggle for this reason, with the transition from work to retirement.
Before this phase arrives, it’s worth reflecting on how you can apply the skills and experiences you’ve gained in ways that can bring you joy and fulfillment, even after the traditional work schedule is behind you.
Another important consideration is care. As we age, our healthcare needs increase, and having the financial resources to afford quality care becomes invaluable. This leads to the main point of discussion: Cash.
When in retirement, maintaining a steady flow of cash is essential—it’s something you simply cannot do without. With no active work to generate an income, the investments you made over the years take over to cover everyday expenses such as utilities, groceries, healthcare, and much more.
One major challenge in this season of life is liquidity. Many retirees find themselves “asset-rich” but “cash-poor,” particularly in Kenya. They may own valuable properties and assets but many are not easily cash convertible.
I recall a sad incident where a wealthy elderly man came to our office in tears, relieved that he could convert his stocks into cash quickly; because he faced a family medical emergency. His properties, while valuable, couldn’t be sold quickly enough to cover his immediate medical bill. Ensuring you have enough cash or easily cash convertible assets to finance your livelihood in retirement is crucial.
Treasury bonds provide a practical solution to this challenge. These bonds offer retirees the benefit of regular interest payments, ensuring a reliable income stream; all without depleting the initial investment amount. Let’s break down how this works.
A Treasury bond is essentially a loan to the government, used to finance development projects. In return, bondholders receive regular interest payments, known as coupons, until the bond matures or the investor decides to exit. Upon maturity or exit, the original investment is returned in full.
Among these, infrastructure bonds stand out as particularly attractive because they are 100 percent tax-free on the interest earned—a rare feature in Kenya’s investment landscape.
In 2024, the Government of Kenya issued an infrastructure bond in February, aiming to raise Sh70 billion. However, investors offered Sh289 billion for investment into the Bond—more than four times the Government’s goal.
Clearly, many individuals including retirees are recognising the benefit of holding this investment in their portfolio. Chief among them is the attractive interest rates, which have risen significantly in the past two years, ranging from 11 percent to 18 percent per annum.
The bonds also pay out this interest twice a year, making them a reliable source of regular income.
For example, if you invest Sh500,000 in a bond with an annual interest rate of 18 percent, you’ll earn Sh90,000 in interest over the year, paid out in two equal installments of Sh45,000. This steady, predictable cash flow makes Treasury bonds particularly appealing to retirees who need consistent income to cover their living expenses.
Imagine, as a retiree, investing Sh10 million of your nest egg into Treasury bonds for five years. With the guidance of a stockbroker, you could diversify this investment across six different bonds, with an 18 percent interest rate.
Since Treasury bonds pay interest (coupons) semi-annually, you can strategically select bonds with staggered payment dates, allowing you to receive a coupon payout every month. Based on your investment amount of Sh10 million and the 18 percent interest rate, you would receive approximately Sh150,000 monthly.
This is all while maintaining your original capital, which you would receive back at the end of the five-year period. This provides a steady income stream similar to rental income but with far less effort.
Keep in mind, this income is entirely tax-free—an added relief that’s especially valuable during retirement.
This strategy ensures that retirees have a reliable monthly income without having to dip into their capital, presenting a practical way to generate regular income and maintain financial stability. Investors can buy both new and existing bond issues through licensed stockbrokers or banks; however, stockbrokers generally offer significantly lower fees.
By investing in Treasury bonds, you can make your retirement a little less worrisome and a lot more comfortable.