2022: NSSF MONEY IS HERE NOW WHAT?

In recent weeks the amended NSSF Act was sent to President Yoweri Museveni for assent. Once he does assent to it, as he expected to, it will be up to the relevant ministries to come up with a way for the amendments to the bill be actualized.

So while beneficiaries may have missed Christmas it is reasonable to expect you will get your benefits before Easter.

The attention grabbing clause is the mid-term savings access. In the amended bill if a member has turned 45 and has been saving for more than 10 years he will have access to up to 20 percent of his savings.

For most this will be a windfall like they haven’t seen in their lives and the trick will be that when the dust settles, from spending the money, there will be something to show for it,  more than a hangover and hazy memories.

NSSF research shows that eight in ten members after they receive their retirement benefits, have nothing to show for the money after only two years. With life expectancy up to 63 years now, higher than the 45 years when NSSF came into being, this statistic points to many years of financial challenges ahead.

What do we ordinarily do with our money after retirement?

We build the family home, not a bad idea, this may take away the rent expense, but it is also a sunk cost, that will return no income. And in old age the biggest need is a regular income. We also go into business, which was one of the biggest arguments for the midterm access. We tend to think that if we have money the business we start will succeed. There is nothing further from the truth. In fact, when you start a business with a lot of money, it does not give you a bigger advantage than someone who starts on a shoestring budget, maybe that you will start with a bang and probably maintain the illusion that you are in business for a bit longer...

And all this is before the brand new cars we are going to buy and the travelling we are going to do. We probably deserve it after slogging for all these years at dead end jobs.

So what to do that will give us half a chance of making the best of this windfall? Here are three suggestions.

1.       Eat less, invest more

It starts with the mindset. The difference between the rich and the rest of us is that the rich invest more than they spend. Its habit they developed even when they were earning peanuts. There are only two ways to spend money, by consuming it or investing it. The more you are doing of the former than the latter, the less likely you are to become rich.

Almost 20 years ago Sudhir Ruparelia did an interview with the Financial Times. He closed the interview with a flourish, saying something to the effect that getting rich is an old Indian trick, of the ten shillings you earn, you reinvest nine and eat one shilling and repeat until rich.

I shall not torture you with a reexamination of your spending patterns but keep this one thing in mind when thinking about the NSSF windfall. Invest more than you blast away.

2.       Set ego aside

The challenge for many of our investments is that they are more a reflection of our egos than desire to make money. Our investments tend to be things we can show people while pointing to our chest, “It belongs to me”, even if they are investment black holes with no chance of showing a return.

We need to get out of the way of our money, if it is to have a chance of looking after us into our old age. They say, we spend money that is not ours, to buy things we do not need, to impress people who don’t care.

To be true investors we need to be interested in sustainable returns over the long term. The 15-year treasury bond in November promised an annual interest of 15.50 percent. This means that a person who invested say sh100m in that bond would get 15.5m annually for 15 years. If you can get an investment that can guarantee those returns and better over the next 15 years go for it, if not go get yourself a treasury bond.

A treasury bond is not as sexy as a ranch or rentals or a kabusiness -- they no longer even give certificates, so you cannot show it off to friends, family and haters, but it will do its job, which is keep the money flowing while you retain your initial investment.

 

3.       Forget about it

But this investment thing may be too difficult and the reality of living in destitution in your last years is too painful to contemplate. Don’t try to keep up with the Jones, leave your money in NSSF where going by past results, you may get a double digit return until you qualify for retirement benefits.

If you have just touched 45 and leave your money in NSSF for the next ten years and they just manage 7.2 percent return on your money, your current balance will double by the time you pick it up in 2031 and that is not counting the subsequent savings you have made into the fund and interest on that.

Some are already doing it. About 40,000 beneficiaries of the retirement benefits have chosen to leave their money there after they clocked 55 enjoying the record interest rates NSSF has been posting in recent years.

I know this is not even as sexy as pulling out your money and trying to beat the market, but it gets the job done. And in the meantime for the next ten years you can go online and learn to be a true investor for that day when you clock 55.

Happy New Year!

PS 

Since this was published in the New Vision on 27th December 2021 President Yoweri Museveni assented to the bill in the first week of January. Disbursements are expected to start 60 days after the bill is gazetted, by the the finance minister would have come up with regulations taht will govern the way the bill is implemented.