The monthly income a lump sum can buy.
Net monthly income
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Gross monthly
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PAYE per month
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Gross annual
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Your breakdown
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Turning a lump sum into a monthly cheque for life
At retirement you may be handed a choice: keep your pension pot invested and draw from it, or hand it to an insurer in exchange for a guaranteed income that lasts as long as you do. That guaranteed income is an annuity. The appeal is certainty. You stop worrying about markets and longevity, and a fixed sum arrives every month. This calculator estimates how large that monthly cheque would be for a given pot and annuity rate, and then, crucially, shows what is left after tax, because pension income in Kenya is taxable.
It is built for someone approaching retirement comparing offers from insurers, or an adviser sketching the income a client's pot could buy. You feed in three things: the lump sum, the annuity rate the insurer quotes, and a guarantee period. The annuity rate is the heart of it. It is the percentage of your pot paid out as income each year, and it reflects prevailing interest rates, your age, and how long the income is guaranteed to continue even if you die early.
From pot to gross income, then the PAYE bite
The gross calculation is straightforward: the annual income is the lump sum multiplied by the annuity rate, divided by twelve for a monthly figure. The tax step is where Kenyans are often caught off guard, because a pension in payment is not tax-free. The calculator applies the ordinary monthly PAYE bands, then subtracts the personal relief, the same KES 2,400 monthly credit every resident gets, to reach the net.
Run the tool's defaults: a lump sum of KES 6 million, an 8 percent annuity rate, and a 10-year guarantee. Eight percent of 6 million is KES 480,000 a year, or KES 40,000 a month gross. On KES 40,000 the PAYE before relief is about KES 6,783; take off the KES 2,400 personal relief and the monthly tax is roughly KES 4,383. That leaves a net monthly income of about KES 35,617. So the headline 8 percent buys KES 40,000 a month on paper, but KES 35,617 is what actually reaches your account.
A caveat the calculator does not handle
Be careful with one thing. This tool applies PAYE to the pension income for everyone, regardless of age. Kenyan rules have historically given retirees who have reached retirement age a more favourable treatment on pension income, including exemptions that this calculator does not model. So if you are well into retirement, the net figure here may understate what you actually keep, because it taxes income that might be partly or fully exempt for you. Treat the net as a conservative, tax-applied baseline rather than a promise, and confirm your own position with the KRA, since the pension-tax rules have been amended by recent Finance Acts.
The guarantee period, and what an annuity gives up
The guarantee period you enter, 10 years in the example, means the income is promised for at least that long even if you die early, with the balance going to your beneficiaries. A longer guarantee usually means a slightly lower annuity rate, because the insurer is taking on more. The trade-off at the heart of any annuity is this: you swap flexibility and any inheritance of the pot for certainty of income. Once you buy, the capital is gone and the monthly cheque is what you get. That certainty is valuable if you fear outliving your savings, and limiting if you wanted to leave the pot to family or keep access to the capital.
What annuity rate should I expect?
Rates move with interest rates and your age, and older buyers are quoted higher rates because the income is expected to be paid for fewer years. The 8 percent in the example is an illustration you can change, not a guaranteed offer. Always compare actual quotes from several insurers, because a small difference in the rate compounds into a meaningful difference in income over a long retirement.
Is an annuity better than keeping the pot invested?
Neither is universally better. An annuity gives certainty and removes the risk of running out of money, but it surrenders flexibility and the chance of growth. Drawdown keeps your money invested and inheritable but leaves you exposed to markets and to living longer than planned. Many retirees use a blend. Compare this with a drawdown calculator before deciding, and weigh how much guaranteed income you need to cover the essentials.