Saving for retirement is something that is not really in our culture. I grew up not hearing about saving for something called retirement.
Maybe I heard my teachers talk about their retirement but it was never really discussed how it works nor did anyone ever lecture me about saving for my retirement fund when I grew up.
Well, overall financial literacy is never really taught in our educational system, not even when I was in college and studied accounting. I never really learned about having a retirement fund. Or maybe it was taught but didn’t make an impact on me.
Not sure about you but I assumed you are planning to start your retirement fund now because you are reading this article.
So let’s go ahead and discuss retirement funds and how you can get started with it.
Retirement Reality in the Philippines
Teachers and other government employees are being deducted a GSIS contribution monthly, this is going to be their retirement fund when they reach retirement age.
Now, if you are a private company employee, you also have the SSS contribution that’s being deducted monthly from your salary.
So you have a so-called retirement money you can expect to have when you are no longer able to work due to old age but I think the question here is, “Is this enough?”
Just think of someone you know who already received their retirement fund after retiring here in the Philippines. Do you think they are now living the life of their dreams after retiring?
I knew some teachers, soldiers, and policemen who did receive their retirement fund but I don’t think they are well off now. Some of them are still working with other companies, some are still depending on their children for basic needs and even for medical needs, or have started a small business to sustain their lives I guess.
Now, these are public employees, whom we normally assume, here in the Philippines, to have more retirement money compared to the private employees.
I’m not sure about the people you know. Maybe it has something to do with how they spend it or it’s a matter of choice for them but for me, I think this is a clear indication that our retirement fund from SSS or GSIS is not enough to sustain us in our retirement age.
So this should make you curious how much do you get after retirement?
According to PIDS, the SSS provides a monthly pension of approximately PHP 5,000–18,000 ($90–$320) to retirees. This is depending on how much is your monthly contribution. So if you are at a minimum wage, you will get a minimum pension of Php. 5, 000.00.
Even if you get the maximum amount which is PHP18,000. Will that be enough when you will have medical needs by then or if you want to travel?
I hope this will be enough to make you think of how you can achieve your retirement dreams. So let’s dive into how you can save more for your retirement funds.
How to Determine how much you need during Retirement
Before I give you ways on how you can have more for your retirement. Let’s first discuss what kind of retirement you want.
Choosing the lifestyle you want in your retirement years is crucial in planning for a secure and fulfilling future. Picture yourself in those golden years, and let’s figure out how to make those dreams a reality.
This will help you know what you need to save and will hopefully inspire you to do something about this.
- Think about how many more years you have before retirement.
You have to be realistic and know how many more years is there for you to work.
What is your ideal retirement age?
This will give you an idea of how many more years you are going to save for your retirement. It will help you identify how much you need to set aside for this.
Understand that the normal retirement age in the Philippines is 60 years old for both SSS and GSIS. So if you are going to depend on your funds from these agencies, then that is your ideal retirement age.
But of course, you can always retire earlier. That is if you can save enough to be able to live your retirement dreams.
- How do you want to live in your retirement age?
Answering this question will help you identify how much you need to live according to your plan.
Consider factors like housing, healthcare, travel, and leisure activities.
You also have to consider inflation and maybe we can consider an inflation rate of 3- 5% per annum here in the Philippines.
So that means if you are retiring in 10 years then that would be an increase of 30% to 50% by the time you retire. Double if you still have 20 years before retirement.
That means if your living expenses now are at 20k per month, by the time you retire in 10 years your living expenses are at 30k per month, If you are looking at 20 years before retirement then we need 40k living expenses per month.
Now think of how you can produce that amount by the time you retire. How much should you save now that when you retire you can probably put it in an investment tool for example time deposit that will earn you that much monthly?
An example is if you put 7.5M to MP2 that earns 7% per annum. You can get about 525k in a year and if you divide it into 12 months then you can have about 43k per month without doing anything but making your money work for you.
That’s basically what we want to be able to figure out here.
- Create a Realistic Budget for Retirement
Now that you know how much you need.
You now have to determine how much you need to save to achieve your envisioned retirement lifestyle and estimate associated costs.
Having a clear budget will guide your savings strategy.
Ways You Can Have More for Your Retirement Goals
When it comes to retirement planning, we’ve established that the traditional avenues, like the Social Security System (SSS) and Government Service Insurance System (GSIS), may not provide the financial cushion we aspire to have.
The reality is that many retirees need additional sources of income to support their desired lifestyles.
Now, let’s delve into practical ways to enhance your retirement funds and ensure a comfortable life after you bid farewell to the daily grind.
Start Early and Save Consistently
Time is your greatest ally when it comes to saving for retirement.
The earlier you start, the more time your money has to grow.
You have to develop a consistent savings plan, setting aside a portion of your income regularly.
Even small amounts can accumulate significantly over time.
If you are still young, good job of thinking about your retirement fund as early as now but if you’re most of us wherein only think of retirement when we start feeling something in our body (that indicates you are getting older) then we have to start putting more into our retirement savings.
Educate Yourself on Personal Finance
Since financial literacy isn’t extensively covered in our educational system, take the initiative to educate yourself.
Understand the different investment options, learn about compounding interest, and stay informed about economic trends that may impact your retirement savings.
Invest and Diversify Your Investments
Relying solely on government-backed pension plans might not be sufficient. Explore investment opportunities that align with your risk tolerance and financial goals. Diversifying your portfolio can potentially yield higher returns and contribute to a more robust retirement fund.
Where can you Invest
Aside from your SSS or GSIS, you can also explore other investment opportunities that can help increase your savings for your retirement.
- PERA (Personal Equity Retirement Account):
Fully implemented by law in 2016, PERA is often dubbed the Filipino counterpart of the 401k Contribution Plan or the Individual Retirement Account (IRA) in the United States.
Exclusive to banks, insurance companies, or accredited administrators recognized by the Bangko Sentral ng Pilipinas (BSP), Insurance Commission, and Securities and Exchange Commission (SEC), PERA offers a voluntary retirement contribution plan.
It allows individuals to save and invest up to P100,000 annually, with married couples permitted to contribute PHP100,000 each, and OFWs up to PHP200,000.
Returns are entirely tax-free. Withdrawals can be made upon reaching the age of 55, having contributed for at least 5 years (55 and 5 rule), either in a lump sum or as a monthly pension.
Alternatively, contributions can be withdrawn upon death, irrespective of age or total contributions. Early withdrawals are subject to penalties, with waived taxes refunded to the Bureau of Internal Revenue (BIR).
- Investment Funds
Institutions such as banks and insurance companies provide various funds already diversified across industries.
While bonds, stocks, and other investments can be complex, these institutions offer financial planning assistance through fund managers who oversee and invest in your portfolio. You can read more about mutual funds here.
But we always suggest that you learn more about investing before you dive deeper into this and always make sure to invest in reputable companies.
- Real Estate
One of the best investments you can start is acquiring properties, especially land because the value of land always appreciates given that it is in a good location and not going to sink for whatever reason in the future. If you can purchase a lot in a good location, you can build rental properties that can be a good source of income for you during retirement.
Consider Health Insurance
Medical expenses can be a significant burden in retirement. Evaluate health insurance options to cover potential healthcare costs. Having a comprehensive health plan can protect your savings from being depleted due to unexpected medical bills.
Explore Alternative Income Streams
Beyond traditional employment, think about ways to generate income during retirement. This could involve turning a hobby into a small business, freelancing, or investing in ventures that align with your interests.
If you can do this on the side while having your full-time job then you can already start it and hopefully turn it into a business when you retire. This will allow you to have something you can enjoy doing in your retirement age.
Conclusion
Remember, your retirement is a personal journey, and the steps you take today will shape the quality of your future.
By being proactive and thoughtful about your financial planning, you can strive to achieve the retirement lifestyle you envision.
It’s never too early to start, and with a well-thought-out strategy, you can pave the way for a rewarding and secure retirement.