Sooner or later you will have to stop working. Sa tingin mo ba mabubuhay ka ng maginhawa kapag ikaw ay retired na? You probably would hope so. But hoping alone will not help much to ensure that your retirement years will be comfortable and stress-free.

Separate surveys conducted by multinational financial companies revealed a not so rosy picture for Filipino retirees. Here are some of the disturbing findings:

• less than half of Filipinos prepare for retirement; one of the lowest proportions in the world.
• majority of retirees depend heavily on the government, previous employers or family members for financial support during retirement.
• only 3 out of 10 Filipinos are confident they will have sufficient funds for retirement
• 4 out of 10 retirees are still working. Most of them are forced to work to continue earning a living
• savings of the average Filipino will only last nine (9) weeks

We Pinoys are well-known as procrastinators; madalas nating sinasabi “tsaka na” yan. We also have this “bahala na” attitude, which gives us a convenient excuse not prepare well for something. Combine these two and you have a recipe for financial trouble come retirement time.

You have to start planning for your retirement now. Do not depend on your government pension because this will not be enough. Baka kulang pa itong pambili ng gamot para sa maraming sakit pagtanda mo. Do not depend on your children, too. It is not fair to demand financial support from your children when you are no longer earning. They will have their own families and challenges to face. Paano kung naghihirap din ang mga anak mo, saan ka hihingi ng suporta?

The responsibility to take care of your needs when you’re retired rests in you alone: not on the government, not on your children, not on your previous employer, not on your dog or your cat, not on anyone else. Kung maghihirap ka man pagkatapos magretiro, sarili mo lang ang pwede mong sisihin. So, you won’t be spending the rest of your lives blaming yourself or others start preparing now! Here are six steps you can follow so you can have a hassle-free and fun-filled retirement.

1. Define your retirement goals and needs. Decide what age you plan to retire, where you want to live, what places you will visit and what you will be doing most of the time. (Aim to retire between the age of 55 and 60. A study revealed that those who retire at 65 only live an average of 18 months and those who retired in their 50s reached their 80th birthday.) After dreaming about life when you’re done working, determine how much funds you need to support this lifestyle. To do this, estimate the amount you will need every year for food, housing, utilities, transportation, clothing, entertainment, healthcare, taxes and other expenses. Take note that the cost of living in the future will be much higher so adjust the amount for inflation. (At 5% inflation rate, P1,000 today will be P2,653 in 20 years and P4,322 in 30 years. So if you need P300,000 annually if you were retired today, you should have an income of P795,000 yearly if you retire in 20 years or P1,296,000 income per year if you retire in 30 years to maintain your quality of life.)

2. Estimate other sources of retirement income. This is the income you earn in addition to the earnings of your savings and investments. This may come from your social security pension or income from optional work you might decide to do after retirement. Take note of the annual total.

3. Determine if you have funds already available for retirement. If you have worked in a company for at least 5 years, you will receive a lump sum amount when you retire. This is instant fund that you can use for your retirement. SSS and GSIS also give a lump sum amount to retirees. Add these amounts and include the future value of any savings you have now that you intend to use for retirement. (At 10% annual interest rate, P1,000 today will grow to P6,727 in 20 years and P17,450 in 30 years. So, if you have P50,000 today, that can grow to P336,375 in 20 years.)

4. Calculate additional funds needed for retirement. This will require a little arithmetic. First subtract the amount in #2 from the total required income in #1. Divide the difference by 6%, which is the recommended withdrawal rate. (You can use a rate between 5% and 7% but the resulting figure will greatly vary; using a lower rate results to a higher amount and you will have to save more.) The result is the retirement fund you need to generate the annual income required to sustain your lifestyle. To determine how much you still have to accumulate from now until you retire, subtract the amount in #3 from the result.

5. Save and invest to build-up the required fund. Determine how much you need to save and invest monthly to accumulate the amount in #4. Start to save as early as possible so you can take full advantage of the power of compounding. If your target is to accumulate P5 million, you need to set aside about P7,300 monthly over the next 20 years if your money grows 10% a year. Not exactly peanuts. But if you have a longer time to save for it, say 30 years, you just have to save about P2,500 monthly. Your next challenge is to find the right mix of investments that will give you the desired rate of growth. Your basic investment choices are long-term TDs, government securities, mutual funds & UITFs and for the brave ones, stocks.

6. Monitor and update the plan regularly. Monitor your investments regularly and make adjustments if necessary. If your current investments are not doing well, move them somewhere else (like a new bank or mutual fund company). If you experience life changes (e.g. getting married, new child, etc.) that affect your income and needs, modify your saving & investing plan accordingly. Sticking to a plan that’s no longer viable is foolish and will only bring about frustration and could lead you to give up.

Malamang sumakit ang ulo mo sa pagbabasa nito. Just give it a rest. You can read this again in a few days. Or you can use the more accurate retirement calculator (in Microsoft Excel format). You just type-in some numbers and it will give you a better picture of how much you need to retire comfortably. Whether you do the steps above or use the calculator there are two things you need to keep in mind: start saving & investing NOW and DON’T STOP until you reach your target.

Last update: July 28, 2008
Copyright © 2008 www.PinoySmartSavers.com All Rights Reserved