They say it’s never too early to prepare for retirement. I say, let retirement planning be a subject for students in high school so that when these kids get to college or vocational training, they already have an appreciation of the value of money, and may even be enticed to start taking part time jobs while studying.
Planning for retirement is not always something that most Filipinos are acquainted or familiar with. I was surprised to recently hear a colleague from way back when I was working for a multinational company complaining about how little money he was getting now that he was retired.
Thus, it struck me just how little our educational system prepared us to tackle normal retirement from the first day that we start earning. This is validated by a study by Manulife Investor Sentiment Index about Asian millennials not prepared to face life after employment.
Most of our youth are unaware that retirement most often brings a certain downgrade in the standard of living they enjoy while working, especially if they have not been able to save the right amount they need to maintain their desired old age lifestyle.
How do I see myself when I retire?
One of the best tips I have heard about preparing for retirement is to first envision the life you want when you retire. Are you thinking of taking the high-end route, meaning having a regular round of golf once a week, an overseas trip once or twice a year, and maintaining your gated village house?
Or are you preparing for a more frugal life, i.e., keeping a smaller house (or condo unit) and giving back to your community by being involved in church or local government activities like giving tutorials to younger kids or helping man soup kitchens?
How you envision your retirement life will have a cost tagged to it. Add this to how much you and your wife need for food, medicines, house upkeep, utilities, and other essentials, and you’ll be able to get a pretty good figure of how much money you have to set aside.
P1,000 a week equals P50 million when you retire
Many retirement gurus says that setting aside P1,000 a week when you get your first job at age 21 will be able to net you P50 million by the time you reach 60. This may sound unbelievable, but with the proper investing guidance, this saving discipline will prepare you well for retirement, even at an earlier age.
The later age you start doing this, of course, the less money you end up at age 60. You may start doubling (or tripling) savings to make up for lost years instead. The important thing to remember, though, is to seek professional advice from a trusted financial planner if you’re not sure about how to achieve your millions by retirement age.
Definitely, the money that you’ve diligently been setting aside will become much bigger through sound investment advice from your financial adviser. It definitely doesn’t pay to keep it in a savings account that earns a miniscule interest every year.
Of course, I can already hear our employed young complaining that their current salary will just not be able to spare the P1,000 a week savings. It’s amazing how much your paycheck can stretch if you just categorize your monthly spending to essential and non-essential.
Besides, the scrimping may be slightly uncomfortable only during the first years of working. As you become adept at your job and get promoted, the P1,000 forced savings will be less restrictive to a more relaxed lifestyle or a growing family. This is the time too to consider acquiring assets.
Choosing asset investments
One of the first “buys” that a yuppie will allocate money for is a car. Again, this has to be weighed against real needs. Many young employees are now arguing that spending on Uber or Grab rides may be cheaper than amortizing a new car.
Alternatively, there are new and better point-to-point transportation services that are available for the daily commuters that provide such additional pampering amenities as onboard WiFi, cushy seats, and uninterrupted and relaxed travel.
Before buying a new car, consider the daily fuel cost, yearly registration and insurance fees, and the maintenance expenses that start with regular check-ups (about two to three times a year) and that gravitate to costlier repairs as parts of the car succumb to wear and tear.
It might be better to consider investing in a condominium unit or a house and lot (or just a lot first), which should become part of your overall retirement strategy. Most often, an investment in property appreciates over time; a vehicle’s value diminishes with time and use.
Some companies provide housing assistance for employees of certain ranks. Explore availing of this at the earliest possible time. Otherwise, check on banks that provide housing or property loans at comfortable interest rates.
Factoring in retirement benefits
We all know that the private pension fund payout is not going to be enough to take care of a retiree’s living expenses. But it will still come in handy to cover for some costs. This is why the young employee must take care to keep contributing to the Social Security System’s retirement scheme, even when in between jobs.
The same is true with other government benefit funds like Pag-Ibig (for housing) and PhilHealth (for hospitalization and other medical emergencies).
Your employer should have it’s own retirement benefit scheme. Factor this in too. Upon retirement, an employee will get this tax free. Plan for what to do with this. You can borrow on it while still employed; this is a welcome addition to the savings you are accumulating.
Channel your bonuses to savings. This is easier said than done, and requires a lot of will power, especially if it handed out during the Christmas month. Consider doing this with your 14th month or profit shares, if there are.
Preparing for unexpected expenses
Increased medical expenses often take a heavy toll on a retired person’s life, especially if he or she is not in the best of health when entering retirement age. This will also greatly affect the length by which your nest egg will last. Be prepared to adjust your lifestyle should this happen.
But the best advice here is to keep healthy by adopting an appropriate lifestyle. Keep the grease and booze to tolerable levels; and keep away from tobacco. You can say that health is one of the best assets that you should be working to acquire in preparation for a comfortable retirement.