A comfortable and stress-free retirement life does not just happen overnight. It takes years of preparation, commitment, and of course, saving money.
However, planning for retirement is not in the vocabulary of most Filipinos. Some feel that it is too far down the road to worry about. Others believe that things will eventually take care of themselves.
By the time reality sinks in, it is usually too late.
Don’t let this happen to you. Here are six simple steps that you can take to secure your future.
- Visualize the Life That You Want
The first step in planning your retirement is the easiest and probably the most fun — imagine how you want to spend your twilight years.
Do you want to see places you can’t go to now because you’re too busy? Are you planning on spending many days on the golf course?
Make a list of all your retirement goals. If possible, rank them according to importance. This will help you decide which items to focus on if there are too many.
Retirement gives you the chance to reinvent yourself, and this can be very exciting. However, you need enough financial cushion to make it happen.
- List Possible Expenses at Retirement Age
Once you have a general idea of what retirement life looks like, it is time to think of the smaller details.
List down all the possible expenses from the activities you plan to take on. From there, you can make a rough estimate of the budget that you would need.
For instance, local travel costs around Php 3,000 per day, on average. If you plan on taking a week-long trip once a month, you would need:
Annual budget for local travel = Php 3,000 x 7 x 12, or Php 252,000
You should also include typical expenses such as mortgage (if applicable), maintenance costs, shopping, and health care.
- Calculate Estimated Retirement Budget
From the above example, estimate your total budget for retirement. You just need to add the cost of each item that you want to include.
There’s a good chance that you’d come up with a long list, and it would be virtually impossible to fund them all. This is where you’ll need to prioritize.
You can refer to this list of monthly costs to get you started:
- Medical Care – Php 20,000
- Food, shelter, and clothes – Php 30,000
- Hobbies – Php 10,000
- Travel – Php 10,000
- Car maintenance – Php 10,000
- House help – Php 10,000
Based on this list, you would need a total of Php 90,000 every month, or a little over Php 1 million every year.
- Estimate Your Year of Retirement
It is important to have an idea of what year you’ll retire. This will tell you how much time you have to build your retirement fund.
The optional retirement age in the Philippines for government employees is 60, and 65 is the compulsory retirement age. There are talks of lowering these age requirements, so this is something that you need to look out for in the future.
- Account for Inflation
You now have a rough estimate of your retirement budget. You are closer to the finish line but not quite there yet.
The next thing you need to do is to account for the rising costs of goods and services. The current inflation rate in the Philippines is 4.4%, but it is safer to assume a rate of 5% for our computation.
Say the total budget you came up with was Php 1 million per year. If you plan to retire in 20 years, you would need to consider 20 years’ worth of inflation:
Adjusted budget = Php 1 M x (1.05)²⁰, or Php 2.65 M
- Build Your Retirement Fund
Now that you have an idea of how much you would need for a comfortable life after work, you can start saving up for your retirement fund.
Your company probably offers a retirement plan, so you should sign up for it. You also have SSS or GSIS benefits to supplement your budget.
It can be daunting at first, given the amount that you need to reach. That is why it is important to start early and stay committed.
Would you like to have a template for a detailed, customized computation of how much retirement fund you would need and how much you need to save each year to reach your goal? Just click this link.