Choosing Your Ideal Retirement Plan
Understandably, many people would like to retire comfortably after working hard for more than half of their life. Retirement allows many people to resume the lives they put on hold in favor of a full-time career because they postponed their goals, interests, and pastimes.
Minutes to Read: 10 minutes
Age Bracket: 12 -45 years old
However, retiring also entails giving up a steady income and mainly relying on retirement savings. How much money should you have set up for retirement now? It’s a good question, and we might not consider it until we’re almost ready to retire. But if you don’t know the solution, it could be a severe issue.
Who wants to continue working after they become 60? Not us. As crucial as starting to save for retirement is picking the ideal home for your investments. Your retirement plan establishes your annual contribution limit, tax treatment, withdrawal terms, permitted investments, and fee structure.
To help you the following choices may help you determine which plans are suitable for you:
The Philippines’ top 5 retirement fund strategies
We have produced a list of some of the top retirement savings plans in the Philippines.
However, do you genuinely want to work all your life? Wouldn’t you want to enjoy the rewards of your labor at a certain age, perhaps by taking a world cruise or retiring to a light-filled hut by the sea? You do, of course! But how can you afford to have fun when you can’t count on getting paid monthly? That depends on how you want to spend your retirement.
1. Pension Plans
Pension plans give you financial assistance or a single lump payout according to your cumulative contributions. The Social Security System in the Philippines offers one of the most easily accessible pension programs (SSS). Since SSS contributions are required by law and taking out your paycheck automatically as one of the simplest ways to invest. A variety of pension or retirement plans are also offered by other institutions like banks and insurance companies.
The Personal Equity Retirement Account (PERA) was implemented by law in 2016. Financial commentators claim that this is the equivalent of the 401(k) Contribution Plan or Individual Retirement Account (IRA) in the United States in the Philippines. PERA is a kind of retirement investment plan only available through banks, insurance companies, or any other administrator licensed by the Securities and Exchange Commission, the Insurance Commission, and the Bangko Sentral ng Pilipinas (BSP). PERA is a voluntarily contributed plan that provides you the option to invest and save up to ₱100,000 each year. The returns are also totally tax-free.
3. Insurance Plans
Insurance plans, where contributions can result in lump amounts later in life, are another method to invest for retirement. In addition to offering you and your family financial security after your death, severe sickness, or accident, it can serve as an investment that can grow. For example, FWD Insurance offers bundled policies that cover these requirements: critical illness, accident, investment, and life protection.
4. Financial Funds
A range of funds already invested in several businesses is available from banks, insurance companies, and other organizations. These institutions have fund managers who will take care of your bonds, equities, and other investments for you, although they can be rather sophisticated. For added profit, some insurance providers, like FWD, even provide funds with returns in US dollars.
5. Actual Estate
One of the main objectives of Filipinos is to own a home or any property by the time they are 50 or 60, and for a good reason. It’s a wise investment, particularly if you can no longer pay your rent with a fixed monthly salary. As time passes, the value of your home or condominium increases, especially if you have chosen a desirable location. Additionally, having real estate that you can potentially rent out can provide you with a stream of income once you retire.
According to analysts, investing in many plans or combining any of the complete retirement savings plans on the list is the key to long-term financial security.
Reasons Why You Should Get a Retirement Insurance Plan In The Philippines
Be ready for financial difficulties.
Even if you may have saved a sizable sum for your retirement, this can be depleted more quickly than you had intended. Unprecedented hospital visits, business failures, and family deaths could deplete and exhaust your retirement savings. Planning for retirement is crucial for this reason. Instead of solving these financial issues alone, prepare for your retirement to safeguard your future.
Avoid relying solely on pensions.
Once you become too old to work, your social security pension will start paying you cash. Although the amount is valid, it could not be sufficient to ensure a comfortable retirement. Add funds from your insurance to what you receive from your pension. Thanks to a retirement investing plan, you no longer have to rely solely on your assistance or your children to support you financially.
Your family may also profit.
Your loved ones can profit from having a large retirement fund as well. You can utilize the funds from your investment to assist your children in paying for the education of their future children. You can also invest in a home you can leave to the following generation.
FOR GIF, THE GIRL
Retirement planning in the Philippines is evolving – so are the challenges.
Retirement Planning: What Is It?
Planning for retirement is setting up and overseeing your financial situation for the time after you stop earning a living. Retirement preparation can enable you to cross off items from your bucket list or even pay for any problems you may experience in your golden years.
The following are part of the procedure:
- Choosing your ideal retirement age
- calculating the money, you’ll need for your retirement years
- Identifying your retirement income’s source
- A retirement lifestyle assessment
How much should you have saved for retirement in the Philippines?
Generally speaking, you should set aside money for your retirement savings as soon as possible. Inflation causes costs and the cost of living to rise over time, so you must account for this when planning your retirement budget.
Several more criteria can help you calculate the precise amount you should save.
Your health is one of these factors, as medical costs in retirement might be very significant. You’re still likely to spend at least PHP 10,000 on medication alone, even with a Senior Citizen’s Discount and SSS benefits. The cost of any necessary operation, such as a heart bypass or hip replacement, will be at least PHP 500,000.
The location of your retirement home is another important consideration. For instance, your monthly expenses may decrease if you plan to live permanently with your children when you retire. On the other hand, you will need to adapt your retirement money if you intend to live alone in the city or the province. Moving to a beach town or a mountain province like Baguio may be less expensive than living in a metropolis with a high cost of living.
Your lifestyle and interests are another consideration because they may change once you retire. It will probably make sense for you to save more money if you anticipate spending a lot of it on travel during retirement than if you expect to take it easy. Provide your retirement fund some additional flexibility and allow for different types of investments.
Regarding your retirement planning, you should also consider the following:
- How long will your funds have to grow? If you retire at 40 instead of 70, you’ll need to save much more early to make up for the years without a steady income.
- Do you have pension coverage?
Will your living expenditures be fully covered by SSS benefits?
- What amount do you currently spend on accommodation, food, clothing, and other expenses? What about health care costs?
Answering these questions honestly and thoroughly will help determine how much money is enough to live. Although the amount needed for retirement varies from person to person, putting aside 70% to 80% of your pre-retirement salary would be a decent place to start. Then you can make the appropriate adjustments.
The good news is that you still have plenty of time to save money for retirement, even with this in mind. There is a strong probability that you will have enough money saved by the time your working days are through if you start saving early enough and continue to do so every month.
How to start a retirement fund
The difficulty now is how to accumulate that savings given that you know how much you need to set aside for retirement.
Experts advise allocating 10% to 15% of your monthly income to retirement savings. To successfully implement this rule, you must start as early as possible to accumulate a hefty sum for retirement.
Making smart investment decisions is the best method to save money for retirement. Putting money aside each month will ensure you have the opportunity to save, but even with interest, you won’t be able to save as much as you thought you would expect due to inflation.
The secret to having your money grow is investing it in financial instruments to provide you with high returns. What types of investments are the best ones, though, is the issue.
Putting money into a retirement plan
A life investment retirement plan can be helpful in this situation. When you apply to a life insurance investment plan, you are working with Financial Advisors. They are knowledgeable about how to manage your money so you can achieve your financial objectives.
With a life investment retirement plan, you can receive regular distributions that you can spend for day-to-day expenditures in addition to growing your retirement income. A life insurance retirement plan guarantees your family’s security by providing them with a lump payment in the event of your untimely death.
5-Step Retirement Savings Calculation
The straightforward five-step formula to evaluate if you’ll have enough money in savings and income to cover your costs in retirement is summarized here. Respond to these inquiries:
- What percentage of your annual income do you put toward retirement savings?
- Then divide that by the years until retirement (the “when you want to retire” part).
- To that amount, add your present retirement savings.
- By how many years you anticipate living in retirement, divide.
- Add that to the list of revenue sources that are assured.
To determine whether the amount estimated is sufficient to pay the living expenses you typically have, compare the result to your present annual fees once you have completed the computation.
To determine whether the amount estimated is sufficient to pay the living expenses you typically have, compare the result to your present annual costs once you have completed the computation.
Example Using the 5-Step ‘Enough-to-Retire’ Calculation.
Here’s a walk-through of the five-step calculation for a sample couple:
A couple, age 55.
Each contributes the maximum amount to their IRA account annually, for $14,000 of IRA contributions each year ($7,000 each).1
They have $150,000 saved already.
They would like to retire at their full retirement age as defined by Social Security, which is age 67.2
Based on the output from a few life-expectancy calculators, they expect at least one to live to age 94, so they expect at least one to have 27 years in retirement.
He will have $2,200 per month ($26,400 per year) in Social Security benefits, and she will collect half of this amount ($13,200 per year) as a spousal benefit.
Using their data, this is how the “enough-to-retire” calculation works:
$14,000 (their total annual contributions to retirement savings.)
$14,000 x 12 = $168,000 (their total annual retirement savings, multiplied by years left until retirement)
$168,000 + $150,000 = $318,000 (their total expected future retirement savings added to existing savings.)
$318,000 / 27 = $11,777 (their total future and existing savings, divided by the number of years expected to live in retirement)
$11,777 + $26,400 + $13,200 = $51,377 (annual expected retirement income from savings, added to other sources of guaranteed income; in their case, Social Security)
In this case, the $51,377 represents their annual expected retirement income. They need to compare this to their expenses to see whether it will be enough. If you aren’t sure what your costs will be in retirement, make a retirement expense projection to come up with an estimate.
This calculation is sufficient, assuming both spouses are alive, but upon the first spouse’s death, the lower Social Security amount (in this case, hers) will go away. The higher amount will continue as a widow/widower benefit.3 However, certain expenses are also likely to go down upon the death of a spouse, such as healthcare and insurance costs, transportation, and utilities.
Arguments Against This Retirement Calculation
Some may complain that this computation is too straightforward to be used for retirement because it ignores inflation or the growth rate of investments. For the sake of simplicity, let’s say that inflation is 3% and that safe asset growth is 3%. Then, those two factors would counteract one another.
All factors influencing a person’s retirement income plan over a 30-year time horizon are impossible to forecast with any degree of accuracy. Although more intricate planning is helpful, this easy-enough-to-retire calculating method is a terrific place to start.
If you don’t have enough, what happens?
Some people are terrified of the answer; thus, they don’t want to conduct any calculations. The ostrich strategy is that. Avoid doing it! Performing the calculations, facing reality, and coming up with a solution is much less stressful. Understanding your particular circumstance will make it easier to plan and make adjustments than if you try to ignore it.
You can investigate various choices, like working a little bit longer, finding ways to earn more money, minimizing spending, or moving to a lower-cost area if you run the numbers and believe you won’t have enough to retire. All of these acts can assist in bringing retirement closer.
How Much You Need to Save for Retirement by Age
It’s helpful to view the process of saving as a journey since you’ll likely have unexpected expenses and fluctuations in income over the years. Below is a guideline for how much should be saved for retirement by various age milestones.5
Age 30: One year equivalent of your salary
Age 35: 2xs your salary
Age 40: 3xs your salary
Age 45: 4xs your salary
Age 50: 6xs your salary
Age 55: 7xs your salary
Age 60: 8xs your salary
Age 67: 10xs your salary
While you need to save, you don’t have to keep it all at once. Set some reasonable goals to hit by different ages. For example, aim to commit one year’s worth of your salary by the time you reach 30.
Starting Early With Your Retirement Planning
If you’re in your 20s and think you won’t be able to retire, consider how much starting early can help. Below is a comparison of how much your retirement savings could be if you started saving at different ages by using the online savings calculator from Investor.gov.6
Let’s assume you save $3,000 per year ($250 per month) and earn an annual return of 5% on that money in your retirement account.
I started Saving at Age 40
If you started saving when you were 40 and saved $3,000 annually, earning 5% each year, you’d accumulate $203,848.30 by turning 70.
I started Saving at Age 30
If you started saving at age 30, your total retirement savings would be $370,638.19 by age 70.
I started Saving at Age 20
Starting when you’re 20 increases your savings at age 70 to $642,321.44—over three times the amount you’d have if you waited until 40 to save and invest. This growth is due to compounding, the interest or investment gains reinvested over the years.
As a result, young people have time on their side, and if you start saving early, you can use the power of compounding to your advantage.
What is an excellent monthly retirement income?
To calculate how much you need to live on in retirement, take 80% of your current salary. For example, if you currently earn $70,000 per year, 80% would be $56,000, which is how much income you’d need.
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