Building a retirement fund may be a daunting task for most Filipinos. With kids in school, rent or a home loan to pay, not to mention credit card bills, utility bills, and even debts with the friendly neighborhood Bumbay, building a retirement fund may be the farthest thing from the Filipino's mind.
So most Filipino adults have one hope: their children. Being a country where kids are expected to take care of their folks when they're old, not preparing for one's retirement is the norm, a complacency that's been tolerated for generations.
However, let's try to change things a bit. Wouldn't you prefer to be the one to leave an inheritance to your grandchildren? Wouldn't you rather be able to take trips to the Caribbean in the first years of your retirement? Thus, it is high time to stir yourself to a courageous feat: tackling your retirement.
In the Philippines, we have simpler financial systems. If Americans have Social Security, 401k's and Roth IRA's, we have SSS or GSIS, Pension Plans, Insurance and savings banks.
There are a couple of financial vehicles that aren't exactly thought of as retirement fund tools. Mutual funds, bonds and time deposit accounts fetch good rates over time, but Filipinos are not taught to make the most of these. In fact, most of us fear investing because of stock market horror stories.
Thus, let's set things straight before we give you our Retirement Fund Building 101:
- The stock market can and always will fluctuate. So when it dips, NEVER PANIC. Keep your stocks or mutual funds right where they are, and let it ride out the rough market.
- The earlier you start building your funds, the better, because of the "magic" of Compound Interest. So start your retirement fund building today.
That being said, here is how to build your retirement fund, Pinoy Retirement Rx style:
1. How much is your current monthly budget? What medical conditions do you have? Add around Php 10,000 to Php 20,000 to your monthly budget and that's how much you would be needing on a monthly basis when you retire. Factor in the prevailing inflation rate.
Then, multiply that figure by the number of months in a year (12) and the number of years from your target retirement age up to age 120. That is the total amount you need. If you need the monthly figure, just divide the total figure by the number of years between retirement age and 120, and then divide by 12. That's the amount you'd need to have in your hands every month when you retire.
2. Work with your employer with how to optimize and maximize your SSS or GSIS contributions. If you're self-employed, figure out the most reasonable amount you could set aside for SSS or GSIS in a month, and see how much it should pay out when you retire. Don't worry that it's a small amount. It's just one of your future sources of income.
3. Invest more aggressively in mutual funds, bonds and time deposits. In the US, it's recommended that they use the tax-free Roth IRA fund. Here, we have the PERA Act, but it still hasn't reached full implementation, as it was only ratified in 2010.
One good idea would be to monitor your mutual funds' growth, look for peaks in its growth, and then pull out your fund and save it in time deposits. That way, you won't be at the mercy of market fluctuations, and your time deposit accounts will be accumulating compound interest over time. As you keep working your money this way, you may be able to achieve your retirement fund targets by your expected retirement date.
4. If you're in debt, get out of it immediately. You may want to follow Dave Ramsey's Baby Steps in order to get financially stable. Remember that $1,000 is around Php 50,000, so start with an emergency fund of that size for Step 1. Read the Baby Steps here.
5. Talk to an accredited insurance agent about good pension plans and life insurance plans. Pension plans have reasonable fees and good payouts. The Philippines' most trusted include Philam Life and Pioneer. Just research on your options and choose the most stable company to insure yourself with.
Reminders:
- Separate your retirement fund portfolio from the rest of your savings and other financial allotments. Never neglect to keep saving into your retirement funds, just as you pay your bills.
- Forget about the stock market's fluctuations. Don't let fear get the best of you. Rather, observe it for peaks over time, and withdraw your dividends, or the whole account, during those moments and transfer them to CD's, for a measure of safety. Then reinvest in order to keep your money growing.
- If all of this confounds you, read more into the subject. You don't need to pay a financial adviser. Just reading Dave Ramsey should teach you fundamentals on money management and how to build your retirement fund with the right mix of risk taking and prudence.
Financial freedom is possible, even in the Philippines. What you need is wisdom, patience, and most of all, courage. Here's to you, and your future Caribbean trip, too!
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