In doing financial plans for others, I always begin with the question, “what are your goals in life?” And most of the time, having a comfortable retirement comes among the top five life goals mentioned by people normally. The idea of living a life someday when we no longer need to punch a timecard is what most of us dream of.
Retirement can mean having more time to spend with one’s family, being able to travel across the globe or having a small farm to tend to. The ways by which we wish to spend our golden years may vary but one thing is constant when it comes to retirement: early preparation is the key to a comfortable and happy retirement.Retirement planning is an extensive and ongoing process that needs long-term commitment. It involves among others building your retirement nest egg, making it grow and preserving it to sustain you through your retirement years. Retirement planning may seem to be a tall order to accomplish but doing nothing to prepare for this important life event can cause tremendous strain not only on your finances but in all aspects of life in the future. Let these 10 simple steps be your guide in achieving a comfortable and happy retirement:
1. Envision your retirement life. Try to paint a picture of how you would like to spend your retirement years. Define and make life plans. Write down all the things that you want to do and be specific as much as possible.
2. Determine your desired retirement age. Deciding on when to finally bid goodbye to employment is a crucial part of retirement planning. It will give you an idea on when to start building your nest egg for retirement. Most financial planners follow the 20/20 rule. If you plan to retire at age 60 and hope to live 20 more years after retirement, you should start saving and building your fund at 40 years old. Take note, though, that the idea is to save as much as you can for your retirement fund, so starting earlier than 40 years old obviously has its advantages.
3. Do the math. You may hate crunching numbers and doing some math but in the arena of retirement planning, knowing your numbers can prove to be worthwhile once you reach your golden years. The truth is, there is no definite magic number that we could draw to address your retirement need sufficiently. This number depends on variable factors, such as your current income, desired kind of lifestyle and even unforeseen events like illnesses and medical expenses in the future. The good news, however, is we can make a logical estimate of how much you really need for your retirement. A rule of thumb that is usually being followed is that 80 percent of your current income is adequate enough to cover for your retirement income and support your standard of living. Just keep in mind the effects of inflation in the purchasing power of your money in the future. It is wise to always factor in at least an average inflation rate of 5 percent when computing the total retirement fund that you will need. At this stage, it will be of great relief if you seek the help of a registered financial planner (RFP) to help you compute your retirement fund need. You can visit the RFP Philippines website at www.rfp.ph for a list of registered financial planners in the Philippines.
4. Save now and save more. Now that you have determined the amount of retirement fund that you’ll need, the next step is to build the fund. Start allocating a portion of your income to retirement savings. Do it regularly and consistently. Do not touch this saving until you reach your retirement.
5. Save for emergencies. It is equally important that you have a contingency fund along with your retirement savings for the reason that emergencies can happen anytime. These unforeseen events can put a huge dent in your cash flow and without a contingency fund you might be forced to withdraw from your retirement fund.
6. Fast track your nest egg through investments. In this stage you have to be careful in shopping for the right investment instrument that can best help you address your desired retirement fund. Remember each asset classes and investment vehicles have their own characteristics and purposes. It is my view that in building your nest egg for retirement, it is highly important that you adopt a less conservative approach in investment. Educate and expose yourself to investment instruments that are moderate to aggressive in nature like stocks, mutual funds and UITFs. These instruments bear more exposure to market volatility, compared with your traditional banking products, such as savings and time deposits, but have great potential to give you higher yields in the long run and ultimately help build your retirement fund.
7. Assess your resources. You have been able to identify the size of the fund that you will need for your retirement, as well as the investment instrument to use in building the fund, now it is time for you to check on where to source the fund in building your nest egg. The most common source is your employment income, but there are other sources that you can consider, such as your social security contribution, bonuses, commission income, existing savings or even inheritance if you have received one.
8. Do not rely on the “BIR” or “Bureau of Inay/Itay Revenue.” Relying on pension from your children should not be a part of your retirement strategy. While it gives a tremendous sense of joy and pride to receive one from your children, do not obligate them to do so. Create your own financial pipeline for retirement and your in-laws will love you more.
9. Get yourself in shape. Remember the goal? Living a comfortable and HAPPY retirement?
How can you happily enjoy your retirement years if you are always sick? Eat well, watch your health and exercise. Both your financial and physical health will determine the quality of life you will be living during your golden years.Final note: Retirement planning is a lifelong process that needs your utmost discipline and commitment to implement it effectively. It is imperative that you review your retirement plan on a regular basis. Make necessary adjustments and realignments accordingly.
Jesi Bondoc is a registered financial planner of RFP Philippines. He is the director of My Wealth MD and Partners, Inc. specializing in investment advisory. You can send your money questions at email@example.com and they’ll be answered in his next article. For more info about Registered Financial Planner program, e-mail to firstname.lastname@example.org or text <name><e-mail> <RFP> at 0917-9689774.