A Simple Guide in Planning Your Retirement in the Philippines

Retirement plan

Retirement might be the most exciting stage in everyone’s life. You might imagine travelling around the world or simply enjoying the money you earned over the years. Aside from the retirement pay from the employers, most of the retired professionals derive their daily funds from the pension payment of the government. However, the records of Government Service Insurance System (GSIS) and Social Security System (SSS) show that each of the pensioners is receiving an average monthly pension of PHP18,525 and PHP5,123 respectively. Considering the high pricing of commodities, the estimated monthly pension payments are inadequate to support a person’s daily living especially in terms of medical needs. With this, it might make you worried rather than being excited on your retirement. But if you are earning enough, we suggest that you prepare a retirement checklist to ease your worries and ready yourself on your retirement age. If you are still confused, here is a retirement planning guide to follow but let’s understand the pension system of the Philippines to motivate you more in saving for your golden years.

Philippines’ Pension System Calls for Building a Voluntary Retirement Fund

Last 2022, Mercer CFA Institute Global Pension Index (MCGPI) evaluated the pension system of 44 countries in the world that account for the 65% of the total world population. Philippines was included in this evaluation and results showed that the country ranked 43rd out of 44 countries. This means that Philippines’ pension system is considered one of the worst in the world. No wonder why our country is evaluated as one of the worst in terms of pension system because the pension of senior citizens are inadequate to live comfortably. Nevertheless, if the basis of these pension amounts are from the 2015 report of Philippine Statistics Authority, which states that PHP9,140 is the minimum earnings to fully support the needs of a family of five people, it should be more than enough to suffice a senior’s daily food and non-food necessities. Yet, the biggest question is “how decent is your daily living with PHP9,140 in today’s standard?” Thus, National Economic and Development Authority (NEDA) Undersecretary Rosemarie Edillon stated that based on the “simple life” aspiration of majority of the Filipinos, a family of five must earn PHP120,000 monthly to live comfortably and answer all their basic and other necessities like education, housing, car, and few luxuries. With NEDA’s reported minimum earnings of a family of five, it is estimated that an individual must have at least PHP24,000 to live comfortably but the payments to pensioners are insufficient especially the SSS retirees.

 With this, Benjamin Diokno, the governor of Bangko Sentral ng Pilipinas, recognizes that the pension of senior citizens may not be enough to meet all an individual’s needs. Hence, he encourages the public to avail voluntary retirement savings plan in preparation for their senior citizen phase. Fortunately, Senator Joel Villanueva, one of the sponsors of Expanded Senior Citizens Act of 2010, also understands the insufficiency of pension for the retirees especially in today’s standards. Accordingly, he urges an additional raise of PHP 1000 on the monthly pay of seniors on top of the PHP500 hike which took effect in 2010.

However, even with great effort and sympathy, funding is still a problem even if this hike is pushed through. Therefore, its effectivity is still uncertain. As early as now, with the current state of our pension system, it is better if you prepare a retirement checklist to track your must-haves as you reach your age of seniority to live a comfortable and peaceful life without worrying too much of your finances.

A Simple 3-Step Retirement Planning Guide

            Building up your savings account is a hard task for the majority especially if your income is not that high or just sufficient to satisfy your basic necessities. Additionally, we want to live comfortably and enjoy the fruit of our hard work through luxuries. But part of being an adult is to be wise on your finances. Retirement might be too soon to be planned especially if you are in your 20s. However, planning it ahead of time and starting it as early as possible will garner you more benefits with just a little sacrifice of your luxuries. So, here is simple three-step retirement planning guide to follow to have a roadmap on saving up for your seniority.

1. Think of the lifestyle you want as a retiree.

If you see yourself as someone who will travel or revisit his abandoned hobbies as he retires, you need to have an allotted fund for these luxuries. Budget is strictly limited as there are no other active income sources aside from monthly pension. Therefore, you must take note of these activities to effectively plan your retirement fund.

2. Set aside a portion of your funds for health concerns.

Health complications are unavoidable as you age. As we get older, our body weakens even if we lived healthily over the years. Despite the inevitable illnesses, taking care of your health is still a must so that financial concerns in relation to health complications would be minimal. With this, even you are living healthily or not, you must recognize that you would experience health problems. Therefore, funds must be allocated for the purposes like hospitalization and regular check-up. Aside from savings, you can also avail insurance to give you additional financing source in terms of health emergency.

3. Set a strategy based on the time you will commence your retirement plan.

It is understandable that each individual has bills and necessities to pay monthly. If you are just starting your career yet you are supporting yourself, it will be hard financially because your earnings might still be low. Therefore, starting to save for the future might not be an option for you. Nonetheless, time will come that you will be prepare a retirement checklist. If you plan to start at an early age, you might have higher risk tolerance so you should be able to widen and diversify your investment portfolio. But, if you are to start in your 40s, lower risk investments are advisable. Afterall, building and funding your retirement plan will still depend on your financial risk tolerance and your contingencies in case of a loss.

Preparing a Retirement Checklist

If you already know the retirement lifestyle you want, it is time to go with the specifics on how to build and fund your retirement. There are a lot of ways to make yourself secured at your retirement age but it might be overwhelming for professionals or it may not suit their risk tolerance. So, here are the most practical things to do and to have in your retirement checklist as you commence your plan. 

1. Regularly contribute to your pension plan.

If you are an employee, pension contribution is mandatory as this is a deduction in your salary whether you are working for a private company or in the government sector. Though, if you are self-employed, you have to voluntarily contribute if you want to have a pension plan from the government.

      Whether you are an employee or self-employed, a good practice is to monitor your contributions for inconsistencies or discrepancies so problems will be prevented and you will be entitled with the corresponding pension plan from your contribution. With this, employees and self-employed individuals must register in the SSS website to easily monitor your contribution.

2. Invest in Personal Equity Retirement Account (PERA).

PERA is a voluntary retirement savings plan. This was passed as a law in 2008 to encourage professionals and workers to fund their retirement aside from the pension plans from GSIS and SSS. For Filipinos working in the Philippines, each may contribute up to PHP100,000 annually while an Overseas Filipino Worker (OFW) may contribute up to PHP 200,000 annually.

The amount contributed is invested PERA products which will help you earn more passively. The good thing with PERA is that you can decide on the product where you will invest your contribution. Each product is tailored based on the risk tolerance of contributor. Another benefit of investing in PERA is that earnings of your contribution is tax-free. Additionally, if you are an individual contributor, you are granted a 5% tax credit based on your contribution while if your employer makes the contribution for you, such amount is not subject to withholding tax.

3. Invest in real estate.

Real estate investment is one of the biggest yet safe investment to make. Property values normally appreciate over time. Investing in a property lets you turn it into a residential home in case you do not have one or venture it as a rental business. For short, it offers flexibility. However, the main issue why it loses appeal for average people is its price. Properties cost millions and additional fees are incurred aside from its cost.

      Anyhow, if you are eager to invest in real estate, you may consider Bria Homes for your first real estate investment. We offer affordable house and lots nationwide with flexible financing methods through bank loan or Pag-IBIG housing loan. For more inquiries, please contact us or visit our Facebook page.

4. Invest in financial instruments.

Stocks and bonds are the most common financial instruments to invest on. However, you need a high tolerance to yield high returns from these investment products. Additionally, these two might be hard for beginners to comprehend and may need the help of experts especially with stock investments. Even so, you can explore different financial instruments with lower risk yet yielding good returns like mutual funds, time deposits, treasury bills and many more. Just keep in mind that always diversify your investment in financial instruments, meaning do not go all-in for one type so if it fails, your loss will be low and manageable.

5. Invest in different insurances.

Aside from thinking about earnings, you must also anticipate possible losses. One way to mitigate a loss is through insurance. Commonly, people insure themselves but you can also insure your assets as well like car, and house. By availing such, if unforeseen event happens and it led to the destruction of your property or it has something to do with your health, the insurance policy is a way to recoup the resulting financial loss. Thus, it makes you still financially stable and capable to continue meeting your daily necessities and expenses.

Written By Steven Hernandez