Would you want to be financially free on your golden years?
Planning for retirement is not exactly a top priority among young people. The common thinking is that it can be attended to later on. Instead of associating retirement with old age, it is better to view retirement as gaining financial freedom, or the ability to do things you want without having to worry about working for money.
Let me share with you some important facts about retirement, and why we should take it more seriously even at a younger age.
1. Thanks to medical breakthroughs & healthy lifestyle choices, we are now estimated to have a life span of up to 67 yo for males and 73 yo for females. What does this mean for us? The longer we live, then the longer we will need to spend for living expenses. Most of us would underestimate the cost of retirement, but coupled with a longer life span, you could be spending 15, 20 to 25 years relying on retirement income alone!
2. If you keep on ignoring the truths about retirement, then where would you find yourself later? As you can see, out of 100 retirees, only 2 are financially independent. 45 still depend on their relatives, 23 continue to work and 30 rely on charity to sustain their daily expenses.
3. You can’t rely solely on government pension nor employment benefit plan to sustain your retirement expenses. The average monthly pension in the Philippines is only P8,000. Will this be enough for you?
Things just keeps getting more and more expensive every year
The important reality about retirement is the COST. Retirement will cost more with inflation. If a 35 y/o spends P30k/month today for living expenses, this will become P101,591/month by the time he reaches age 60. What accounted for the jump from 30k to 101,591? We can blame it on INFLATION.
Your 101,591 at age 60 will buy the same goods & services that you bought for 30k at age 35. This is the effect of inflation. Another reason why we should plan for retirement seriously.
Having all these realities in mind, what can we do today to be financially able in our retirement years, and not be part of the statistics who will depend on relatives or will continue to work for years on end?
Start making money work for you
The bright choice to make so you can attain financial freedom is to build your PASSIVE INCOME way before retirement comes. Passive Income is also known as “money working for you” (or money-at-work).
Building our passive income is not an impossible task—-the secret lies on 3 factors: time, money, and interest. When it comes to TIME – we must start to save as early as we can. When it comes to MONEY, we must save as much as we can, and as regularly as possible. And when it comes to INTEREST, we should find interest rates that are better than inflation.
Let’s take a better look at each factor to fully understand its value.
Factor #1: TIME. The earlier you start saving, the more funds you will accumulate for your future
To appreciate the value of time, let’s look at these three individuals who are saving P100,000 annually for their golden years.
- In 15 years, a 45 yo can set aside 1.5 Mil at age 60.
- In 20 years, a 40 yo can save 2 Mil at age 60.
- In 25 years, a 35 yo can set aside 2.5 Mil at age 60.
It’s never too early to start building your retirement fund. The earlier you start saving, the more funds you will accumulate for your future. So, make use of your time wisely!
Factor #2: MONEY. The money you don’t spend now is the money you will spend in your retirement years.
- The first person saving 100,000 per year will have 1 Mil.
- The second one allocating 150,000 per year will have 1.5 Mil.
- And finally, the third person makes the bright choice by setting aside more (200,000), every year. In-turn, he will reap a higher fund of 2 Mil after 10 years.
The lesson here is to pay yourself first. This is also known as the “Income – Savings = Expenses” formula. You can start with a small amount and once you develop the habit of saving, you can increase the money that you set aside regularly. The important thing is to automatically allocate a portion of your income to your savings. Remember that the money you don’t spend now is the money you will spend in your retirement years.
Factor #3: INTEREST. Find instruments that will make your money work harder or earn better
And finally for interest, we have here three individuals who made a one-time investment of the same amount using varying instruments. How much will their 100,000 be after 10 years?
- With a 1% return rate, Man#1 will minimally grow his money to 110,462.
- Man#2 who invested in a 5% interest income bearing instrument will get a slightly higher return of 162,889.
- Evidently, Man#3 is the one who made the bright choice in this illustration. Investing in an 8% bearing instrument will generate the highest return of 215,893 after 10 years.
So, what is the takeaway here? Find instruments that will make your money work harder or earn better. Better interest rates result to higher returns, thus, letting you accumulate more for your retirement.
This table shows HOW LONG it will take you to save 1 Million pesos. On the left column, you will see various annual contributions, while on the first row above, you will see various rates of return. Inside the table, you will see numbers that refer to the number of years it will take you to save that 1 million. For example, if you saved 12k annually at a 4% annual return, then it will take you 37 years to save up 1Mil. If you find that too long, let’s go to the other end of the table. With an annual contribution of 60k at 10% return per annum, you can save 1Mil in only 10 years!
By maximizing your time, money and interest — you can build a retirement fund that can sustain you in your golden years!
RETIREMENT SOLUTIONS! Solution 1: Retirement Funding
Solution 1 is a forced savings program that allows my clients to get started without committing for too long. For an annual savings of 513,220, as opposed to 1.4M in annual time deposit, for 10 years, we can build the targeted retirement fund of 24.4 Mil. What’s good is that this will also deliver 1 Mil cash proceeds to the surviving family in case of untimely death. The 513k per year may be overwhelming but don’t worry, because we cannot commonly create the 24.4 Mil with just one plan. We can break the 24.2 Mil into smaller chunks, such as, when his cash flows improves, he can always get additional policies until he reaches his retirement fund.
RETIREMENT SOLUTIONS! Solution 2: Retirement Funding + Critical Illness Benefit
This next sample is a 2-in-1 plan since I’m able to offer Retirement Funding + Critical Illness Protection. This plan is recommended for clients who aim to secure their investment portfolio in case of an unforeseen illness. For an annual savings of 514,500, as compared to 1.4 Mil in time deposit, for 10 years, we can accumulate the retirement fund of 24.4 Mil. What’s more is that should the client get stricken by a critical illness, there will be 1 Mil lump sum cash benefit readily available to help him get back on his feet.
RETIREMENT SOLUTIONS! Solution 3: Retirement Funding + Comprehensive Protection (Life Insurance)
This last illustration is what I call as the Ultimate plan since it can address 3 goals—Retirement, Income Continuation, and Critical Illness Protection—all at the same time. For an annual savings of 402,130, as compared to 835,538 in time deposit, for 20 years, the client can accumulate a Retirement Fund of 24.4 Mil at age 60. But should anything happen to the client, there is a 1 Mil Health Protection Fund to help him survive a serious illness and a 2 Mil Protection Fund to lean on when he is no longer there to provide income for the family. I also refer to this as a Protect and Build Plan.
If you complete the savings period, then there will be “future money” to support your Retirement. That’s the BUILD part. However, if you are unable to complete your savings plan due to untimely death, then the life insurance coverage steps in, and your family can now use the cash proceeds to pay for the immediate bills, and invest the remaining funds so that it will generate the “continuing income” needed to maintain their standard of living. Now that’s the PROTECT part.
I’m sure you’re curious to find out how much Retirement Fund you will need so you can live on interest. The good news is that I can calculate this for you very quickly. CONTACT US OR REQUEST FOR AN APPOINTMENT
So what’s a comfortable annual budget that you can set aside now to close the gap in your Retirement Fund? Depending on the budget you tell me, I can compute for you how much Fund you can create towards your comfortable retirement.
These are the steps that we will go through:
- We will identify and prioritize your retirement needs and shortfall
- We will compute how much those will cost in the future and adjust based on your financial situation
- We will develop a financial plan customized to your goals and budget
IMPLEMENT– We will choose the appropriate product solutions for your life goals
REVIEW– We will track your progress in achieving your life goals
Money Monkeys can assist you: