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Retirement Planning in the Philippines

When is the right time to plan for retirement?

How do you calculate your retirement fund?

How do you calculate your savings fund to cover the retirement?

How do you execute your retirement plan?


When is the right time to plan for retirement?

At some point in our lives, we wonder what we are going to do once we reach our retirement age.  While some of us may have no definite age target as to when to start retiring, we still have our own set of ideal lifestyle once we reach the years where we decide to be our own boss.

Some of us dream of spending mornings sipping coconuts by the seaside, while some dream of traveling the world.  No matter your idea of retirement, early planning is the key in achieving this goal of comfortable lifestyle. 

Most business coaches stress that planning for retirement is ideal in late 20s while some introduce the 20:20 rule where you start planning 20 years before the average 20 years of retirement (for example, planning on your 40th year when you plan to enjoy 20 years of retirement).

Regardless, there is no better time to start planning for your retirement other than now.  The earlier you start on investing for your future, the earlier you will be able to enjoy the fruits of your labor.  More importantly, you will be able to address contingencies (i.e. health, accident, etc.) that may reduce your retirement fund.


How do you calculate your retirement fund?

Normal retirement age is usually at age 60.  Early retirement eligibility is generally patterned after the minimum eligibility for tax-free benefits --age 50 with at least 10 years of service.

1.  Determine the number of years before your retirement.

For illustration purposes, let us use 40 as your current age and 60 as the age of retirement.  Hence, you still have 20 years to prepare for your retirement fund.

2.  Estimate your future level of expenses.

Use your current expenses for your future base level of expenses then incorporate inflation of 4%.  For example, you project a monthly expense of P30,000, therefore in 20 years the fair value will become P65,733 using the formula "=(FV(interest rate, number of annual payment periods, payment made each period, present value)" or "=FV(0.04,20,0,-30000)".

3.  Determine other sources of retirement income.

Assuming you have other income during your retirement such as part-time work generating P10,000/month and government pension of P5,000/month, your total other positive cash flow will be P15,000/month.

4.  Compute for net projected expense covering the other sources of income.

Considering your other sources of income, your resulting projected monthly expense will now be P50,733/month or P608,796/year.

Latest statistics show that average life expectancy for Filipinos is about 72 years.  As such, with the retirement age of 60, average years to enjoy retirement is 12 years.  Given this, total expense for the 12-year duration will be P6,852,046 using Present Value formula of "=PV(rate of return-interest rate, number of retirement years, fair value)" or =PV(0.05-0.04,12,608796).


How do you calculate your savings fund to cover the retirement?

Assuming you will not receive a lump sum of money upon retirement, we will need to calculate the annual savings required starting the age of 40.  Hence, during the period from age 40 to 60, required annual savings will be P207,224 or P17,269/month based on formula =PMT(0.05,20,0,6852046).


How do you execute your retirement plan?

Now that you have projected your needed savings fund for retirement, you may already assess your current resources and evaluate how you will be able to support your retirement fund.  Consider also other contingencies in your plan such as health and other unforeseen events.  Then, periodically review your plan to align to your current financial position.


As business tycoon Warren Buffett said, "The rich invest in time, the poor invest in money." So when you take your next vacation, try also to think of how you can plan for your retirement.  Your older self will thank you for it.