How much money do you need to retire?

Posted at 06/02/14 11:21 AM

MANILA, Philippines - Talk of retirement and thoughts of a relaxed lifestyle and long vacations, free from the pressures of the workplace, immediately come to mind. Travel to unexplored places, bonding with family, the opportunity to indulge creative passions – these are among the many things that people say they would like to do upon retirement.

For all the excitement that it heralds, retirement also brings with it some concerns. Some worry about not being productive. Others worry about being isolated from colleagues. One of the most pressing concerns of those approaching their retirement years is outliving their finances, since retirement often also means having no steady income stream.

While many Filipinos extend financial assistance to their retired parents, most retirees also express their desire to not burden their children with their financial needs.

If you have a pension fund or have saved enough for your retirement years, then you probably need not fret so much about the eventual loss of income that comes with retirement. If you have none, it might be a good idea to start looking at how you can prepare or start saving for your retirement years.

One of the most important questions frequently asked by people is how much money they will need to tide them through their retirement years. Some wonder if the pension they will get from the government or the funds they have invested in will be enough to cover their needs. Although the future cannot be foretold, and you can never really fully prepare for everything that has yet to unfold, you can at least prepare for what will most likely happen.

Although circumstances will vary among individuals, suffice it to say that you will continue to have needs that you will have to pay for long after you have said goodbye to your office. How much you need will depend on the kind of lifestyle that you will embrace.

If you would like to get a general idea of how much you would need, you need to project into the future and make a few assumptions. Here are five areas to look at to determine how much you need to retire:

1. Imagine what kind of lifestyle you would want during your retirement.

Do you see yourself living elsewhere, with living standards much higher than the one you have now? Or do you see yourself more or less living the same lifestyle as now?

Try to compute how much this kind of lifestyle will cost now. A good start will be to look at your current lifestyle. Let’s say you make around P600,000 a year, of which P500,000 goes to expenditures—your children’s schooling, transportation, housing amortization, and others. Note that in your retirement years, you will most likely be spending less. By then, the children would have finished their college education, your housing amortization would have been fully paid, you wouldn’t be spending for daily transportation, and your household expenses would have dropped considerably.

Let’s say that you imagine yourself living at around 50% of your current lifestyle, which is equivalent to around P250,000 a year in expenses.

2. Think of how long you intend to keep working.

Companies might have a mandatory retirement age, but that doesn’t mean you can’t be productive beyond this. Assuming that you will live up to, or beyond, the average life expectancy for Filipinos, which is now set at 78, and you retire at 60, that means you have to fund your expenses for the next 18 years. In other words, you will need P250,000 per year for 18 years, or P4.5 million. If you think you might have to work a little longer than the mandated age, then think of your options – possibly consultancies, teaching posts, or freelance jobs that will provide you an income stream.

3. Take a good, hard look at how much savings you have now, and how much money you have to set aside in the coming years.

This will dictate the kind of strategy you will need in investing your funds. In general, more time allows you to take on more risk and possibly gain more on your savings. However, individual needs and circumstances vary, so your investment strategy will be different from that of your friends. If the numbers show that you will most likely outlive your finances, don’t fret. You can prepare for this through judicious financing planning. If you invest your funds now, its growth will cover for inflation.

4. Explore the different products that are now available that will help you meet your retirement goals.

Mutual funds and UITFs are readily available for different investment profiles, and they can be availed of for as low as a beginning investment of P5,000. Consult a financial planner to help you before making a purchase.

5. Don’t forget your health.

Age brings with it the very real prospect of health problems. This is why you have to find health or medical insurance for your retirement years. This is the best way to safeguard your funds from illness or disease that can wipe out your savings or your pension fund.

With proper financial planning, you can prepare for your retirement so that these years will be enjoyable and stress free.


Grow Your Money is an editorial partnership between ABS-CBNnews.com and Citi Philippines to promote financial education and provide helpful information to Filipinos on how to better manage their personal finances.

Visit www.citibank.com.ph for more information.