Saving Up for Retirement (Part 3 of 3 in the Retirement Series)

If you were thinking of relying on your SSS or GSIS benefits to fund your expenses when you retire, then think again. The painful fact is that those government benefits are hardly enough to support anyone, much more if you want to retire in comfort. Currently, the maximum SSS pension is at Php13,000++. That's right, Php13,000. And that's if you paid the top tier of contributions throughout your entire employment history. What exactly can Php13,000 get you these days? Groceries and/or utilities?

GSIS benefits are much better though, since the pensioner will be getting his/her last basic pay for the rest of his/her life, and I think the benefits will even be extended to his/her survivor. My basic pay as a court attorney is just enough for our monthly expenses, but the wiggle room is so tiny that I have to allot and plan out the scheduled bonuses to cover the recurring expenses like insurance premiums and personal loans. Admittedly, if I retired now and all our debts were paid off, getting my last basic pay as my pension would be more than enough for our monthly expenses because we don't really live an extravagant lifestyle. But if I wanted to travel and splurge a little in retirement, then forget it, my basic pay won't suffice at all.

That's why when it comes to retirement, you really have no one else to depend on but yourself to make sure that you'll get the kind of lifestyle you want in your golden years. It's never too early to start saving and investing for retirement, and the earlier you start, the more aggressive you can be with your investing. Think stocks and equity laced mutual funds. Perhaps you can even start a business right now and that will end up funding your retirement, not to mention give you something to do when you stop working.

In my past post, I talked about my clients for my RFP financial plan and how they needed around Php33,000,000 to fund their planned retirement of 30 years. However, my clients will be glad to know that they don't really need to reach 33M exactly when they retire because:

1) They'll both be receiving pensions. The wife is a government employee with a basic pay of Php55,600, while the husband is in the private sector so let's assume that he'll get the maximum SSS pension of Php13,000. The wife also continued with her SSS contributions even if she's in government service, so she'll also be entitled to Php13,000 as a monthly pension as well.
2) They have a side business which gives them additional income.
3) Their investments will continue to grow even if they're already retired.

In my financial plan, I suggested that they make regular monthly investments of Php20,000 in a high yield instrument, like equity laced mutual funds or go directly to stocks to reach their retirement target. Then with the 33M raised, they can make yearly withdrawals to make up for the difference between their pensions and actual expenses.

But I soon realized that their yearly withdrawals were way much more than what they really needed to bridge the gap, and I didn't even factor in their projected monthly income from their business. That's what happens when you invest early, you end up reaping the benefits of compound growth and capital appreciation. It's a good problem to have though, I mean who the heck would complain about having too much money in retirement, right?

So to summarize, here's the simple way of how to go about saving for retirement:

1. Project how much you'll need during retirement.
2. Calculate how much you'll be receiving as monthly pension.
3. Come up with the gap between your pension and monthly expenses.

Easy peasy right? I mean, what's so difficult about raising millions and millions of pesos? :)

To help you get started on your road to creating your retirement fund, check out Pinoy Money Talk's article on how the different mutual funds fared last year. If you want to invest in stocks, I suggest signing up Bro. Bo Sanchez's Truly Rich Club because it will guide you through stock investing and even provide the stocks to buy. But if you want to bypass the Truly Rich Club altogether, open an account with COL Financial to be able to access their stock picks. The Truly Rich Club's stock picks are actually based on COL's recommendations, they just narrow it down to about a dozen as compared to the 50 or so in COL.

The Personal Equity and Retirement Account (PERA) will also kick-off early within this year, seven years after the law enacting it was first passed. BPI and BDO have already signified their participation in this retirement program and I'm interested to see who else will be offering PERA accounts.

Pag-IBIG also has a retirement account known as Pag-IBIG II. It's strictly voluntary though, that's why it's not as popular as the mandatory Pag-IBIG program that allows its members to take out housing loans. The historical dividends usually play around 6.5%, which means it regularly beats inflation, unlike savings accounts. Please click here for some more information on Pag-IBIG II.

If you read enough personal finance blogs from the USA, you'll notice that most of the personal finance bloggers are staunch advocates of index funds because of the very low fees and reliable performance. Unfortunately, such is not the case in the Philippines because index funds usually lag behind managed funds and even our index funds have high fees and initial investments. However, Vanguard, the most highly recommended broker in the USA, has opened a branch in Hongkong and from what I've researched so far, it's fairly easy to open an account with them. Although unlike in the USA, Vanguard in Hongkong treats its index funds, as well as the other funds, like ETFs which means that they're traded in the Hongkong stock market instead of just following the ups and downs of the market, like a traditional index fund. So you really can't open a Vanguard account in HK, rather, you open an account with a broker and buy Vanguard stocks.

So that concludes the Retirement Series. The most important thing is to visualize your retirement goal, create a financial plan that you will assess and tweak as you go along and then work your way towards your goal.

That's about it. Happy weekend everyone!

(*Read part 1 and part 2 of the Retirement Series)


OFW Escapology said…
I personally discouraged PAG-IBIG II.

Not now maybe because they are not yet systematic at all specially for OFWs.

It is a great program but I faced a problem because their records are not centralized unlike SSS.

There's also SSS flexifund for those who are interested.

Anyway, great post..
Jillsabs said…
I'll have to do some more research on Pag-IBIG II pala. Thanks for the heads-up!
edelweiza said…
So much valuable info here, Jill. My husband and I are both government employees but we don't wanna rely on our GSIS pensions alone come retirement so we're saving and investing this early in our married life. Gusto rin kasi namin magtravel at makabili ng farm house someday. That PERA sounds interesting. Please blog more about it when you have the chance and as more information become available. TIA! :)
Anonymous said…
correction on gsis pension: last basic pay is not the basis for gsis retirement pension. yes, it could be higher than sss pension (depends on salary grade) but definitely NOT the last basic pay. I'm a gsis retiree so I know, please research more.

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