MANILA - Mention retirement and most of us see hours spent relaxing and enjoying the rewards of our life’s work. Under the most ideal circumstances, you would have saved enough to tide you through this phase of your life. By then, you would have less cares with the children grown and the house paid for and with life becoming become much, much easier.
Unfortunately, your life plans do not always pan out and there is the real threat that despite working during all of your productive years, you can still reach retirement with less than what you need in your bank account.
Even if you have stashed away what you think are sizable funds to see you through, remember that you would probably live for 20 or so years after retirement—long enough for your savings to run out.
Considering that old age is also the time when most of us cope with health concerns, being cash strapped at this time could be particularly difficult. Unfortunately, it is a harsh reality for many senior citizens.
How much you would need to protect you through your retirement years depends largely on a number of factors, such as your lifestyle, income, and expectations, so there is no one right number for everyone. You can, however, take steps to protect yourself financially when you reach your retirement years.
By building up passive income sources, you will be able to generate an income stream to protect you in your senior years. Although there are no hard and fast rules on how much you should have in passive income sources to cover your needs, you would want to be able to cover 70-80 percent of your current expenses from both passive income sources and your retirement savings.
To know how much you should be able to cover, estimate how much you expect to have versus how much you expect to spend. The difference is the amount that your passive income sources and retirement funds should be able to cover.
Let’s look at the numbers. If you’re a 30-year-old earning P50,000 monthly today, plan to retire at age 60 and expect to live up to age 85, you will need to have around P26 million to cover your financial needs. That’s because your P600,000 annual income today will just be worth around P330,000 30 years from now due to inflation (which we conservatively computed at 2 percent per year).
To have the same purchasing power that you currently have 30 years from now, you would need to have at least P1.1 million a year. Multiply that by 25 years, and that’s P26 million.
Don’t be discouraged if the number you come up with turns out to be huge. It should simply serve as a wake-up call for you to think about your retirement years. Simply put, protecting yourself in your senior years means taking appropriate measures early enough, when retirement is still a distant reality.
Here are five ways that you can protect yourself for your sunset years:
1. Start building your nest egg early.
You need to have time to build up your nest egg. The earlier you start, the better for you. Your returns build up over the years, allowing you to have enough to cover your later years. Savings accumulated over the years can grow substantially through capital gains or through the magic of compounding, or both. If you are starting retirement planning late, it simply means that you need to adjust your investment strategy so that you can have better yields, allowing you to make up for lost time. Ideally, you should be putting 10-15 percent of your income into your retirement fund.
2. Invest in a good mix of assets.
The last thing you would like to do is to put your life savings in one asset which suddenly loses its value, wiping out your retirement funds. Allocate your investments across various funds exposed to different kinds of risks—traditional safe havens like money market placements and government bonds, as well as more aggressive and high yielding instruments such as equities and foreign exchange. You may also want to put some money in real estate, art, and businesses.
3. Cover all bases.
Do remember to protect yourself against life’s many other risks which may force you to dip into your retirement savings. For instance, you may wish to purchase health insurance to protect yourself from the financial challenges that health problems can bring. Also look into getting accident or disability insurance, and if needed, fire insurance for your home and auto insurance for your vehicle.
4. Review your retirement plan from time to time.
Depending on your life changes, your retirement needs may grow. It is therefore important to check if you need to recalibrate your pension payments to reflect your needs more accurately. Retirement planning is a lifelong process of constant realignments to ensure that you are adequately protected in your later years.
5. Consult a financial professional.
If you have no time to understand all the different investment choices available to you, one short cut is to put money in various mutual funds or Unitary Investment Trust Funds (UITFs), which are professionally managed, pooled funds invested in various instruments to meet different investment objectives and profiles. To ensure that you are saving enough and investing according to your financial goals, do not hesitate to check with a financial professional, who can guide you through your investment decisions.
With careful planning and discipline, you can protect your future and ensure that your retirement years are blissful and stress-free.
source: www.abs-cbnnews.com
