Quick test: when do Filipinos experience a surge in the number of relatives?
Answer: when they come upon a big load of money. And this sudden growth in wealth is all the more evident when it comes to retirement. Unfortunately, these otherwise distant relatives do not realize that retirement lump sums really just advance a few years of income.
Consider a person retiring from a company that he has been employed in for at least twenty years. If that company had a retirement lump sum benefit of one and one-half months for every year of service, that person would be paid only 30 months (20 x 1½) of advanced income. This translates to just two and one-half years of income, way too short for a person retiring at sixty and with an average life expectancy for Filipinos of up to 70 years of age.
While the retirement benefit from the Social Security System (SSS) will help, it will still not be much. Based on today’s rules, the pension benefit for our retiring person above, on the assumption that he would have accumulated 40 years of credited years of service by the age of 60 and is already contributing at the maximum rate in each of those years (hardly possible for employed individuals) will only get a monthly pension of thirteen thousand one hundred Pesos with a thirteenth month pension of the same amount.
Seniors will need to prepare for a much longer retirement life, thanks to advances in medicine and technology, through the additional but more potent effort of saving and investing. If seniors are religious with saving and investing, they stand a good chance of living at least a comfortable retirement, but not necessarily a generous one. So distant relatives should not feel bad if their retiring next of kin are a bit of a tight wad when they receive their retirement pay.
Now saving and investing is one thing. But investing properly is another.
There are many outfits in the country that are out to make a quick dishonorable return on hapless investors. History is replete with such stories. That is why the rule of the world’s greatest investor takes on more importance for people who do not make investing their living: do not invest in something you do not understand.
Some say that if seniors and seniors-to-be were to follow the rule, then they would not be able to invest in anything in this sophisticated and sometimes convoluted world of investing. The simple answer is that they can still invest but with guidance and help from professionals.
And what used to be available to the rich in terms of expert professional investment advice and management is now available to the retail market through pooled funds (e.g. variable life insurance, mutual funds and unit investment trust funds.)
So for seniors, to be better ready for retirement go and find that pooled fund suited just for youbefore you hit the age of no return. If you get past that age without properly saving and investing, you might just end up not being able to retire at all.
We, your FinancePH advisors, will be glad and more than willing to help you plan your finances. Our customized financial planning approach caters to each individual needs, budgets and priorities.
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(Originally written by Efren Ll. Cruz, RFP at http://www.savingstips.com.ph)
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