ASK Dr. NOET
Preparing for retirement in the Philippines (continued)
By Dr. Johnny Noet Ravalo
INQUIRER.net
First Posted 09:18:00 04/10/2008
(Part six of a series)
The good news is that the Philippines does not have the “aging tiger” problem that is so prominent elsewhere in the region. The bad news is that most of us are not preparing for our retirement needs.
Investing is not the same as planning for one's retirement. When we lose money from an investment, we try to get it right the next time. With retirement funds, if you do not “get it right” by the time you retire, there simply isn't any room left for significant remedial measures. When retirement comes, we lose our salary and are forced to live the rest of our lives on what we have saved.
Another very real problem faced by half of Filipino families is that on average, family income is too close to family expenses, which will not leave any room for saving. No matter how we churn the numbers, retirement planning becomes an unattainable dream for families without saving.
That pool of surplus funds --- one that does not get drawn against more than it is padded --- is the basic ammunition for retirement. What to do with this pool of surplus funds? Work backwards and ask six questions:
1. How much do you expect to be spending on a monthly basis when you are already retired?
2. Have you made arrangements for a memorial service and related expenses?
3. What extra expenses do you expect to make?
4. How much time is there between now and when you retire?
5. How do you execute your retirement plan?
6. What factors will continuously affect the accumulation of your retirement funds?
The first refers to lifestyle. My father likes to describe it as “simple living” but when it comes to having the pesos and centavos to pay for expenses in the retirement years, there is nothing simple about it. Food and utility bills will be the baseline but they will not figure prominently in the total cost scheme.
What you need to be very realistic about is medical expenses. Maintenance medicine and periodic check ups are never cheap.
If diabetes runs in the family, for example, you will have to dish out over P5,000 in monthly medicines plus the annual check up which can run up to P10,000 if all the laboratory tests are included. That's P70,000 per year --- minimum --- for an ailment that has no cure and has to be paid when you are no longer enjoying both a regular salary or your company's medical plan. Complications also add to the expenses. Any hospitalization will set you back in the tens of thousands for as short as a day or two of confinement. You need to estimate a portion for monthly medical maintenance plus set aside a lump sum for the “just in case” part.
The second question is a very sensitive topic for most Filipinos. As children, we worry that it may be misconstrued if our parents find out that we got them a memorial plan. As a parent, I dread the idea of getting one for my wife and I, simply because I want to see my kids grow old and my children's children as well. The reality though is that making memorial and burial arrangements puts you in a very vulnerable position. When my mom unexpectedly passed away, we found ourselves at a funeral home at midnight with no prior arrangements, bombarded with a thousand questions that I did not want to hear, much less answer.
Insurance and pre-need plans make it easier to prepare for this eventuality. Fortunately, these plans are paid in installments so they are easily folded into retirement plans. The last thing you want to be doing at a funeral home at midnight is either paying for a memorial service that happens to be available or searching for a secondary market memorial plan.
Getting back to the brighter side, travel plans would go under the category of “extras”. Retirees look forward to the opportunity to travel and visit relatives and friends when their “day jobs” no longer hog their time. Unfortunately, traveling is neither free nor cheap. With oil prices where they are, I do not see how this cost can be minimized. Travel promos only cut a few corners here and there.
An interesting dilemma comes up with the challenge of maintaining fixed assets, particularly homes and cars. These assets age, too! Put these under the “extra” category. Retirees often postpone repairs, which jack up the cost.
(To be continued)
(Have a question for Dr. Noet? Email personal_finance@inquirer.net.
(Noet Ravalo is a macro-financial economist by practice and profession. He was chief economist of the Bankers Association of the Philippines until 2002 and has since been doing consulting work. Since 1994, he has been asked to provide technical inputs to both the Senate and the House of Representatives on various economic and financial legislation, some of which will have big impact on Filipinos' personal finances.)
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Related sites:
Preparing for retirement in the Philippines – Part five of a series
Investing for OFWs – Part four of a series
How currency hedging works – Part three of a series
What kind of investor are you? – Part two of a series
What is the best way to start an investment? – First part of a series
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