QUESTION: I have very little by way of savings for retirement and based on my company’s policy, I have under 10 years left before I have to retire. I am the sole breadwinner in my family. What advice can you give me so that my wife and I can live comfortably in retirement?—posted on PFA’s “ask a friend, ask Efren” service at www.personalfinance.ph
Answer: Contrary to common belief, the retirement age was not established in the United States.
It was under the government of Otto von Bismarck, a German chancellor in the 19th century, that the first state-funded retirement pension was created. This state pension set the age when payments would begin.
It was only in 1937 when the Americans came up with social security retirement benefits.
In the United States, social security retirement benefits were supposed to be paid starting at the retirement age of 65.
At that time, the average life expectancy was short and retirees, and eventually their beneficiaries, would receive pensions for a relatively short period of time as well.
However, life expectancies increased by 50 percent in the 20th century.
In the Philippines, the average life expectancy for both males and females lengthened by 34 percent from just 53.4 years in 1960 to 71.4 years in 2010.
What all these mean is that retirement age is arbitrary and that longer life expectancies mean costlier retirement.
Typically, retirement calculators help you compute how much you will have at retirement age given assumptions on the funds you have to start with, the amount you can periodically add, the years till you retire and the rate of investment.
We have a proprietary calculator that starts with our clients’ retirement goals.
In particular, we ask how much they would be spending for the ideal lifestyle in retirement given today’s pesos.
Given a bunch of other assumptions, including the years they think they will be in retirement (before they cross over to the next life), we determine how much they would need to save and invest.
The design of our calculator forces our clients to think first of their retirement goals and not retirement tools.
Money and where it can be invested are mere tools. And the usual result is that our clients state goals that are not exactly within their reach.
The natural reaction would be to water down their ideal lifestyle in retirement, which then makes their goals practical but far from ideal.
Social security and company retirement benefits can help lighten the load. But the larger part of the burden of providing for a comfortable retirement rests squarely on the shoulders of the would-be retiree.
So here is perhaps the most important advice we could give to help you better provide for your retirement and perhaps even avoid watering down your ideal lifestyle.
DO NOT RETIRE.
Put another way, do not retire from work but retire to what could be the best years of your life. You do not have to stop working just because you turned 60 or 65.
Literally, put on a new set of wheels.
The husband of a client once asked what a person usually does when he retires (as he was apparently about to turn 60). Our client replied that a retiree gets to do whatever he wants. Our client’s husband replied, “Then I am already retired because I am doing exactly what I had always wanted to do!”
What is important is that you do need to plan ahead. Just like with our calculator, find out what your ideal lifestyle is in retirement and see how you could fund that with your available resources, the most important of which are the skills that you have honed over many years of working.
If you are like the average Juan who will not receive a fortune in retirement benefits, find out how you can combine your financial resources with your skill set to come up with an investment (whether in financial securities or a business) to generate a lean and mean money making machine to fund your retirement.
And if it is a business that you are looking at, you better start implementing your plan now with the help of a business partner. That partner could be your spouse or some other trusted person.
You will then simply take over the business when you hit retirement age.
As a guide, you can be satisfied, comfortable, contented and fulfilled in retirement all at the same time if what you are good at is also what you love to do, it is what people need and what people will also be willing to pay for.
If you want more free retirement tips, please visit www.personalfinance.ph. For detailed, specific and habit-forming personal finance training, you may attend our EnRich™ personal finance and EnRich™ estate planning training runs in Cagayan de Oro, Iloilo, Davao, Cebu, Clark and Manila. Details for EnRich™ training runs may be found in www.personalfinance.ph.
(Efren Ll. Cruz is a Registered Financial Planner of RFP Philippines, personal finance coach, seasoned investment adviser and bestselling author. Questions about the article may be sent by SMS to 0917-505-0709 or emailed to efren@personalfinance.ph. To learn more about the RFP program, attend a FREE orientation on June 5, 7pm at the PSE Center. Email info@rfp.ph or text <name><e-mail><RFP> at 0917-3464126 to register.)