Prepare now for retirement

For Filipino families that rely on their breadwinners’ wages or salaries for sustenance, retirement is a dreadful event.

It’s something they wish would never come or, if at all, at a much later date.

In private companies, 60 or 65 years are often the mandatory retirement ages regardless of the number of years of service. In the government, it’s 65 years, except in the judiciary where judges or justices can stay on until age 70.

Although that fateful day is predictable, it is seldom looked forward to, especially if there had been no prior preparations for its coming.

Such worry is understandable. Unless the ordinary retiree has other sustainable sources of income, he or she cannot live decently on his or her monthly pension from the Social Security System (SSS), in the case of private employees, or the Government Service Insurance System (GSIS), for government employees.

According to the 2019 Melbourne Mercer Global Pension Index, an Australia-based group of financial experts and academicians that reviews pension systems, the retirement or pension system in the Philippines is the fourth lowest in the world.

The index is based on the pension system’s sustainability, adequacy and integrity. The Netherlands got the highest index value of 81 while the Philippines got 43.7, which makes it just a little better than bottom dwellers Turkey, Argentina and Thailand.

For private sector retirees, this finding does not come as a surprise because low SSS pension benefits are something they’ve been living with for ages.

Unlike the GSIS which can seek government assistance when needed, the SSS has to depend principally on the premium contributions of its member employees and employers and the returns on its investments to sustain operations.

Since premium contributions come from the pockets of private employees and businesses, the SSS has to go through the wringer if it wants to increase its capital base.

Employees do not look kindly on higher contributions because they would be deducted from their wages, and any increase in employer’s contributions would be passed on to the public.

With its limited financial resources, the SSS cannot be expected to be extra generous in its pension system; otherwise its viability for the benefit of future retirees would be put at risk.

Under these circumstances, private retirees may have to make preparations early. Whatever pension they would receive from the SSS should only supplement their retirement funds.

Financial planners advise that preparations for retirement should commence on the first day of a person’s gainful employment.

Some actuarial studies recommend an 80:20 ratio in the disposition of an employee’s wages, i.e., 80 percent shall be applied to personal or household expenses, and the remaining 20 percent shall be set aside for savings.

Depending on the employee’s financial literacy, the savings can be deposited in savings accounts or invested in collective investment funds.

In a manner of speaking, under this scheme, the employee should first pay himself or herself the 20 percent and make an effort to live with the 80 percent for the rest of the payroll period.

Considering the present high cost of living and the strong influence of social media and commercial advertisements on Filipinos’ spending habits, it would take a lot of discipline for private employees, in particular the millennials, to observe the 80:20 wage management ratio.

But the sacrifice has to be made because failure to do so could result in unpleasant financial consequences in the future. As the saying goes, you reap what you sow.