How much income is needed in retirement? | Inquirer Business
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How much income is needed in retirement?

Question: I just reached midlife. And while I do not have any midlife crisis, my reaching this point made me think of planning for my retirement. How should I go about it?

Answer: I have a barber, with whom I share first names and the love for guitar playing. Being my barber for 20 years made him so accustomed to my hairstyle that he would know what to do the moment I sat on his barber’s chair. If I felt chatty, he would engage me in light conversation. If I were quiet, he, too, would just quietly cut my hair, meticulously trimming the edges so that everything was perfect. He even used his precious supply of Old Spice on me after every haircut. It reminded me of my childhood days when I would stealthily splash some of that aftershave lotion from my Papa’s stash.


Alas, my barber finally retired. He actually should have retired a long time ago as he was already more than 70 years old. His two single daughters, both of whom he worked hard to send to school and who are now occupying positions of authority in private corporations told him years before to already retire. They promised to just take care of him. But he would have none of that. “What would I do after I retired?” was always his query. He was content with living the simple life of a barber and getting wind of the latest news from his customers.

From the time we were toddlers, we have always longed for validation. That desire for validation, for knowing that we still have worth to society, is all the more important in retirement. And what better way to earn that validation than to still work; to be paid a fair and perhaps even just a modest compensation for being useful to others?


When our company, the Personal Finance Advisers Philippines Corp. or PFA conducts comprehensive financial planning sessions, we always ask our clients at what age they plan to slow down workwise instead of asking them when they plan to retire. And the amount of income from that work in retirement needs to be much less than what our clients’ preretirement pay was in order to show that they had indeed slowed down.

The question is, of course, how much of retirement income is exactly needed. There is the 75-percent rule, which states that to enjoy the same lifestyle in retirement as with preretirement, a person needs to earn at least 75 percent of his preretirement income when he retires. Another rule, this time on the period of retirement preparation, is the 20:20 rule. This rule states that if a person wants to enjoy a 20-year retirement period, he should start saving 20 years before his retirement age. However, the 20:20 rule does not take into consideration the impact of both inflation and investment returns.

In truth, there is no hard and fast rule.

In retirement planning, the starting amount of retirement funds, periodic savings, private sector lump sum retirement pay and/or pension, government-sponsored pension, investment returns and the future cost of the desired retirement lifestyle all play important roles. But in the end, it is the combination of all factors that is acceptable to you that will determine the kind of retirement you can enjoy.

What is truly needed is to do strategic planning first, just like any sensible business owner would do. Investing or buying an investment product right away is already executing a plan. But how can you execute a plan if there was no plan to begin with?

Once the planning is done and you are about to execute, instead of asking if an investment is good, you should ask what good an investment can do for you. In other words, will the investment be able to provide you with the target net return or yield as tempered by your risk preference that was derived in your plan?

You can tailor-fit the amount of income you will need in retirement through planning. And the sooner you do it, the better. INQ


This was asked at “Ask a Friend, Ask Efren” free service at, SMS, Viber, Twitter, LinkedIn, WhatsApp, Instagram and Facebook.

Efren Ll. Cruz is a registered financial planner and director of RFP® Philippines, seasoned investment adviser, bestselling author of personal finance books in the Philippines and a YAMAN Coach™. To consult with a YAMAN Coach, email [email protected] To learn more about personal financial planning, attend the 96th RFP Program this June 2022. To inquire, email [email protected] or text at 0917-6248110.

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