Should millennials invest for retirement now?

Question: I’ve been reading many posts about retirement and they seem to be targeted to an older generation. I’m a millennial and I was wondering if I need to start preparing for retirement too given my young age? —Bruce via Facebook

Answer: Retirement planning is a critical aspect of financial well-being that should not be ignored by all of us, millennials included. With the changing landscape of pension systems and economic uncertainties, it is vital for this generation to take control of their financial future by starting to invest for retirement early. Let me share some reasons why your generation needs to prioritize investing for retirement and examine the benefits of initiating this journey sooner rather than later.

Longer life expectancy

Millennials in the Philippines have the advantage of a longer life expectancy compared with previous generations. While this is undoubtedly positive, it also means that you may spend more years in retirement. Starting to invest early allows you to accumulate a sufficient retirement fund that can sustain your lifestyle for an extended period. By taking action now, millennials can avoid potential financial strain in your later years.

Evolving pension systems

The traditional pension systems in the Philippines are undergoing significant changes. While the government provides a social security program, its adequacy and long-term sustainability are subjects of concern. Depending solely on this system for retirement income may not be sufficient. By investing in retirement vehicles such as the Personal Equity and Retirement Account, mutual funds, unit investment trust funds, bonds and real estate, millennials can supplement their social security benefits and build a more secure financial future.

Inflation and rising costs

The younger generation will be exposed to challenges of inflation and escalating living costs. As prices rise over time, the purchasing power of our savings diminishes. Investing for retirement offers a way to combat inflation and stay ahead of rising expenses. By allocating funds to investment vehicles that generate returns higher than inflation, you can ensure that your retirement nest egg retains its value and provides the necessary financial cushion.Embracing a growth mindset

Investing for retirement instills a growth mindset among the millennials. It encourages you to think long-term and develop a disciplined savings habit. By investing early, you gain valuable experience and knowledge about financial markets, risk management and wealth creation. This mindset shift empowers you to make informed decisions, seize opportunities and adapt to the ever-changing economic landscape.

Diversification and risk management

Investing provides millennials with the opportunity to diversify your portfolios and mitigate risks. Putting all your savings in traditional savings accounts or low-yield investments leaves you vulnerable to inflation and missed growth opportunities. By spreading your investments across various asset classes like stocks, bonds, mutual funds and real estate, millennials can reduce risk and potentially achieve higher returns over the long term.

Financial independence and security

Investing for retirement early offers you the prospect of financial independence and security. By creating a robust investment portfolio, you can aim to retire at an earlier age and enjoy the fruits of your labor. Moreover, investing can provide a safety net during unexpected events or emergencies. It grants you the freedom to pursue your passions, start a business or support your loved ones without financial constraints. It also grants you the power to have options!

As a millennial, there is a need to recognize the significance of investing for retirement at an early stage. With a longer life expectancy, evolving pension systems, inflation and rising costs, it is crucial for you to take charge of your financial future. By embracing a growth mindset, diversifying your investments and striving for financial independence, millennials can secure a stable and fulfilling retirement. Starting the journey now will provide you with the time needed to accumulate wealth, overcome economic uncertainties and live your desired lifestyle during your golden years.

Just a final reminder, when you are investing, never invest in something you do not understand, understand the risks involved and diversify your investments properly. Remember, there is no such thing as a perfect investment. INQ

Randell Tiongson is a registered financial planner of RFP Philippines. To learn more about personal financial planning, attend the 102nd RFP program this July 2023. To inquire, e-mail [email protected] or text 0917-6248110.