Retirement planning entails making financial plans and managing your resources in order to prepare for life when you stop working. It entails determining how much money you’ll need when you retire and how you’ll save and invest to meet that objective.
Why should a young person develop a retirement plan? Because life is a gamble.
You never know how long you’ll live or whether you’ll have enough money to live comfortably when you retire. That danger is reduced by planning for retirement.
To effectively plan your retirement, you must consider not just the financial aspects of your retirement, but also all areas of living in your golden years:
When do you want to retire?
- How much money will you need in retirement?
- Where your retirement income will come from
- Where you’ll retire
- The lifestyle you want to maintain in your retirement years
- How you’ll build your retirement fund
- Long-term healthcare plans
- How you’ll manage and protect your assets before and after death
How much money should you save aside for retirement each month?
Starting in your early 20s, financial experts recommend saving 10% to 15% of your salary for retirement. This is the best situation. However, not everyone starts saving for retirement at the age of 20.
If you begin saving in your 40s or 50s, 10% of your income will never be adequate because you would have very little time to save before retirement. When you start later in life, the percentage of retirement savings must be higher.
If you start saving at age 40, you’ll need to save 24% of your salary, and if you start at age 50, you’ll need to save nearly 50% of your income. Use MSN Money’s online retirement savings calculator for a simpler calculation.
Assume you’re 25 years old and make Php 25,000 each month. You plan to retire at the age of 60 and live until the age of 70. (the average life expectancy in the Philippines based on the latest World Health Organization data).
Experts estimate that one’s annual income after retirement will be 70% to 80% of one’s current annual income. With a yearly salary of Php 240,000 and a 5% investment return, you’ll need to set aside Php 20,518 per year (around Php 1,700 monthly).
There are three stages to retirement planning.
It takes a long time to plan for retirement. It resembles a marathon rather than a sprint. Take things slowly, preferably as soon as feasible, to guarantee that your savings will outlast your post-retirement living expenditures, not the other way around.
At each stage of your life, you will have a different approach to retirement planning. In your 50s, your income, expenses, and financial situation will be different from when you were younger. It should adapt to the various stages of your life for successful retirement planning.
This is the best time to start thinking about retirement. You’re starting your career in your early 20s to mid-30s with very little money to save and invest.
Because you’re just starting to save for retirement, there’s not a lot of pressure right now. Your greatest benefit as a young adult, though, is the amount of time you have to develop your money before retiring.
Compound interest works like this: what you invest today will grow exponentially over time. The earlier you start investing (even if it’s a modest amount), the more money you’ll have in retirement.
As a result, concentrate on saving and investing as much as possible. The optimum time to invest actively in long-term, medium-risk to high-risk products like mutual funds, real estate, and equities is during the first stage of retirement planning.
Even if they’re earning more than when they were younger, folks in their early midlife confront difficult financial challenges, from raising a family to paying off their mortgage.
Regardless of financial setbacks in your late 30s to early 50s, it’s critical to continue saving for retirement. Yes, even if paying off bills or sending your children to school is your top priority right now.
You still have time to expand your savings at this point of retirement preparation. You’ll also have additional information to assess your finances and determine whether you’re on pace to meet your retirement savings goals.
Don’t forget to buy life insurance and develop an emergency fund so that whatever happens, you and your family can exist without draining your retirement fund.
You have a better understanding of how much you’ve saved and how much you’ll truly need to pay your post-retirement living expenditures now that you’re less than 10 years away from retiring.
You should have paid off big bills such as your children’s college tuition, your home mortgage, and other debts by this point, providing you with more spare income to save.
The final part of retirement preparation should focus on ensuring that your funds are in order. For capital preservation, you should put your money in conservative, low-risk investments like savings accounts, term deposits, and money market accounts.
Consider putting money aside for long-term healthcare expenses like hiring a caretaker and purchasing maintenance medications.
Ways to Start a Retirement FundConsider putting money aside for long-term healthcare expenses like hiring a caretaker and purchasing maintenance medications.
- VUL Insurance
- Personal Equity and Retirement Account (PERA)
- Mutual Funds / UITFs
- Blue-Chip Stocks
- Real estate
Tips for Increasing Your Retirement Savings
- Make a plan for your retirement and stick to it.
- Start saving now
- Make your savings automatic.
- Increase your revenue streams.
- When you earn more, you can save more.
- Save up for emergencies
- Invest in insurance to safeguard your finances.
- Diversify your investments
- If you’re just getting started, be bold with your investments.
- If you’re a late starter, stay away from high-risk ventures.
It takes a proactive way to reach your retirement goals. The sooner you begin planning for retirement, the better off you will be in the future.
There are literally dozens of ways available to assist you make the most of the next 25 years or more if you are approaching retirement.
Retirement planning is an important aspect of your overall financial health. Helping yourself to clarify your expenses, prioritize your goals, and construct an asset strategy that will support a long and fruitful retirement by working together.