How much do you really to retire and enjoy the fruits of your hard work all your life? The answer may be a bit complicated as there are several factors and variables that you need to consider when computing or estimating it.
Before reaching that retirement goal, factors such as your financial capacity to save, knowledge of investment options, and your target year to retire should be considered.
Our lead trainer at Angat Pilinas Coalition for Financial Literacy, Alvin Tabañag, will show us the faster way to estimate the required amount of moolah for a retirement fund in this guest post today.
*ENROL NOW for the Internet Business Master Class (IBMC)! Book a slot NOW to learn how to earn 5 to 6 digits through the Internet Business Master Class (IBMC)! Enrollment is until June 30, FRIDAY only and we won’t have an extension this time. The class will start on Sunday, July 2. CLICK HERE to enrol!
Several months back I asked a group of aspiring financial planners to estimate how much a client will need for his retirement given certain assumptions. The answers I got ranged from P6 Million to more than P30 Million when the correct amount is only about P16M. The wide variation in calculated amounts stemmed from the inaccurate application of the formulas.
If these guys can get it wrong the first the time around, imagine how much more difficult it will be for the average Filipino to have a fairly accurate estimate of how much is needed to retire comfortably. There are a number of quick methods or simple rules for estimating required funds, like targeting an amount that will replace 50% to 75% of your pre-retirement income. Unfortunately, these quick methods and rules have significant weaknesses which results in estimates that are not quite accurate. That’s why I don’t use them. Instead, I made my own retirement fund calculator.
To effectively use the calculator will require some explanation. Since I don’t want to bore you with that, I just made a table, partially derived from the calculator, where you can simply look up the funds you will need for your retirement. (You can view a bigger version of the tables at www.pinoysmartsavers.com/table1-2.jpg)
Take note of the assumptions I made in creating the tables. There are three important variables here: inflation rate, length of retirement, and the growth of your money during retirement.
Inflation is the rate of increase of prices of goods and services. Length of retirement simply means how many more years you will live after you retire. Growth of money during retirement is how much the unused portion of your retirement funds will earn every year after you retire. Changing any of the variables will result in an increase or decrease of the estimated retirement fund.
(Boost your retirement treasure chest by learning how to earn online through selling digital products! Click here for your FREE guide!)
Compare Tables 1 and 2. The difference between the two is the length of retirement: 20 vs.15 years.
Notice that if you live longer in retirement (Table 1) you will need a bigger amount. (If you don’t want to be burdened with saving for a bigger amount, one of your options is to die sooner.)
Higher inflation rate will also result in a higher required retirement fund. A high rate of growth (meaning your money earns more) will result in a lower required retirement fund.
If your estimated monthly expense should you retire today, say P75,000, is not found in the table, just add the required retirement funds for two listed amounts. For example, if you still have 10 years before you retire and your estimated monthly expenses today is P75,000 then your required retirement fund based on Table 1 will be P22,368,324, which was derived by adding P14,912,216 (for P50,000) and P7,456,108 (for P25,000). You need to have a fairly good estimate of your monthly expenses if you retire today.
You simply can’t use your current budget because it includes the following:
– items you will not longer spend on when you are retired (e.g. education-related expense)
– items that will increase in retirement (e.g. travel and recreation, medicine)
– items that will decrease in retirement (e.g. life insurance premiums)
You have to make the appropriate adjustments to your present budget so that it will be more accurate. But that’s for other article.
So, check out the tables and see if you can afford to save for the funds you need to have an enjoyable and financially hassle-free retirement. My next post will show you how much you need to save every month from now until you retire to reach your target retirement fund.
As usual I would like to end this piece with some words of wisdom from my good friend:
“Huwag magkunwaring mayaman, kung hindi ka naman totoong mayaman.” – Tata Binoy
Learn more about practical and effective strategies to prepare well for your retirement at the:
“How to Plan for a Comfortable and Worry-Free Retirement” Seminar
August 27, 2014 (Wednesday), 8:00am – 5:00pm
New Horizon Hotel, Mandaluyong City
Alvin T. Tabañag is a personal money management coach and a Registered Financial Planner®. He is a member of the RFP Institute and the Financial Planning Association (USA). He established Pinoy Smart Savers Learning Center to spread a culture of saving among Filipinos through practical financial education. Alvin regularly conducts seminars on money management to a broad range of audience; from low-income wage earners to middle-class workers, professionals and business owners.
P.S. 1. Are you an OFW who’s been looking for a investment placement where your money could grow higher than your time deposit accounts? Are you outside of Metro Manila and would like to start investing in mutual funds but have no personal advisors to help you out? Click here so I can help you open a mutual fund account NOW! .
P.S. 2. Bro. Bo Sanchez has appointed me as a coach for our young and new investors at the TrulyRichClub social site. It’s a fun, learning family with the purpose of “helping good people become rich”. I’m inviting you to join the TrulyRichClub too and email me at firstname.lastname@example.org if you have any questions. Click here to join!
P.S. 3. My co-author/illustrator Des Feliciano and I have just launched our “The Adventures of Pepot Kuripot and Dora Gastadora” comic book! It’s arguably the first and only personal finance-influenced comic book in the Philippines. Order your copy now from our website http://pepotanddora.com and have it delivered right at your doorstep. Or you can grab your copy yourself at The Pantry at 07 in Makati City and ilovemilktea in Las Pinas City. Now available also in Australia, Saudi Arabia, and the USA! Email email@example.com for more details.
P.S. 4. If you are based abroad or just outside of Metro Manila and has been itching to learn more on how to jumpstart your business dreams, join me and my friend, serial entrepreneur Ginger Arboleda, as we take you through a series 2-hour webinars (for 11 Saturdays) that will help you focus on the technical skills and specific things that you have always wanted to know about in order to grow your business. We have come up with 10 sessions with 11 expert lecturers (with 1 FREE session if you enroll in the full program) that will make you a stronger and better entrepreneur. Register here to join the Enter Entrepreneurship Webinar Program now!
P.S. 6. We will be visiting public schools in Nueva Vizcaya, Davao, Batangas, Rizal, Pangasinan, Iloilo, Cebu, Cagayan de Oro, and the Pag-asa Island in the Kalayaan Group of Islands in the West Philippine Sea to help spread the good news of financial literacy. We are also looking for “student interns/OJT’s” based in Metro Manila and nearby provinces. If you are interested to offer your time, wisdom, and resources to our Filipino students, please join us. Email angatpilipinasFL@gmail.com or firstname.lastname@example.org or go here to sign up and volunteer. Angat Pilipinas!
More from my site