A Simple Retirement Plan for Young Filipinos





One of the tenets of personal finance is retirement planning. Retirement planning is setting aside a fixed amount regularly with the hopes of it growing over time and benefiting from it upon one’s retirement. While retirement planning has always been in the minds of people in developed countries, it is a fairly new idea in our developing nation that has gained ground very recently. To most Filipinos, much like death, retirement is something that shouldn't be planned ahead. The accepted practice in this country is that parents, in their old age rely on their children heavily for financial support. While it is often a noble idea to rescue one’s parents from destitution, it puts a lot of stress on the children of these parents. I should know because I work in an office and I have heard a lot of stories wherein children pay for their parent’s past financial mistakes. To make matters worst, Filipino popular culture would always romanticize the idea of the hard working children helping their impoverished parents.

I read somewhere that the current generation is supporting three other generations, these are their grandparents, parents, and children. If you are one of them, there is something that you can do to make sure that your children will not be in the same bondage that you are currently in.

While there is nothing that we can do anymore if our parents are already old and impoverished but to help them, there is something that we can do to stop the cycle and make sure that this practice will stop with our generation.

Starting young is very important because it will give your money time to grow. Starting to save for retirement in your 40s or 50s will mean that you will have to set aside a bigger amount regularly because of the limited time that you have for your money to grow.

The first thing to do is determine your goal. It is important that you have a goal amount in mind so that you can determine how much to set aside each month for your retirement. If you can’t come up with a goal right now, you may alternatively, set aside a percentage of your monthly salary for your retirement in the meantime.

READ: 12 Tips on How to Save Money

If you’re wondering where to put the money you are setting aside for retirement, I recommend that you place it in BPI’s Investment Funds or UITFs. BPI has a lot of investment fund products available. What I suggest for you to invest in is their Philippine High Dividend Equity Fund or Philippine Equity Index Fund. The Philippine High Dividend Equity Fund invests in stocks like PLDT and Meralco, which give high dividends while the Philippine Equity Index Fund invests in the 30 biggest companies in the Philippine stock market.

Studies have shown that investing in the stock market for a long time will give you big returns. Don’t even think of putting your retirement money in time deposits and other low-yielding but safe instruments. Don’t forgo the potential for big gains for safety. Remember that inflation rate in this country is more or less 5% every year; that means goods and services that cost a hundred pesos today will not stay at that price a year from now.

Some of you may be concerned about losing money in the stock market. If you are investing for retirement, I assume that you won’t be needing your retirement money for the next 30 years or so, so if the stock market crashes tomorrow, don’t worry about it, because again, you don’t need the money yet. I am almost sure that you will at one point or another experience paper loss, but don’t worry about it, because unless you sell or redeem shares at a loss, the paper loss will never be realized and will remain to be on paper.

You might be wondering why I recommended BPI’s Investment Funds for retirement investing, and no they did not pay me to do that, the reason is CONVENIENCE. If you have a BPI Express online account, you can add to your investments online and the amount that you wish to invest will simply be debited from your savings account. Since you will regularly be investing, it would be a hassle to go to the bank every payday just to add to your investment. You may also invest in stocks directly through online brokers such as COL; just make sure to invest ONLY in the stocks of the 30 biggest companies in the Philippine Stock Market. Of course, you can also look at other options like the Stock UITFs of other banks like the BDO Equity Fund, and the Metrobank Equity Fund.

Take a look at the illustration below.


Yearly investment is the amount of money you put in every year***
Gains Per year is the amount of money you earn per year***
Year End Balance is the amount of money that you have at the end of each year***


***CAVEAT! Note that the table above is just for illustration purposes. Investing in UITFS that invest in stocks will not give you a guaranteed return of 15% every year.

This means that if you invest a thousand pesos every month or twelve thousand pesos every year for the next thirty years, ASSUMING your investment grows at an average rate of 15% a year, you will POTENTIALLY have a total of 5,216,941.76 pesos in 30 years. This is the magic of compounding. In this scenario, you shall have saved only 360,000 pesos over a thirty year period. That is a whopping increase of more than 1000%!

It is still important to have a specific goal, a number that you should target. This will make sure that you know how much exactly to save every month for your retirement. You’re not doomed yet though if you fail to attain your goal at retirement age, the goal is just there to guide you. Besides, retiring with some money stashed away beats retiring without money any day.

Some of you may be thinking that retirement planning is pointless when there are so many uncertainties in life, and you may not even be around to enjoy your retirement savings. While this is definitely true, it is scarier to wake up one day old, and without any retirement money. When you die and realize that there is an afterlife, do you really think that you will be feeling bad about the money you've left behind on Earth? Money belongs to this world only and will never concern you once you are no longer made of matter.

Maybe some of you are wondering if the stock market will outlive you and that you will indeed be able to get your retirement money when you decide to stop working. You’ll be happy to know that the Philippine Stock Exchange has existed since the 1920s (as the Manila Stock Exchange) and has survived events like World War II and Martial Law. Stock exchanges in other places like London and New York have existed since the 1700s.

While my parents supported their parents financially, they made sure that I won’t experience what they did. Today, I don’t have the burden of supporting my parents and I can tell you that the greatest gift adult children can receive is their parent’s financial independence. Please do not make your children your retirement fund. Act on your retirement plan NOW. Do it TODAY.

6 comments:

  1. there are alot of mutual funds available in the market, Sunlife Prosperity fund, Philam Life Money Tree or Philequity Fund that historically performs well that of BPI. If you are willing to invest i think the first thing to consider is the performance of the said company not just convenience its one of the reason not the main reason why you invest in that company.

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  2. There might be a mistake in your table. In the first year, you assumed an interest rate of 8% (954.19/12,000). In the 2nd year, you earned 12% (2,897 / 24,000). In the 3rd year, you earned 14%. That doesn't sound correct.

    Also a check using Excel's Future Value formula will only give you P1.360M assuming 30 years, 12k a year, and 8% per annum.

    You may want to double check how you did your table.

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  3. Hi Mayeth. Thanks for your comment. Those are all good options. I agree that you should consider both convenience and performance. It's really up to the individual which one to choose. :D

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  4. Hi Anonymous. Thanks for pointing that out. I've already corrected it.

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  5. Hi, I get it that your starting balance earned interest during the year. But how did you arrive at the year end balance?

    13800 + 1800 + 12000 is not 25,800
    29670 + 3870 + 12000 is not 41,670

    Can you explain a bit more?

    Also, why did you earn money between the year-end balance (Dec 31?) and the year start balance (Jan 1)? Isn't that just a one-day difference?

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  6. Hi anonymous,

    13800 is 12000 + the 1800 gains. 25800 is 12000 which is the money you put in every year plus the 12000 you put in last year + 1800 which is the money earned for the year.

    In the table, you put in 12000 at the start of the year and it earns 15% during the year.

    Again, the table is just for illustration purposes.

    I hope it is now clearer. Just post your questions here if you still have any.

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