Tuesday, September 19, 2006
7 Steps to Retire with Money not in Poverty
I was deeply hurt when I read a friend’s blog that he will die broke and sad. Honestly he mentioned that he is not good in handling money and he was not trained to save. Statistically he belongs to the more than 90% of Filipinos who do not plan for the long term financially. The uncertainties of job loss, double digit inflation and changes in the economic policies are not enough to scare us to save for the rainy days. Why is it that our mentality is like these? Is Colayco right that the education system is a failure on teaching about money management and personal finance? Judging from the many who rely only on SSS or GSIS pension there is indeed a failure. Why will you rely on the government pension alone when you don’t even know that they will be there when you retire.
Many of people that I know, from the corporate and the academe, are likely to delay planning for retirement until a few years prior to it. When they reach 50 or 55 years old, they began to panic and suddenly realized that leaving their workplace is now around the corner.
Some reason out that they are not saving money right now because they are young and have more pressing concern such as buying a house, a car or a cellphone. However, the longer you put off preparing for the years when you are no longer working, the less likely it is that you will have enough during retirement. This is because at 50 or 55 years old you will have less time to accumulate what you need.
Since I belong to the tribe of positive thinkers and do-gooders, I rather propose to you steps to retire with money rather that sit in my comfort zone and see good people die broke, sad and even angry.
Here are the steps:
1. Life Insurance. In my case I go only for the term insurance and I selected Insular Life because it is a mutual fund and belong to the top 3 in the insurance industry. The term insurance is less expensive, my P200,000 coverage require me to pay only P2,600 annually. I need life insurance to make sure that my wife and children will have money if I die suddenly. You try to browse all personal finance website and they will tell you, coerce you and convince you that getting a life insurance is a must.
2. Private Pension Plan. When I say private pension plan, I do not mean the pension plan offered by pre-need companies. If a person from a pre-need company offer you a pension plan, I advised you to run literally!. The pre-need is in the melt-down stage. If you were born from Mars maybe you are not aware yet that CAP, Professional and their likes can not meet the payment due to their policy holders. While waiting on their toes to be burn in hell slowly explore the private pension plan offered by top insurance company. In my case I bought an endowment plan from Insular and you may get your own from Sunlife.
3. Save 10% of your gross income for your emergency fund. You will save this in an ATM account of your choice. You have to exert effort to save at least 3 months of your gross monthly salary(i.e. if your salary is P15,000 you need to save P45,000). This emergency fund will be your source for sudden sickness, accident and other emergency expenses.
4. Save 10% of your gross income for your investment fund. This is somewhat tricky for those without a background. For an expert you know that stocks will be the primary choice. For the neophyte, it’s the mutual fund. There are lots of mutual funds in the Philippines but you should be careful on choosing it. The first thing that you need to do in order for you to be aware is to read the Businessworld newspaper and see the list of mutual funds. Choose only mutual funds that offer the best return of yield. Your benchmark should be 20%. In my case, I parked my money to First Metro Equity Fund but there are others who performed also well like ATR Kim Eng and Philippine Equity Fund. You have to read properly their prospectus before investing.
5. Eliminate debt. You know why CITIBANK convince you to get their credit card? Because they earn from you. Your face is profit to them. In return you will be a slave in their interest. The best thing to do is to throw the plastic and pay in cash. Avoid debt at all cost so that you will have enough money to invest.
6. Take good care of yourself. eat right, begin walking or join a gym, keep balance in your life. You can not save nor invest if you are always lying in the hospital every month and munching their expensive medicines. Do I need to say more?.
7. Own a business and buy real estate. Please don’t plunge unless you are prepared to face the risk. Though there is saying that the higher the risk , the higher the returns it is better to do your homework first before burning your money.
When we follow the above steps we are indeed on the road to enjoy our retirement.
Arnel L. Cadeliña
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