The biggest retirement mistake

Retirement, for many people, does not entail a happy ending. All too often, retirees wind up with less than what they're expecting – if they do get anything at all

Most of us dream of the day when we get to finally stop working and enjoy the remaining days of our lives lounging in our homes without any financial obligations.

After all, our pension and company retirement funds are supposed to let us live our remaining years in comfort. At least that’s how we paint our retirement, right?

Unfortunately, retirement, for many people, does not entail a happy ending. All too often, retirees wind up with less than what they’re expecting – if they do get anything at all.

Think about it, when was the last time you heard someone say that his or her SSS pension was sufficient? Despite decades’ worth of contributions, our pension usually falls short of our actual retirement costs. At 4% inflation, your P65,000 monthly expenses today will amount to P280,000 in 30 years. That’s more than quadruple the original amount. No wonder only 3 out of 100 Filipinos can afford to retire.

Now, say, you build a nest egg, live on the interest, your pension or children’s money, by the time you hit your senior years, there is one mistake you should avoid – give up all of your active income.

Active income refers to income derived from labor. We work for this type of income. In contrast, passive income refers to income earned from investments.
Giving up all of your active income is detrimental. Your passive income may not be sufficient to cover your monthly expenses. In the example above, the P280,000 monthly expenses require a principal of P40 million invested at an 8% per annum return. Most Filipinos do not retire with this much, not even close to a tenth of that amount.

Worse, without active income, you see your retirement funds dwindle bit by bit, and you don’t have a way to replace them. Some retirees become desperate and look for high-yielding investments. When they become too aggressive, they invest in just anything that they think can sustain their lifestyle. They invest in scams. It’s no surprise that some retirees fall prey to pyramiding schemes. Remember: the bigger the return, the bigger the risk.

This is why I highly recommended not giving up your active income completely. Retirement may be mandatory, but there are other ways to continue earning. For professionals, go into semi-retirement. For those previously employed, a consultancy job and a business are options. Do anything purposeful that will help you earn money. Continue pursuing active income to augment your passive income. Not the other way around.

You may use your passive income to fund your cost of living, and the active for fun and leisure.

When you plan for your retirement, don’t just focus on the amount you need to accumulate. Also think of ways to earn actively. With those two in check, retirement is more possible that we think. –


Kendrick Chua is a registered financial planner of RFP Philippines. He writes regularly about personal finance. He is also a Chinese language instructor, TV host, free runner and violinist. To learn more about RFP, you may email

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