6 things to do right now to retire

Lianne Martha Maiquez Laroya

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Who said retirement planning is for seniors only? 20-somethings can plan ahead too

RETIREMENT AT 20? It's never too early to prepare

MANILA, Philippines – For 20-somethings like us, retirement may be the last thing on our minds. After all, with all our concerns with attending the hippest events, wearing the trendiest clothes, and purchasing the coolest gadgets, who has the time, energy, and money left for it?

In a way, retirement planning reminds you of your drunk uncle during your recent family reunion – you can’t understand what he’s saying, you avoid him to the best of your abilities, and you don’t really want to deal with him right now. Right?

What if I told you that you can tackle retirement planning now without feeling all anxious, nauseated, and confused? What if – instead of your drunk uncle – you can actually think of retirement like your nice ninang who often gives you gifts, tells you helpful pieces of advice, and makes you feel good about yourself?

Retirement planning doesn’t need to be complicated or complex. It can be easy and enjoyable for you too, if you start dealing with it right away. Start tackling it step by step by doing these 6 helpful things:

1. R – efrain from incurring consumer debt.

Quick activity: Cut your credit cards in half. Literally. Use scissors (or your kitchen knife, if you really want to feel the joy of ripping your debts into pieces).

Credit cards are great tools, if you consistently pay the full balance every month. However, if you can’t do this, you’re better off without them. After all, which would you rather choose: paying high-interest credit card rates or receiving high-interest returns on your retirement investments?

Come on, you know you’re better than that.

2. E – nsure that your emergency fund is filled out.

Quick activity: Set up automated bank transfers from your salary account to your emergency fund account.

Next to paying your high-interest debt or preventing yourself from incurring it is building your emergency fund. It’s 3-6 months’ worth of your expenses, remember?

Because we’re 20-somethings, this also translates to the fact that we’re not that friendly toward savings yet. How do we solve this problem? We leave the saving part automatically to our bank’s system. You can either apply for an automated saving system offered by your bank or talk to your bank representative regarding this.

3. T – rack your current earnings and derive a target retirement amount from it.

Quick activity: List down your annual gross income and expected annual expenses upon retirement.

Oh, gosh, it’s Math! Quick, give me a tissue for my nosebleed!

Let’s assume the following figures for this formula:
– Your Age = 25 years old
– Your Retirement Age = 55 years old
– Your Gross Annual Income (value today) = P 144,000.00
– Your 1st year of Retirement Expenses (value today) = P 240,000.00
– Your 1st year of Retirement Expenses (with 3% inflation rate) = P 582,542.99

Don’t panic – you can actually compute your retirement amount by applying this short, simple and sweet formula:

Rule of 25 
Get your estimated 1st year of Retirement Expenses: You’d need P 240,000.00 per year today.
Adjust to inflation: You’d need P582,542.99 per year 30 years from now.
Multiply by 25: P582,542.99 x 25 = P14,563,574.75

This means you’d need to have P14,563,574.75 so that you can retire comfortably and spend P582,542.99 every year for 25 years.

Let’s use another scenario. Let’s say you want to live a simple retirement life instead:

– Your Age = 25 years old
– Your Retirement Age = 55 years old
– Your Gross Annual Income (value today) = P144,000.00
– Your 1st year of Retirement Expenses (value today) = P180,000.00
– Your 1st year of Retirement Expenses (with 3% inflation rate) = P582,542.99

Rule of 25
Get your estimated 1st year of Retirement Expenses: You’d need P180,000.00 per year today.
Adjust to inflation: You’d need P436,907.24 per year, 30 years from now.
Multiply by 25: P436,907.24 x 25 = P 10,922,681

This means you’d need to save P14,563,574.75 so that you can retire comfortably and spend P436,907.24 every year for 25 years.

Shocking, right?

Still with me?

Don’t be discouraged – you’re working on your retirement right now, remember?

4. I – nsure yourself against life’s uncertainties.

Quick activity: Shop around for health insurance and life insurance right now.

A PhilHealth membership is a great start, but it’d be better if you availed yourself of additional health insurance too.

Get term life insurance.

5. R – ide the bull; hug the bear.

Quick activity: Determine which investment fund is right for you.

The simplest formula?

100 – your age = % to be put toward stocks

If you’re 25 years old, 75% should be put toward stocks and equities. The remaining 25% can stay in lower risk investments like time deposits, bonds, and money market.

6. E – stablish an investment fund.

Quick activity: Once you’ve already filled out your emergency fund, fill out an investment fund by automatically transferring money from your salary account to your investment fund account.

You can start investing for as low as P1,000 per month. Most banks in the Philippines now offer this kind of arrangement.

Most people spoil themselves by buying clothes that celebrities wear, eating food that gourmet chefs cook and dating Brad Pitt-look-alikes who are only after their money.

You’re different from them.

You spoil yourself by buying simple clothes (you’re attractive just the way you are!), eating delicious foods (taste is subjective), and dating Daniel Padilla-look-alikes who love you for who you are.

Most of all, you spoil yourself by buying a little piece of financial freedom every month.

Right now, you’re working for money.

Tomorrow, your money should be working for you. – Rappler.com

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Lianne Laroya

Lianne Martha M. Laroya believes in better days and enlightening experiences. She founded The Wise Living to educate fellow 20-somethings on money management and early investing without boring them to girly tears. She loves to hear from you. Connect with her now on Twitter!

Girl floating in ocean photo by Vibrant Image Studio from Shutterstock

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