Ariel Cantos

What retirees regret most

MANY retirement experts use the 80 percent rule to calculate how much to save for retirement. They say that your retirement income should be at least 80 percent of your pre-retirement income. If your annual income is P2,400,000 prior to retirement, then 80 percent of that, P1,920,000, is your target retirement income. To determine how much funds are needed to generate that yearly amount, the 4 percent rule can then be applied. In this case, divide the P1,920,000 by 4 percent and the resulting P48,000,000 is the amount you need to save for retirement. With certain assumptions under the 4 percent rule, the fund is estimated to last for about 25 years.

Fidelity Investments, on the other hand, proposes an age-based savings target, a multiple of income, to help achieve a comfortable retirement. For age 60, the recommended savings is equal to 8 times annual income. If earning P5,000,000 at age 60, one should have at least P40,000,000 in savings to support retirement. For age 67, the multiple to annual income is 10 times.

The two above are a good starting point for retirement planning. However, exactly how much is needed to save depends on one’s unique situation, lifestyle, life expectancy, health status and aspirations. How much you need to save is really a moving target and therefore, it is best to be more knowledgeable about it and get expert advice.

In the 2015 East Asia Retirement Survey, it is stated that 90 percent of Filipino workers are very concerned that the amount they will have for retirement will not be enough. The same report mentioned that Filipinos only save 3.6 months’ worth of income for retirement which is below the Asian average of 2.9 years and much lower than the 8 times annual income proposed by Fidelity Investments. This is worrying since, according to the PSA, only 20 percent of senior citizens have mandatory pensions like SSS and GSIS, and the amount may not be sufficient depending on need, lifestyle and health status.

We are not alone though on this concern about retirement savings. A Bank of Thailand 2022 survey said that 75 percent of Thais may be unable to afford retirement. In Singapore, a report by OCBC last November noted that close to 60 percent of Singaporeans say they are not on track with their retirement plans. Even in the US, a recent Bankrate survey showed that 55 percent of Americans are behind on savings for retirement.

An Allspring 2022 Global Investments’ retirement study reveals that the biggest regret of retirees is that they did not start saving early. A survey conducted by Consumer Affairs in the US showed the same result, that the top regret of retirees is not saving early for retirement.

Saving early allows you to grow your money over time and faster through compounding where interest is earned from both principal and interest. If you start saving at age 25 to accumulate P25,000,000 when you reach age 65, you can set aside P13,000 monthly at 6 percent interest. By starting early, the amount of interest earned, P18,710,000, will be greater than your total principal, P6,290,000. If you delay and begin to save only by age 45, you need to save a much higher amount of P55,000 monthly to achieve your goal.

There are many barriers to saving early for retirement. First, it is something that will happen far out into the future and hence, convenient to put aside. Second, there are urgent financial needs to address. Third, major life events, like critical illness or death in the family, can derail a financial plan. Fourth, lack of financial literacy and discipline. Fifth, expenses exceed income.

Not saving early results in not having enough for retirement. Consequently, the quality of life suffers. Inflation, medical costs, fluctuating investment income, and longer life expectancy require an even bigger retirement fund to sustain the desired lifestyle.

With savings falling short, the dream retirement remains just a dream. No peace of mind and comfort, no trips to fancied destinations, no hobbies to pursue, no friends and family to visit. On top of these, there is constant fear that funds will run out and they become a burden to others.

The problem with retirement is that it is out of sight, out of mind. There are plentiful materials about retirement. Listening or reading them can help create awareness and interest to inspire you to begin saving early. Forming a savings habit by starting small and using an auto-saving facility are a convenient way to jump-start your journey. Once the discipline is developed, you can increase your savings as income goes up. Regularly reviewing your progress and getting expert advice will ensure that you not only start early, but reach your goal.

Regrets come later. It is indeed challenging to balance many competing financial priorities. But this lesson from retirees will help us avoid committing the same mistake. It is never too early to save for retirement.

Ariel “Aibee” G. Cantos is a former president and CEO of AIA-Philam Life and of BPI Philam Assurance Company. He was also the president of the Philippine Life Insurance Association. He is an advocate of retirement planning, personal leadership, gender diversity and inclusion.

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