Save for retirement

It’s unfortunate that many Filipinos seem to have very little interest when it comes to planning for retirement. This was evident in the results of a survey disclosed last week by Bangko Sentral ng Pilipinas Governor Benjamin Diokno, who noted that Filipinos are among the most poorly prepared in the region for the financial challenges of retirement.

Latest data from the Philippine Statistics Authority showed that of the 7.6 million Filipinos aged 60 years old and above, only 20 percent were covered by either the Social Security System or the Government Service Insurance System, leaving four out of every five senior citizens with no mandatory pension at all. For those covered, government employees are luckier in that they get an average monthly pension of P18,525 from GSIS, compared to SSS pensioners who receive a measly P5,123 a month. “Depending on the lifestyle you would like to have in your senior years, this pension may or may not be enough to meet all your needs,” said Diokno.

The regional survey cited by Diokno found that Filipinos set aside only 3.6 months’ worth of income for retirement — way below the regional average of 2.9 years. Filipinos also believed that savings equivalent to only 2.1 years’ worth of personal income would be enough to sustain them in their old age. This was the lowest compared with the regional average of 12 years.

Diokno’s discussion of these numbers was in line with the BSP’s push for a program to get more Filipinos to save for their sunset years. The digital Personal Equity and Retirement Accounts (Pera) initiative aims to entice more citizens to take advantage of what Diokno called an “underutilized” law, because “voluntary retirement savings plans such as Pera are crucial in supplementing the state-based pension plans to meet retirement needs.”

As reported in this paper, Pera “will allow Filipinos to make pension plan investments through their mobile phones, with the digitalization process allowing Pera-accredited banks and financial institutions to provide convenient and affordable retirement saving products to more investors through more efficient channels.”

“Under Pera, contributions within a calendar year, up to a maximum of P100,000 for local residents or P200,000 for expatriate Filipinos, shall be entitled to a tax credit of 5 percent, which may be used against income tax liabilities or, in the case of overseas Filipino workers, against any national internal revenue tax liability.

“Investment income from Pera investments are also exempt from taxes on investment income.”

The main objective of saving for the future is to have more independence and control over one’s life down the road. Without a regular-paying job, retirees need to have a steady and adequate source of funds to meet their expenses, which can balloon because of health complications brought on by advancing age. Depending on the unstinting support of one’s children or relatives is, in many cases, not a sustainable arrangement.

In this country, however, social security alone has never been an adequate source of retirement income. A 25-year-old employee earning P50,000 a month today can expect only about P14,000 in monthly pension from SSS when he or she retires at the age of 60. This will not be enough considering inflation at the time of retirement in 2055.

The government and the private sector clearly need to embark on a serious, vigorous effort to instill in Filipinos the importance of saving up both for the rainy days and for retirement. The single most important advice financial planners can give is to start saving early. Many people in their 20s think that planning for something that is at least 40 years away is unimportant, and a waste of funds at this time. But the younger one is, the more time he or she will have for this crucial investment to grow.

Saving is one side of the equation, and expenditure is the other. The second most important advice one should hear from financial advisers is that we should live within our means and control our spending today if we are to ensure a comfortable retirement life tomorrow. If a 25-year-old employee is able to save P5,000 a month conscientiously, he or she can expect a minimum lump sum of P5 million upon retiring at age 60.

This amount may also grow if one is to tap professional fund managers to handle one’s savings. As a general rule, it is advisable to invest in a mix of stocks, bonds, and mutual funds, especially if these are to be untouched for at least 20 years. Such a balanced portfolio can weather the down cycles of financial markets.

There is nothing one can do about getting old and eventually retiring. However, people can control the ways and means of being able to save starting today, to at least be ready to live a stable, comfortable life in retirement. Again: Start early.