What do you want to be when you grow old?
MOST people recognize the need to plan for retirement. Various obstacles, though, prevent them from starting a plan. For instance, the monthly paycheck is just enough to cover basic and necessary expenses. There is zero left to save. When there is some excess, medical bills or emergencies can easily wipe it out. It is possible, too, that they are living beyond their means. Priorities also can be skewed toward short-term goals, leaving nothing for long-term goals, like saving for a comfortable retirement. But a major hindrance to creating a retirement plan is a lack of or limited knowledge. They simply do not know where or how to begin. As such, they never get started.
The first step is often the hardest. This article will talk about the first step to retirement planning. When we increase our know-how and muster the courage to take that first step, we put ourselves in a strong position to fully enjoy our golden years and not become financially dependent on family and on ayuda.
After the pandemic, we saw revenge travel. When we think of travel, the first thing we consider is where we go. That is, what is our dream destination? With so much beauty around us, the choices can be endless. However, for the trip to happen, we need first to decide where to go. Once we picked the place, we set aside the budget or devised a plan to save for it. The other steps will naturally follow.
We can take the same approach to retirement planning by first envisioning where we want to be when we retire. The first step is to visualize our dream lifestyle in retirement. “What do you want to be when you grow up?” This is a question posed to us when we were young. As adults, we should ask ourselves a similar question, “What do you want to be when you grow old?”
A Yogi Berra quote goes this way, “if you do not know where you are going, you might wind up someplace else.” That someplace else can be the opposite of what we have in mind, the farthest from what we expect. Most people think of retirement as that phase of life when they can freely do and enjoy what their hearts desire. This general and hazy view of retirement will not do. We need to create a more vivid picture of exactly what we want our life to be by then. We ought to paint more specifically what that enjoyment, fun, and less stressful life truly looks like.
For most working people, retirement is mandatory either at age 60 or 65. In some instances, they are forced to retire earlier due to retrenchment or poor health. Regardless, it is important to think about what kind of life you wish to enjoy when you stop working. What does a comfortable retirement look like for you? What is it not like? Where do you plan to stay? Will you do a lot of entertaining with family and friends? Will you be traveling often, relishing an active lifestyle? What hobbies and interests will you want to pursue? How will you foster social relationships? How else do you plan to use your free time to avoid getting bored? Do you plan to start a business or teach or take it easy? How will you keep your body and mind in good shape? What will give you a sense of purpose and meaning? What will assure you peace of mind? How do you imagine your normal day, your regular week, your usual month, and your typical year in retirement? How different is that from your parents?
Let us imagine that after some initial consideration, your desired future lifestyle looks somewhat like this. A comfortable life in retirement where your basic needs are sufficiently covered, with extra discretionary funds for hobbies, entertainment and whims; with adequate reserve for health care and emergencies; with an available budget for charity and for special projects; a fully paid house in a guarded community that is close to nature; weekly volunteer work in support of advocacy; weekly visits to grandchildren; monthly eat outs with family; quarterly gatherings with friends; local travel every six months and one foreign trip a year; and enrollment in a new course annually.
It is only after you have defined your retirement lifestyle that you take the next steps, which include, among others, when you plan to retire and how much that lifestyle will cost you by that time. Suppose you are now 45 and you plan to retire by 65. Let us assume that your preferred retirement lifestyle costs around P3 million a year at today’s prices. If you use an annual average inflation rate of 4 percent for the next 20 years, that dream lifestyle will cost around P6.5 million per annum by the time you retire, when you turn 65. If you feel that you will have 25 more years ahead, you may need a total fund of P162.5 million during your retirement years just by using a simple calculation.
Once you have calculated how much it will cost, you need to assess if the amount is realistic. Is it doable, given your current status and prospects for the future? If yes, then you can work out your savings and investment plan to achieve this number. It is a good idea to secure the services of a financial advisor to help you. On the other hand, if the figure is too ambitious, then you have to adjust your dream retirement lifestyle to a more attainable level.
Many presume that the first step to retirement planning is simply plucking a random number and designating it as the target retirement fund without regard to the quality of life wished for. This is a common mistake. For example, people will arbitrarily pick an amount, say P10 million or P50 million, as retirement fund goals. Years later, they discover that it is either too small or too big for the life they want in retirement. If the amount turns out to be short, then a lifestyle downgrade is imminent. Otherwise, the fund will run out quickly. If it is bigger than needed, then it would mean that fewer sacrifices could have been made during the accumulation years.
Envision first your dream retirement lifestyle. What do you want to be when you grow old? What is it like? Have that vivid picture before you run after any number when planning for retirement. Let that vision excite you and guide you to your next course of action. As time moves, you will make changes in your intended retirement lifestyle. That is fine and is expected. When you make adjustments and introduce refinements, you are ensuring further that you will come well-prepared and ready to live your next life stage with boundless enthusiasm and great peace of mind.
The author is currently an independent director of BDO Life and the former president and CEO of AIA-Philam Life and of BPI Philam Assurance Co. He was also the president of the Philippine Life Insurance Association. He is an advocate of retirement planning, personal leadership, gender diversity and inclusion.