A fork in the road, which way are you headed
MOST of us will retire, either because we have to or because we want to. When we attain the mandatory retirement age of 60, are made redundant, get out of a perennially toxic work environment, or exit due to failing health, we have no choice but to leave work for good. On the other hand, we can decide to retire on our own terms when we are confident and ready to face a new life stage after many fruitful years of working. It is worth noting that a study shows that those who retired of their own choice are happier than those who retired involuntarily.
Regardless of the reason for leaving work permanently, when we retire, we come to a fork in the road to retirement. One path leads to our dream retirement, where we are able and excited to do what we want at the time, and we want to do it with the people we want to do it with. We can travel stress-free to our chosen destination during the festive season with family and friends. The other route leads to an entirely opposite scenario, the worst nightmare. A period filled with constant anxiety and fear. There is so much uncertainty, insecurity and no peace of mind. When we have very little saved and arrive unprepared for retirement, our choices and movements are strictly limited. There is that perpetual distressing thought that we may run out of resources, making us financially dependent and a burden to others.
Of course, we desire to take that road where our retirement aspirations will become real. When that time comes, surely we all want to be in a position to experience the lifestyle we yearn for when we retire. We look forward to fully enjoying the fruits of our labor.
But notwithstanding that the path toward a dream retirement is a clear choice, the majority are heading the wrong way. That is, a much higher percentage of those approaching retirement are unprepared and at risk of living their golden years miserably. A study by the Global Aging Institute shows that a big majority of workers are not building enough financial assets, through savings and investments, to finance more than a small portion of a retirement that may last for at least 20 years. An East Asia Retirement survey reveals that 9 in 10 Filipino workers are worried about how their savings can support their retirement. It is commonly held that no more than 5 percent of Filipino retirees are financially independent. The long lines formed by senior citizens in ayuda centers give credence to this assumption.
For those of us who earn an income, maybe it is good to ask ourselves today where we might be headed when we reach that fork in the road to retirement. Are we on course to our dream retirement, or are we moving closer to our worst nightmare? Fidelity Investments came out with retirement savings milestones to guide us in the right direction. They recommend that at age 30, we should set aside the equivalent of our annual income as retirement savings. By age 40, three times and by age 50, six times our annual income. For example, if our annual income at age 40 is P1.2 million, the suggested retirement savings by that time should be around P3.6 million, or three times the annual income. Certainly, the target amounts are not cast in stone. But they provide a ready reference to help us track if our efforts are sufficient to achieve our dream retirement. Since we have unique needs and rules of thumb do not precisely address the specific individual situation, it is always best to seek expert advice from a financial advisor.
There are many obstacles that prevent us from preparing for retirement, even when there is the desire and the means to do it. These may include, among others, the long list of immediate and more urgent financial goals, limited financial literacy, lack of financial discipline, and retirement being so far into the future and, thus, easily consigned to the lowest priority.
On the other hand, there are equally pressing issues on why we need to prepare for our retirement. Examples of these are improving longevity, inflation, a volatile investment environment, increasing health care costs, inadequate social security, and not being a burden on our children who have their own dreams to reach. These factors require us to accumulate a bigger amount. By starting now, we increase our success in building the proper fund level.
By acknowledging the difficulty of saving for retirement and, at the same time, recognizing the dire consequence of not doing anything or doing very little, we will be able to gather the resolve to take the right step forward.
What can we do today so that when we get to that fork in the road to retirement, we are headed in the right direction and able to enjoy our dream lifestyle?
Learn more about retirement planning.
Define our dream retirement lifestyle. Develop an initial plan. Support that plan by living within our means.
Seek expert advice.
The author is an independent director of BDO Life and a former president and CEO of AIA-Philam Life and BPI Philam Assurance Co. He was also president of the Philippine Life Insurance Association. He is an advocate of retirement planning, personal leadership, gender diversity and inclusion.