When art director Lizza Gutierrez was hospitalized a few years ago, it served as the catalyst to get her financials in order. “Getting confined and operated on at the age of 36 was a wake-up call. I was forced to accept that I am not immune to sickness or emergencies—which is the mindset of many young adults. The experience made me realize that I have to prepare for my future. I made it one of my top priorities since I may not be able to rely on anyone else for my future needs.”
Why invest in a retirement fund?
Reynold Gan, head of RGAN Financial Planning Team shares, “All of us will someday want to retire comfortably, without having to rely on your relatives or children for support. Also, most companies now do not offer retirement packages to their employees except for SSS/GSIS. SSS is not sufficient to cover for one's future living expenses, which by then will also include medical costs.”
Gan, who is also a certified estate planner and certified Investment solicitor, continues, “Investing in a retirement fund allows a person to ride on the growth of our economy, thus giving a much higher rate of return than traditional instruments. Since retirement funds are long term, any fluctuations in the investment is not felt as long as the management of the fund is prudent.”
When to invest
“I actually started investing years ago [in his mid-twenties]. Given that I'm self employed, I won't really be getting a pension when I retire—if I ever do retire,” says Joey Lacson, a Speech and Language pathologist and co-owner of Help Therapy Center.
He adds, “My advice for saving would be start early, as money will grow exponentially given the right investment and given enough time.”
Gan agrees: “The best time to start is the time you begin earning an income. Retirement planning at an early age takes full advantage of time and also allows for more affordable contributions.”
Where to invest
Once you’ve decided to invest in your future, you have to start thinking of whom to entrust your money with. Do your research on the financial institutions you’re considering.
Melissa Ramos, a freelance editor and mom who started investing when she was still single, lists these pre-requisites: “The company must be reputable, stable, has been around for a long time, and prudent with its investments.”
What pension plan to invest in
Deciding on what plan to invest in can be quite overwhelming. Don’t be afraid to approach banks or financial institutions to inquire about their offers in detail, and take your time weighing your options.
You don’t even have to opt for a traditional retirement fund. Ramos shares that she opted for life insurance with “riders” such as accident, death, and hospitalization benefits. “There are dividends and cash endowments that you get periodically for life.”
Gutierrez likewise invested in a life insurance plan with accident and critical illness coverage. “Aside from the health insurance, the accumulated cash dividends are meant for my retirement, so it acts as a pension plan for me.”
Gan breaks it down to two types of retirement funds in the market today: the traditional guaranteed pension programs offered by pre-need and life insurance companies and the investment fund instrument offered by insurance companies, banks and asset management companies. They vary in returns and interest, which you should consider when picking a retirement fund.
Gan presents some more considerations before making that investment:
• Where will the money for the retirement fund be invested? Make sure that you are investing in assets that are safe, such as blue chip stocks
• Does it fit in your risk profile? A conservative person may want a guaranteed plan instead of an equity-based investment
• What are the fees involved? Retirement plans have fees factored into the plan, and most people do not look at this. Some companies charge very high fees that may eat into your returns
• What is the holding term and when can the benefits be given?
• How many years does one have to contribute? Most people prefer short paying years, but it is more advantageous to contribute regularly for a longer period since this is more affordable and averages your cost.
How much do you need to invest?
So what’s the bottomline? The amount one has to shell out really depends on your capability.
“Some mutual funds allow contributions for as low as P5,000 to open an account, and subsequent top ups of as low as P1,000,” shares Gan. “Also, retirement planning is very personal. It is important to match your contributions according to your desired retirement fund amount upon retiring, and this should also be future value adjusted for inflation.” A competent financial planner can assist you in determining how much to invest, depending on your preferred retirement lifestyle.
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