8 Step Guide in Building a Retirement Plan

Written by imoney

When you think of retirement, it may seem like a lifetime away, so saving for retirement may have yet to cross your mind. Though retirement may be twenty, thirty, or even forty years down the road, it’s important that you start saving for retirement now. A recent study sponsored by Sun Life Financial-Philippines found that only 2 out of 100 Filipinos, age 65 and older are financially independent. This study displays how putting off saving for retirement could leave you struggling later in life.

Saving for retirement starts with building a retirement plan. As with anything else in life, not having a solid plan rarely leads to success. If you’re like many Filipinos who have not started to think about saving for retirement, you probably have no idea where to start. That’s okay. We have you covered. This article will serve as a guide to help you build a retirement plan. If implemented correctly, you will be taking steps to help you retire rich!

Step by Step Guide to Help You Build a Retirement Plan

1. Determine How You Want to Live in Retirement

Before you start developing a retirement savings plan, it’s a good idea to think about the kind of lifestyle you would like to live once retired. This will help you determine how aggressive you should be with your savings plan. For instance, do you plan to do a lot of traveling after you retire? Do you plan to buy additional property somewhere else in the Philippines or in a different country? If so, you will probably need to start saving more aggressively. Understanding the type of life you want to live in retirement will help you understand how aggressive you need to be with your savings.

2. Open A Savings Account

One of the first steps to help you retire rich is to open a savings account where you can earn interest on the money you put into your retirement fund. There are many things to take into consideration when trying to determine which savings account is right for you. Elements such as an initial deposit, the savings account interest rate, the maintaining balance, and the account balance needed to earn interest should all be taken into consideration before opening a savings account in the Philippines. You will also want to take into consideration the financial institution’s reputation, your ability to access the bank, and the bank’s online service offerings.

One of the best banks to open a savings account in the Philippines, if you are just starting out, is BPI. You can open a BPI Easy Saver account with an initial deposit of just ₱200.00, with no maintaining balance requirements, and a 0.25% rate of interest per annum. In addition, you only need a minimum balance of ₱1,000.00 to start earning interest. Another top contender is the EastWest Bank Basic Savings Account, where you can open your own savings account with only a ₱100.00 initial deposit. You will start earning interest when your account reaches at least ₱500.00, and you will receive interest up to 0.125% per annum.

If you are able to put down a bigger initial deposit, here are your best options where to open a savings account in the Philippines.

3. Start Saving Now

Many financial advisors will suggest that you should start saving 10% to 15% of your total income for retirement when you reach your early twenties. Given your current financial situation, you may not be able to save 10% or 15% of your total income, but the important thing to do is start saving any money you can right away.

Saving for retirement may seem boring, but if you think of it as paying yourself, it becomes a bit more interesting. If you cannot afford to save 15% of your yearly income for retirement, start smaller. It’s perfectly fine to start at around 2% of your annual income, and then gradually increase your savings percentage every few months. If you get a raise at work, kick up your savings another notch. Do not get discouraged if you can’t start saving 10% right away. Remember, even saving a small amount is better than saving nothing at all.

4. Set Up Automatic Deposits

We discussed in an earlier article the importance of making your savings automatic. Automating your savings contributions will help you build your retirement fund quickly, and with little effort on your part.

We suggest making your savings automatic to reduce your chances of using these funds for other things. It is very easy to second-guess the contributions you make manually, but if contributions are transferred automatically, you don’t have to give it a second thought. In addition, automating your retirement savings contributions could help you get in the habit of spending less, especially if you schedule your automatic deposits around the time you receive your pay check. You may even find that living off less is easier than you would have imagined.

5. Seek Investment Options

One of the best ways to boost your retirement savings is to seek investment opportunities. If you think you are unable to invest without a large amount of money, you’re wrong. You do however need investments to help prepare you for retirement. Our advice is to start small, and start as early as possible.

Regardless of your risk preference, there is an investment product to suit your needs. Consider starting with a mutual fund, unit investment trust fund, or purchase some stocks. Stocks will provide you with the highest potential earnings, but also carry a higher amount of risk than a mutual fund or unit investment trust fund.

Investments may seem scary if you do not know much about them, or have not had much experience with them. We understand. The thought of potentially losing money is scary, but that’s why it is important to start investing while you are young. We mentioned in our previous article, 7 Steps to Retiring Rich, that some financial advisors recommend you have 80% to 100% of your total portfolio invested in equities. This way, your portfolio will have plenty of time to grow, as well as plenty of time to recover should you lose any money along the way.

The first step in building your investment portfolio is to speak with a financial planner to help you come up with a plan that is right for you. Companies such as Sun Life Financial have advisors who specialize in helping people just like you, make sense of retirement and investment options. We highly recommend learning about all your options, and consulting a professional before jumping into any type of investment.

6. Open A Time Deposit

If you’re serious about saving for retirement now, opening a time deposit is a smart move. A time deposit is essentially a fixed deposit at a bank, which you are unable to access during a certain agreed upon time. In return, you are offered a higher interest rate than a typical savings account. A time deposit is a great product to get, in addition to your retirement savings account.

Though a time deposit provides you with the benefit of a higher interest rate, any interest you earn will be subject to a 20% monthly tax for every interest earned on your account. There is also a documentary stamp tax to deal with where you will be charged ₱1.00 for every ₱200.00 of the principal amount. This may be a deterrent for some people.

As we stated, a time deposit is a great way to help you build your retirement savings account at no risk to you. If you want to get a time deposit, the first step is to use a time deposit calculator to help you find a bank and product that best suits your individual retirement needs.

7. Set Aside Money for Emergencies

It’s easy when you start saving for retirement to completely overlook the potential for emergencies to happen. Emergencies happen, and you don’t want to have to dig into the money you’ve set aside for retirement, to pay for an unexpected trip to the hospital, damage to your home, or to front the bill for an expensive car repair.

One good way to set aside separate money for an emergency fund is to set up an additional savings account. You don’t have to put forth a certain percentage of your annual income into this account, rather add a little bit from each pay check. If you receive a bonus from work, a pay increase, or an inheritance, consider adding a large majority of it to your emergency fund. Like your savings account, even putting a small amount in your account every month is better than contributing nothing at all. You will be surprised by how much you can save over the course of a year.

8. Seek Additional Career Opportunities

If you feel like you’re not doing enough to save for retirement after following these steps, consider seeking out additional employment options. You don’t have to get a second full-time job to save more for retirement. Becoming a freelancer would provide you with the freedom of working when you want, while also having a favourable opportunity of making some extra money to put towards your retirement. You could even request the money that you make from your freelancing gigs to be directly deposited into your retirement savings account. A great site to get you started with your freelancing career is Upwork.com.

If you don’t have a lot of time outside of work, or freelancing simply isn’t your thing, think about steps you could take to advance in your current career. Could you get any certifications to help you get a promotion?  Would your work be willing to pay for you to go back to school and get an advanced degree? Neither one of these options will help you save money right now, but investing in yourself will surely pay off in the long-run.

Finally, Revisit Your Plan Regularly

As circumstances in your life change, so will your retirement plan. The most important thing to keep in mind is that your plan is not set in stone. It’s okay to make changes to it. You may have no intention of traveling the world now, but in 10 years that may become one of your dreams. Thus, you should make modifications to your retirement plan to help compensate for this change of heart.

Make it a habit to go over your retirement plan at the start of every new year, and take into consideration all the aspects of your life that have changed. For instance, if you have received a major pay increase, or changed jobs, make a change to the amount you contribute to your retirement savings for the new year. Making a savings plan and sticking to it will be the key to helping you retire rich. It may be painful at first, but your future self will thank you for the sacrifices you’ve made today.