Many retirees simply rely on their children for “mandatory”, and often, total support. It is unfair to obligate your children to take care of your needs simply because you were negligent in preparing adequately for the inevitable. The responsibility for ensuring an enjoyable and hassle-free retirement rests on you and you alone; not on your children, not on the government, not on your employer, not on your dog or cat, not on anyone else!

It will be futile to start thinking about your future needs 5 years before your retire because for most of us this period will be too short. One should start preparing for retirement the moment he receives his first salary. Starting early makes accumulation of funds a lot easier because you can take full advantage of the power of compounding over a long period of time. An early start, however, is not the only thing you need to do. Planning for a secure and enjoyable retirement takes several steps.

Step 1 - Define your retirement goals and needs. Here you will decide at what age you plan to retire, where you want to spend your retirement years & what you will be doing. More importantly, you will determine how much funds you will need to support the life you desire as a retiree. To do this, estimate the amount you will need every year for food, housing, utilities, transportation, clothing, entertainment, healthcare, taxes and other expenses you think you will incur during old age. (Things today will cost much more in the future so adjust the amount for inflation. At 5% inflation rate, P1,000 today will be P2,653 in 20 years and P4,322 in 30 years. So if you need P300,000 annually if you were retired today, you will be needing P795,000 per annum if you retire in 20 years or P1,296,000 per annum if you retire in 30 years to buy the same amount of goods.)

Step 2 – Assess your current financial condition after determining your retirement needs. This will include listing all the savings and investments you now have that you intend to use for retirement. The idea here is to find out how much of your money is currently being used to build up your retirement funds. Project the future value of your current savings & investments by the time you retire. (At 10% annual interest rate, P100,000 today will grow to P672,750 in 20 years and P1,745,000 in 30 years.) Add to this amount any lumped benefit you expect to receive upon retirement.

Step 3 – Estimate other sources of retirement income. This is additional income you will be receiving on top of the earnings of your savings and investments. This may come from social security or other income from optional work you might decide to do after retirement.

Step 4 – To calculate retirement capital needs, first subtract the figure in Step 3 from that of Step 1 to determine the portion of the retirement income that should be generated by your retirement funds. Next, divide the difference by the projected rate of return on your money to get a rough estimate of the required funds. (For example, if your net required retirement income is P700,000 annually and you expect your money to earn 8% per year, you should have P8.75 million in funds when you retire.) Subtract from this amount the figure in Step 2 to determine the shortfall. Continuing from our example, if for instance you expect to have P3 million when you retire, your capital shortfall will be P5.75 million. This is the amount of funds you should work on accumulating. (In reality, the amount should be higher to compensate for the continuing rise in prices of goods & services during retirement.)