Tuesday, 23 August 2016

Is the Fund You Are Building for Retirement Enough

Is the Fund You Are Building for Retirement Enough? This is the question I posed to fellow OFW investors during our recent session.

In many instances, we are saving for our future goals without taking into account inflation. It is the same mistake I made 15 years ago when I started to save and invest.

It may sound basic but the reality is that many OFWs are not equipped with the enough information hence we end up retiring in poverty or barely surviving with our retirement fund. We should not forget that most OFWs do not have mandatory pension funds such as GSIS. And even we have SSS, it is barely enough for our basic needs.

Below is my suggested simple guidelines on how to calculate enough retirement fund.
1. Calculate years to retirement.
2. Get the current monthly lifestyle cost of your desired retirement. Apply CPI as inflation to get the future value of your desired retirement.
3. Get the number of years between your retirement and the usual life span of your family.
4. Determine how many months or years you want to save for it.
5. Calculate minimum monthly investment needed. Apply rule of 72 with the interest dependent on the financial instrument where you can invest your fund
6. Choose the best investment instrument for this goal. If more than 10 years, you may put in stocks - either direct or pooled funds (Mutual Fund or UITF).

This is just general guideline. You still need to sit down with someone who can help you calculate depending on your own circumstances.

Note that long term healthcare should be a separate fund from retirement fund. And we should not forget while building our retirement and long term healthcare that upon retirement, we will have more time for socials as well as become more sickly.

When I ask fellow OFSI members on the biggest challenges they face in building these funds - EXECUTION and CONSISTENCY come on top of the list....

So the key to success in building your funds lies in finding ways to be consistent and becoming biased for action!!!

Be Money Smart Everyone!!!

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