[Fin Talk] Should We Stop Planning for Retirement During This Pandemic?
By Arlyn Tan
When the pandemic started, everyone was forced to have an “early retirement experience” in the sense that economic activities were halted, and the income was relatively less compared to that during the pre-pandemic period. We had developed new relationships in online groups and communities to keep our connectedness with the outside world. Our daily routines were disrupted which generally made many anxious of what will be life in the next coming months.
While forced quarantine prompted many to rest and spend time with the family, the questions of breadwinners about income and cash flows caused them to be awake at night. For entrepreneurs, the main concerns were on business sustainability. How will they continuously support their employees’ salaries when the business activities declined?
With all these uncertainties, is it wise to stop focusing on expected milestones like retirement? The answer is NO. Today is the best time to review your retirement plan. Talk to your advisor on retirement planning and update her on your current situation. Important discussion points can be the modifications on amount, investing pattern, and assets appropriate during volatile times.
According to the dictionary, retirement means to withdraw from one’s position or occupation or from active working life. A person who is financially prepared for the lifestyle when there is no more source of income from the active work can retire early. The timeline for retirement is dependent on the laws of countries and preferences.
What is exactly the life of a retiree? We can wear the lens as a grandchild or a child of pre-retiring parents. I always admire retirees who are healthy and mobile enough to go through daily routines independently. They enjoy their hobbies. They are not worried about the monthly expenses like medicines, electricity, monthly dues, and internet because depletion of the retirement fund is not an issue.
In the Philippines, the cash flows can be generated from the monthly pensions from SSS., and the retirement benefit from the employer. Based on the Republic Act 7641, also known as the Retirement Pay Law, retiring employees are entitled to a retirement pay equivalent to at least one-half month salary for every year of service, a fraction of at least six (6) months being considered as one whole year.
With the increasing financial literacy movement in our country, the reliance on the one or two sources of retirement income can delay retirement. Retirement planning relies on careful consideration of key success factors in reaching the target amounts or the so-called “magic number.” When one is in his 20-30’s, he can put at least 10% of income each year. However, when he starts saving in his 40’s or 50’s, he needs to save 50% of the income.
With the pandemic altering the income structures of all people, these percentages had changed. People who find their sources of liquidity dry up may need to temporarily stop saving first for retirement to give way to more daily expenses. For those who are on track with their cash flows and income, they can continue setting aside for retirement.
Here are 3 tips to keep in mind on retirement planning:
1. Invest instead of save. Saving is setting aside money for emergencies or a near term purchase. Investing is buying assets like stocks, bonds or real estate with the goal of capital appreciation. The growth in funds can outpace inflation and provide the funds to support your life from the start of retirement till your last breath.
2. Identify the time horizon, risk appetite, and investment strategies. Striking a balance between realistic return and desired standard of living can be hard to imagine as of this point. Thus, the best way to go is to create a retirement plan that is reviewed annually so that necessary adjustments on amount and asset types can be done according to one’s life circumstances and cash flows.
3. Secure healthcare insurance and income protection plans or strategies that would protect your retirement fund. Retirement planning considers the causes of possible huge outflows. An example is a health crisis that can burden the individual and family members. The outflows secondary to the expenses associated with hospital and post-hospital care can be overwhelming. When you have purchased health plans that can address the risk of economic losses due to critical illness (i.e. heart attack, stroke, cancer) , then you made a good move in your financial planning journey. The main objective of these types of plans is to provide liquidity upon diagnosis of critical illness. The contracts of each company will vary so it is best to check the fine prints on inclusions and exclusions.
Retirement planning is a discipline that can put everyone’s pandemic experience in the right context. The pandemic life pushes all to prepare ahead of time and manage future surprises with plan A, plan B and even plan C. By using the time, opportunities and current resources strategically, each person has the equal chance to live his ideal retirement life.
Arlyn Tan is a Strategic Wealth Consultant. She helps individuals and organizations on how to maximize the value of their money through risk, health & wealth management. Her mission lies in making sure that clients achieve 3 things. First, they reach their milestones on time with sufficient resources. Second, they protect them from the impact of economic losses secondary to unexpected events. The third and most important is that they enjoy meaningful and balanced lives.
LinkedIn/Twitter: Arlyn Tan