"How much do I need to retire?" It sounds like a question for experts with complicated models. But a first estimate takes four lines of arithmetic, and having a rough number is better than having none.
All of this is illustrative. Your figures will differ.
Step 1: Decide the monthly amount you'd need
Start with what you spend now and ask what would change. Housing might drop if it's paid off. Healthcare tends to rise. Work-related costs fall.
For the example, I'll use ₱30,000 a month.
Step 2: Turn it into a year
₱30,000 × 12 = ₱360,000 a year.
Step 3: Choose how many years
How long might you need it? If you retire at 60 and plan for money to last until 85, that's 25 years. For the example, I'll use 20 years, to keep the arithmetic simple.
₱360,000 × 20 = ₱7,200,000.
That's the number before adjusting for any other income and before prices rise.
Step 4: Subtract what you expect from other sources
Things that might reduce the amount you need to fund yourself:
- Government pension, such as SSS, if you've contributed. Check your own records for an estimate.
- Other retirement benefits: from an employer, a provident fund or a retirement plan.
- Income from property or a business.
Subtracting a monthly pension of, say, ₱10,000 changes the monthly gap to ₱20,000 and the example total to ₱4,800,000. That's the amount you'd need to have set aside.
Step 5: Account for rising prices
The figures above are in today's pesos. Prices will probably be higher. Using the inflation arithmetic from earlier in this series, an amount that feels adequate today may need to be substantially larger in thirty years.
That's why it helps to revisit the estimate every few years.
Step 6: Work backwards
Divide the total by the number of years you have until retirement to see what you'd need to set aside each year, before any growth. Then consider how growth and consistency could help.
For example, ₱4,800,000 over 30 years is ₱160,000 a year, or about ₱13,300 a month, before any returns.
If that number looks large, it's not a verdict. It's information. It tells you how much a plan will need to work for you: a longer time horizon, a higher savings rate, additional income, or a combination.
What the number is for
It's a compass, not a promise. It helps you see whether your current saving is in the right range, and whether to raise it.
Don't forget the risks
A retirement plan can be derailed early by an illness or an accident, before the savings have had time to build. Health costs in later life are one of the biggest unknowns. Both are reasons protection belongs alongside the saving.
This week
Write your four lines: monthly need, years, other income, the gap. If you do it in ten minutes tonight, you'll know more about your retirement than most people ever bother to find out.
Sources: Illustrative arithmetic only; the monthly expense, pension and time horizon are assumptions for the example. Check your own SSS or employer benefit records for actual figures, and consider speaking to a financial professional for your situation.
The free Life Ready Checklist at lifereadywithvenus.com has a page for writing down what you find, free and with no sign-up.
