Question: Hi Rose. Thank you for sharing your valuable knowledge and experiences to us through your beautiful articles in PhilStar.com. I only read the Health Section before but now I look forward to your articles. There’s wisdom in your approach and sincerity to help others. I will certainly read your book Raising Pinoy Boys and share it with others too. I hope you can find space in your future articles about investing hard-earned retirement funds. That will be greatly appreciated. Please continue writing and sharing. God bless you and your wonderful family. – Bob via email
Answer: Hi Bob thank you for your kind words. They’re music to my ears!
Retirement is an interesting and likewise challenging period in one’s life. And you’re right retirement money is definitely hard earned, whether you received it by availing of early retirement, or earned it by reaching the age of privilege when you can now watch movies for free (on Mondays and Tuesdays) and get 20% off on all your purchases!
This is why you have to be very careful in handling this money. Even if it seems like a huge amount (for some it could be the largest sum of money they have held in their entire life) it can vanish in no time if you are not prudent.
Avoid major (if not necessary) expenditures such as house renovations, purchase of new car, big balato (tip) to relatives and friends, etc. However, if you have been dreaming of buying yourself that watch since you were young and promised to yourself that you’d buy it as your gift and remembrance of your hard work, go ahead. Anyway, money should be used to make us happy. Just exercise prudence.
One important thing to consider when deciding what to do with your retirement money is your life expectancy. How old are your parents? How old were your grandparents when they passed away? Most of the time, we say, “I don’t think I’ll live as long as my parents and grandparents lived because they had a healthier lifestyle.” However, statistics show that there has been a dramatic increase in man’s average life span. In a massive international research project, as discussed by Boseley, life expectancy around the world has risen dramatically by 11 years for men and 12 years for women compared to 40 years ago! So we should even assume a longer life for ourselves.
Now the challenge is, “How do I make my retirement money last so that I won’t outlive it?” I hope by now you already have a clear picture of your monthly expenses. Given your annual expenses do you think your retirement money can last up to your expected life span?
Even if you wish to protect the principal amount of your retirement money, it may not be prudent to keep everything in fixed income investment instruments such as time deposits, money market funds, bonds, etc. In order to beat inflation, you should still try to grow your funds at a rate higher than fixed income returns. If you’re still in the early years of your retirement (‘say 60s), you may want to put a portion of your money in higher yielding investments like blue chip stocks or mutual funds – at least the portion that you can hold for 10-20 years. This will enable you to earn higher returns without being so scared of the inherent fluctuations in the market.
The percentages of what goes to fixed income investments and stocks or mutual funds depend on the retiree’s age, risk appetite and general temperament towards these instruments. Some finance gurus suggest 100 less your age as the percentage of your stock investments (e.g. If you are 60 years old that’s 100 – 60 = 40, so 40% of your investment funds are in the stock market). This percentage goes lower as you get older. But again, what’s more important is for your portfolio to be compatible with your investment temperament. The higher returns you can get from your stock investments may not be commensurate to the sleepless nights that they bring you.
May I also remind you not to buy expensive insurance products anymore if you don’t have dependents who are still relying on you because they are still minors (i.e. If you still have school-age children who cannot fend for themselves yet). If you have dependents who are already adults with earning capabilities but are just relying on your generosity for whatever reason, they’re not counted. Bear in mind that insurance products are essential products that we must have to protect our dependents (my former definition) in case of untimely death so their lifestyle will not be adversely affected. From now on, it’s your own welfare that you should really look out for. If you think you need health insurance because your health insurance expired together with your employment, then maybe you can consider this. Note that in the study mentioned earlier our longer life expectancy is coupled with higher incidence of disability. In other words, we have longer lives but some of our bonus years are characterized by medical problems. When you look into products to address this, study the terms and conditions because health insurance products for older people are also priced high and will only cover you up to a certain age. In most cases, you are better off investing on your own provided you have the discipline.
Develop a good relationship with your bankers and agents so that they will be more forthcoming with their products and suggest the best ones for your needs. But still, caveat emptor (let the buyer beware), so study the terms and conditions carefully in order to make the most suitable choices.
I wish to go back to the retirement age of 60, which now seems a bit too early. Given our longer life expectancy, it seems like we are just in the middle of our lives at 60! So allow me to suggest something beyond your question.
Let’s broaden our topic to “What to do with retirement?” It may be good for you to continue to be active. Have a regular exercise regimen and eat properly so your bonus years will not be mired by sickness and depression. Look around and see where you can still use your skills and remain a productive citizen. You don’t only continue having cash inflow but you feel younger by still being actively engaged in something. It doesn’t have to be a full time job if that’s not what you want at this point. But have something that still excites you. When you decide to do this, look at your core competence. Do not be swayed by friends and relatives into investing in something that is outside your realm of competence. For instance, even if everyone says that the food business gives high margins, don’t go there if your passion and expertise are not in synch with it. Look into your skills. What do you like to do? What is your passion? What are you always complimented for? This might be a service that people are willing to pay you for. Don’t be intimidated by your younger competitors with the same skills. Remember that there is a certain joy in dealing with happy senior citizens. They are more relaxed and generous in sharing their wisdom. And wisdom is definitely your advantage as this can only be had with years of experience.
So don’t retire just yet. You may have retired from the company you worked for, but you may still be wanted some place else. And the bonus is you will be happier doing something you love, even in your retirement years.
Here’s wishing you financial happiness in the best years of your life!