I have been asked by many different people how much money they need to be able to retire. This column will be more applicable to middle income people; but, even within this group, there is no one universal answer.
There are several factors to consider namely: the lifestyle you want to maintain; your personal health condition; the family you need to support; the assets you have; and, your stage in life.
First is you already have a pretty good idea of what you spend to maintain your lifestyle: from the food you eat, your living conditions, the luxuries you indulge in and all your other expenses. You need to take into account that once you retire not only will the cash flow from your employment stop but other perks and allowances will also end. These perks would include your car plan and gasoline allowance, club membership and dues paid for by the company, medical plan, insurance coverage and so on.
Second is your state of health. If you have a lot of maintenance medications these could add up. If you need to have a regular medical checkup or see the doctor for treatment, know how much all of these will cost not just now but moving forward through the years. Is your health condition something temporary like a broken arm, or is it something that will probably deteriorate over time like cancer?
Third is the required support for your family. Are you providing for your ageing parents? Do you have school age children? Does your spouse work or are you the sole provider? In case of emergency expenditures, can one of your relatives help or you are on your own? Can you stop supporting some relatives that are simply taking advantage of your generosity? How much longer did you need to support your children until they finish school and find a decent job?
Fourth is taking into account the assets you have, particularly those that have high value either when you sell them and realize a capital gain or making money out of these assets through the form of rental income, interest, dividends or royalties. As much as possible, you should not eat up into the principal amount but just use the recurring income from these assets. Nevertheless, if you really don’t have any options left, try do draw down only enough of the capital to sustain you till the end.
Finally your stage in life will determine the strategy you need to find out if you have enough money to retire. If you are still very young, you need to take into account your remaining life span, it will not be pleasant if you outlive your retirement nest egg. If you are middle aged, you will probably still have kids finishing college and parents who are already old and retired that you need to look our after. This is the stage where you are financially sandwiched by the older generation and the younger generation. If you are already in your senior citizen stage, your kids have probably finished college and have a job and most likely one or both your parents have passed away, of course it should be a great joy and privilege if your parents are still around.
Once you have assessed your financial requirements, you need to have a cash flow source to match the outflow. For example, if you calculate your needs, including some allowance for contingencies, to be P50,000 a month, your need to have all your cash flow sources must at least match that. The sources would come from your SSS pension, interest income, rental properties and investments.
Obviously, if you fall short, you don’t have enough money to retire and you just have to retire another day.
The views and comments of the author are his own and not of the newspaper or the Financial Executives Institute of the Philippines. Comments may be sent to email@example.com.