How to make retirement funds last

by Jon Carlos Rodriguez,

Posted at Dec 07 2014 09:22 AM | Updated as of Dec 09 2014 07:40 PM

MANILA – Those who worked hard during their years in the workforce still have one obstacle to overcome after calling it quits: making their retirement funds last.

Agnes Cuaso, a unit manager at Sunlife Philippines, said knowing how to save, invest, and spend retirement funds wisely is one of the biggest concerns of retirees.

“You need to visualize what you would like to do during your retirement years. Do you want to pursue a hobby, travel, do volunteer work, or open a small business?” Cuaso said on ANC’s “On The Money.”

Cuaso said there is a simple formula to determine how long your retirement funds can last.

“Have your retirement fund and divide it by your cost of living per month… This will help you determine if you have to adjust your lifestyle or maybe lengthen your retirement age or go back to work,” she said.

Cuaso said once the amount of period has been set, the next step is to consider sources and where to put the funds, whether in cash assets, property or business.

For cash assets such as bank deposits, stocks, bands and pooled funds, Cuaso said retirees should consider the following: reputation of company, historical returns, timeline, and liquidity.

For property assets, retirees should come up with a plan if it will be rented out or sold eventually.

Setting up a business, meanwhile, will require the necessary skills and due diligence in studying the product and the market.

Cuaso reminded retirees that living the retired life will be more expensive due to inflation.

“Retirement is going to cost more because of inflation so it is the invisible foe that eats up the purchasing power of our money,” she said, adding that retirees can’t solely rely on government assistance because the average monthly pension is only P8,000.

She also warned that retirees are prone to investment scams in their quest to grow the funds.

“In their goal to quadruple their retirement funds, some retirees put their money in companies that seems to be legitimate at first but end up being scams,” she said.

To be protected from scams, Cuaso advised against putting all funds in a company or business without studying it.

“You need to study and ask where is it invested and why it is earning that much. You look at the company or board of directors and carefully study it,” she said.

Retirees usually commit the same money mistakes such as being a one-day or one-year millionaire; and not planning for retirement when they are already retired.

She advised retirees to diversify funds for expenses that they will be needing soon, such as for emergencies or everyday expenses for the next three years.

These funds can be placed in more liquid instruments like bank deposits, treasury bills, and preferred stocks that give coupons.

For the long-term, retirees can place their funds in higher yielding instruments like managed funds. A portion may be in stocks, but retirees need to consider their risk tolerance.

“You can allot 20 to 30 percent of your finds in high risk investments if you are more aggressive,” said Cuaso.

According to Cuaso, the best time to plan for retirement is when you get that first paycheck.

“So you can put a portion of it and start making it grow because of the small portion or small savings that you have when you were younger, it can grow to millions when you retire eventually,” she said.