What to consider when building your retirement fund

On the surface, retirement planning has remained unchanged for years. You work, you save, and then you retire. But while the general mechanics may be the same, today’s generation of workers face a variety of challenges, which could have a direct impact on how you plan for your retirement.

Inflation – One of the first and the most impactful factors that you need to consider when you’re planning your retirement fund is that inflation in the Philippines is rising. Inflation is the rate at which the prices of goods and services go up. The rate of inflation directly impacts your purchasing power, or what you can buy with your money these days. If you’ve ever noticed spending more for less, then you are already experiencing the effects of inflation.

This has an effect on your retirement fund, as you need to account for future inflation rates when considering how much you need to save. Even if you receive the maximum benefits from the government, such as with Pag-IBIG and SSS, you may still need to think about additional ways to augment your income – especially if inflation continues to rise.

This isn’t meant to scare you or put you off planning retirement altogether! Rather, this should help you focus your budgeting even better.

How much money are you earning today? – Whether you’re salaried or earning from your business, you need to factor how much of that you are using for your expenses, and how much are you willing to save for your short-term and long-term financial goals, inclusive of your retirement fund. It’s crucial to note that retirement funds must have an allocation from what you earn.

You may consider other sources of income, such as a side hustle or a part-time business if you are an employee, or you might want to expand your business to let it earn more. That way, you can augment and grow your income, and continue building your pool of cash that you can allocate for your retirement fund.

How much money do you need each month after you retire? – This is a hard factor to count especially if you are unable to track inflation rates and prices of consumer goods. However, the easiest way to know is to just count how much you are spending every month, and add them all up at the end of the year. Do this for at least two more years and you’ll get a ballpark figure as to how much your family is spending now and use that to gauge how much you could be spending when you retire.

You can add in emergency funds post-retirement to prepare you for medical emergencies. The older people are, the more health issues come out.

Take note of inflation when you calculate your current monthly expenses. When your monthly numbers continue to rise, inflation plays a big part. This should reflect on how much you think you should be spending every month for a number of years after you retire.

When you notice retirement planning calculators online, these tools always assume everything remains static. That is, that your PHP 500 today will be worth the same 10, 20, or even 30 years from now. By knowing the effects of inflation, you can plan for your retirement with much more foresight and confidence.