Saving for Retirement: Do you have the right kind of savings?

Saving for Retirement: The Proper Way To Do It

Retirement may not be on your radar yet, but it's vital to start saving early. The more time you have to grow your retirement savings, the easier it will be to pursue your financial goals and invest in the future.

Studies show that only 7% of young professionals have a plan for saving monthly. While it's easy to put retirement planning on the back burner, building up the habit to save money gives you plenty of benefits and helps you preserve the purchasing power of your savings.

In this article, we’ll tackle three important aspects when it comes to saving for retirement:

• Building a habit of setting aside money
• Saving to preserve your money’s purchasing power
• Freeing up money for investing

Building a Habit of Saving

Often, it's tempting to think of saving for retirement as something you can start on anytime, especially if retirement seems like a distant concept in the future. However, that leaves many people to start on their retirement savings plan late, or when retirement is already around the corner. If you start saving money closer to your actual retirement, you would have lost a wealth of opportunities to compound on the money you save.

Retirement savings takes decades to save up for so it's best to prepare for retirement savings as early as you can. While financial experts recommend saving 10-15% of your income for retirement planning, the actual percentage of how much you need to set aside is dependent on your needs in the future. Factors such as your current age, the age at which you plan to retire, how much you plan to spend in retirement, what your sources of retirement income will be, and circumstances beyond your control (e.g. declining health) all come into play.

Preserving Your Money’s Purchasing Power

Once you start the habit of setting aside money for retirement planning, your next step is to preserve its value. Inflation isn't just about the increase of prices in the market -- it also decreases your money's purchasing power. For instance, the PHP 1,000 you had five years ago would be able to buy you a week's worth of groceries. Today, it might just be able to buy you toiletries and food enough for four to five days.

In essence, you didn't lose any money. Your money just lost value due to inflation. That's why building up the habit for retirement savings is just the first step in retirement planning. If your retirement plan revolves entirely around savings, it's a flawed strategy. You need to be preserving the purchasing power of your savings so you can best prepare your funds for wealth building.

The Power of Investing

The money you set aside for your retirement savings doesn't need to sit still in an ordinary bank account. If you let your money sit in a savings account, the interest you gain will not be enough to battle inflation. Unevenly rising prices will inevitably reduce the purchasing power of your money in the future.

If your goal is to prepare funds for wealth-building, you want to leverage as many opportunities as possible to grow your funds. Some effective methods include:

• UITFs - Put money in a fund and let professionals manage your investment for you.
• Time Deposit - You leave your money alone for a pre-specified period and accumulate guaranteed interest on it. Time deposit rates are higher compared to the interest rates of traditional savings accounts as funds remain on hold for a fixed period, allowing banks to re-invest or lend the funds for higher profits.

The banking instruments listed above let you put in money that you can take out after you've increased its value. For instance, UITFs are designed to allow you to redeem your investment anytime. You are subject to early redemption charge if you redeem within the 7-day holding period. UITFs also vary from short term to long term, depending on the underlying assets of the fund or where the fund is invested. You are recommended to stay invested in them for a reasonable period of time to maximize their earnings potential.

Build Your Retirement Savings Today, Create Wealth Tomorrow

Having a substantial retirement fund will be empowering, but savings is just the first step when you're planning for a retirement that's financially fulfilling. Saving for retirement doesn't mean you're building wealth just yet, but you are preparing funds for future wealth-generating projects that preserve the value of your hard-earned retirement savings.

Remember that retirement planning is a long-term process. It’s not a sprint but a marathon. If you start as early as today, you will make your money work for you and outlive your retirement savings and the wealth you accumulate – not the other way around.

Begin your investment journey with the Earnest app. The Earnest app currently offers a curated list of Metrobank UITFs that let you do more with your money. With the earnest app, subscribe to investments that match your needs and lifestyle. You have all the tools and lessons you need to succeed in the exciting world of investing. Funds are recommended to you based on the results of your risk assessment or your risk appetite. UITFs offer different products that will cater to investors with different risk appetite.

If you prefer the security of guaranteed returns, you may be interested in opening a time deposit account. It's ideal for people looking into saving for long-term goals while maintaining a low-risk tolerance. Opening an account is easy and convenient with Metrobank’s Online Time Deposit. Set it up from the comfort of your home and grow your savings at interest rates as high as 1.25% per annum.