Whatever you picture your lifestyle to be when you retire, you need to ask yourself if you’re doing something right now to achieve the kind of future you want.
When should retirement planning begin? Think it’s too early to start thinking about retirement? That’s not true—the earlier you start, the better.
If you want a worry-free and comfortable retirement, there’s no better time to start preparing than today. Here’s a look at retirement planning mistakes most Filipinos make and how you can avoid them.
9 Biggest Retirement Planning Mistakes
If retiring early and comfortably is one of your long-term goals, it’s important to know the biggest and most common retirement planning mistakes to avoid.
Filipinos can be extravagant, especially when celebrating birthdays, anniversaries, or personal milestones. You might even take out a loan or charge it to your credit card to cover these expenses.
But what this does is put you in debt. Because you’ll be paying off this debt over a period of time, it’s a missed opportunity to put your money in a life insurance policy or a retirement fund.
It’s perfectly okay to hold big celebrations, but only if you can afford them. If not, have simpler get-togethers that won’t affect your monthly budget and long-term goals. Living below your means can significantly boost your savings and beef up your retirement fund.
Read more: 5 Things You Should Have at Age 40
Having Bad Debts
You incur bad debt when you spend too much or make unnecessary expenses and can’t pay them off. Racking up debt puts a strain on your budget and on saving for your retirement.
When you keep accumulating debts, your debt repayments can last well into your retirement years, thereby eating into any funds that should have gone to your nest egg.
If you have any debt, it’s ideal to pay it off before you retire. Paying an extra ₱1,000 or ₱2,000 on your monthly due on credit card bills or loans can shave years off the more long-term debt you have.
Planning retirement presents a lot of hard choices in the present, so you can enjoy financial security in the future. Questions like how much to save, where to retire, and when to retire can throw a wrench in your short-term plans. But the odds that you’ll retire poor also increase if you don’t take action now.
To avoid getting overwhelmed, take it one step at a time. If you’re single, focus on earning more and spending less. Invest your earnings into other income-generating assets so you can achieve your retirement goals.
If you’re married with kids, you’ll have to make significant financial sacrifices. As your children grow, so will your expenses, further complicating your retirement planning.
It will be easier to save for retirement if you know just what you’re saving for. As early as now, think about where you'll live, if you'll move to a smaller home, work part-time, run a business, or just travel. Your decision today can help you come up with a solid and doable plan.
Relying Only on Government/Company Retirement Package
Social security pension plans or your company’s retirement package can be a lot of help for you and your family. However, it’s not ideal to rely solely on them.
According to the recent report by Mercer-CFA Institute's Global Pension Index, which benchmarks retirement income systems in the world, the Philippines' retirement income system is the second worst among 44 economies due to inadequate pensions for retirees.
Moreover, only one in five companies in the Philippines prepares their employees well for retirement. Also, 31% of companies in the Philippines don’t have a formal retirement plan and provide their employees with only the statutory minimum benefit.
Your government pension may help you get by if you cut back on your expenses. But it won’t be enough for you to retire comfortably, especially if you are to live more years in retirement.
The best way to achieve a comfortable retirement is to plan early and grow and protect your money. Explore investment options for beginners. Aside from your government pension and company retirement package, put money in a Personal Equity and Retirement Account (PERA), insurance plan, investment fund, mutual fund, or even real estate.
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Not Making Your Money Grow
You may think that savings and your government pension benefits are enough for your retirement. But your savings can only do so much, and they may end up drained because of other expenses.
When you’re retired, you’ll have more time to travel, see the world, and indulge in hobbies or other things you missed out on when you were busy working. A retirement fund built wholly on savings won’t last through this.
Fortunately, you can grow your wealth in several ways, such as by investing or starting a small business. Both take a little time and effort. But the eventual payoff is that you’ll have fewer financial worries in the future.
With the goal of retirement in mind, it would be ideal to learn about investing in long-term stocks or increasing your investment in UITFs and mutual funds.
Related reading: How Close Are You to Getting FIRE-d?
Too Much Dependence on Adult Children
Young adults often give their parents money once they retire. However, if you expect your children to support you financially during your retirement years, that’s a different thing altogether.
Most Filipinos believe that because you raised your children, they should pay you back in the future. But as parents, it’s your responsibility to give them a good life. Therefore, your children are not your retirement plan.
When your children are pressured to support you while providing for their own family, they end up putting their own life and retirement plans on hold.
This is evident in most middle-aged individuals known as the sandwich generation because they’re "sandwiched" between their obligation to care for their aging parents and their own growing children.
It’s one of the biggest retirement planning mistakes to avoid. Instead of letting your children take care of your retirement expenses, prepare for your own retirement so that you can live independently and worry-free.
Take full advantage of your employer's retirement benefits, if any. Beef up your monthly contributions to your government pension fund. Get a life insurance policy with an investment component (VUL) and with critical illness or disability riders for health and income protection.
Inflation is a reality. You might think a certain amount is enough to retire comfortably, but it’s a mistake to peg your retirement savings at an amount that works at the current standard of living.
The inflation rate in the Philippines in October 2022 is 7.7%. Rising inflation can significantly impact your purchasing power over time. As prices of commodities increase, your money will also buy less.
So consider this when planning your retirement. It’s ideal to plan with the three-year inflation average in mind.
Use other means to grow your retirement fund and beat inflation. Investing in property, stocks, or bonds can give you something to bank on when you finally hit retirement age. If you don’t invest early or at all, you miss the chance of getting an extra cash boost when you retire.
Underestimating Health Costs
As you age, the odds that you get sick also increase. Your body’s immune system won't be as strong. Most people are also genetically predisposed to certain diseases, such as diabetes.
Sadly, Filipinos don’t look far enough ahead to save for medical emergencies, which is why healthcare tends to be the more overlooked part of retirement planning. Diseases like cancer tend to rack up costs upwards of ₱20,000 for a single chemotherapy session.
Having health or medical insurance can help mitigate these types of expenses. Aside from your PhilHealth coverage, you can also get another health or medical insurance plan offered by insurance companies in the Philippines.
Keep your insurance premium payments up to date to make sure your policy is in force, and get add-ons or riders that you think are suited for your needs in the future.
Forgetting About Taxes and Fees
Retirement means you no longer have to go through the long and arduous process of filing your income tax returns. But it doesn’t mean you’re totally off the hook.
There’s real property tax, value-added tax, travel tax (when you go out of the country), and even estate tax if you have properties to leave to your beneficiaries when you pass on. Not calculating these when preparing for retirement will hurt your retirement fund, so don’t forget about them.
As these examples show, it’s not always easy to discern between the right and wrong decisions in retirement planning. But the first real retirement planning mistake is not planning at all.
As such, it’s never too early to prepare for your retirement. Remember that every financial decision you make now affects your future.
-  PHL retirement system 2nd worst in global index (BusinessWorld, October 2022)
-  Mercer’s survey highlights lack of support and education on retirement security for employees in the Philippines (Mercer, February 2022)
-  Sandwich Generation (Investopedia, 2022)
-  Philippine inflation rate soars to nearly 14-year high of 7.7% (Rappler, November 2022)