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  • Writer's pictureZiggurat Realestatecorp

Retirement finances

Being free to do what one pleases is supposed to be one of the great things about retirement. But that’s only if one’s retirement funds are more than sufficient not just for daily ordinary needs, but also for eventualities as well.

Many of us who have worked for a salary never really gave the idea of saving for retirement much thought. We were caught up with the financial needs of the moment, with children going to college and the ever-increasing cost of living. After all, many companies provide retirement benefits and some of us thought that should be enough.

The day arrives and you suddenly feel insecure that perhaps you have not saved enough to go without a regular monthly income. Even for some pretty high-level executives, sometimes the golden handshake may, in reality, only be gold plated.

And forget SSS. Its retirement pension will barely cover the cost of a senior citizen’s monthly maintenance prescriptions. I heard GSIS pays better, but still not enough to cover the ravages of inflation.

The lucky ones are those in the military and the national police whose retirement benefits, to which they don’t contribute, are paying up to 88 percent of the base pay of active soldiers and policemen. Duterte also made it inflation proof.

An AFP pensioner can get P191,000/month for life. These pensions are tax-free, indexed to one grade higher, and 75 percent is passed on to the spouse when the pensioner dies, still tax free. Duterte gave the military and the police the best possible retirement benefits. But that’s only because he was scared of being overthrown in a coup.

The first thing an ordinary civilian retiree will notice is that there is no more medical insurance to cover hospitalization, consultation, and laboratory tests. You probably hardly used your medical benefits when you were working because you were young and healthy. But now that you need it most, no more medical cover. Forget PhilHealth. They hardly pay for anything legitimate. A few days of hospital confinement can easily set you back about a million pesos. And if you get some catastrophic disease, sorry na lang.

What about private retirement plans? We get badgered by friends working for insurance companies to buy those “investment plans” that will supposedly come in handy when you retire. I have news for you… forget those too.

Those so-called investment plans are tailored to make the regular payments easily fit your budget. That means, you really are not saving enough to have a useful retirement fund.

Worse, most of those plans are mutual funds that invest in a basket of financial instruments like stocks and bonds. They regale you with what is called “paper profits.” But you could end up with less pesos than you have paid into your plan when retirement day comes. Like today, the equities market is down and that’s where your plan is invested. The only way you can harvest any profits is if you are able to sell your plan while the equities market is booming.

My own experience is that after 10 years, a popular foreign insurance company whose investment plan I bought as a favor for a friend didn’t appreciate much. Now that the market is down, I am ecstatic if the value is equal to what I have placed in it. The only ones who make money are the insurance companies because they charge management fees whether they were able to make the funds grow or even when the funds are less than when you started.

Come to think of it, I bought into a few of these insurance funds, including two from Canadian insurance companies, at the instance of friends who at midlife, shifted careers into selling those products. Good thing my real savings were being managed by a bank.

In hindsight, money invested in those insurance mutual funds would have earned more on retirement day if invested in stocks of PLDT, Globe, Meralco, Jollibee and Aboitiz Equity Ventures. Not only did those stocks appreciate greatly over the last 10 years or so, the first three are also very generous regular dividend payers.

What we need are professional financial counsellors who can help set up financial goals for you while you are in your 30s or 40s. The financial adviser will recommend how much you need to save to get, for example, P20 million on retirement day. Then you come up with an investment strategy and regularly review this with the adviser, keeping your end goal in mind. The adviser shouldn’t be employed by an insurance company or even a bank to avoid conflict of interest. My relatives in the US have this.

They also have the 401k plan in the US, which provides tax incentives for saving towards retirement. You and your employer can deduct contributions to the plan from total earnings, which lowers your tax liability. We have a poor copy of the concept which is called PERA or “Personal Equity and Retirement Account”.

When I was covering the Senate in the ‘90s, then senator Ed Angara championed this personal retirement law that would help augment the meager retirement benefits of ordinary employees. Republic Act 9505 took about 10 years to get implemented. The bureaucrats at BIR held up the release of implementing rules.

Under the PERA Law, an employer may contribute to a PERA on behalf of their employees up to the extent allowable to enjoy tax benefits. The problem with PERA is the limits on contributions have been rendered ridiculous by inflation. PERA isn’t quite like the 401k plan in the United States. The PERA law had all the good intentions of the late senator Angara, but its implementation rendered it less useful.

But that is how it is here. Retirees need more funds for their old age and a genuine universal health care system. Our society should show more appreciation for our retirees beyond the senior citizen discount. Until then, we have to fend for ourselves. Expect little or nothing from our so-called social safety net. Times have changed and no one wants to depend on the charity of their children if possible.

Source: Philstar

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