Friday, February 20, 2015

7 Steps To Retire Rich

By imoney | iMoney Philippines – Thu, Feb 19, 2015
Everybody dreams of an idyllic retirement — but not everybody is saving enough for it. And if you’re in your 20s, retirement might feel so far away that it seems futile to start saving for it now. “I’ll worry about retirement later!”
But you couldn’t be more wrong. Even if you just started working yesterday and retirement is 40 years away, you’re making a big mistake by not saving for your future right now. Follow these seven steps on how to retire rich so you can enjoy your golden years to the fullest:

1. Start putting aside 10% of your income towards retirement.

Maybe don’t put your retirement savings in a jar, though.
Personal finance experts advise that people follow the “minus 10” rule, which dictates how much you should save for retirement depending on your age. If you’re in your 20s, you should save 10% for retirement. If you’re in your 40s, that number should be 30%. Can’t afford to save 10%? Start off with 2%, and then gradually kick it up a notch every three months, or when you get a raise, until you can get up to 10%.

2. Start doing #1 right now.

Remember the best personal finance strategy “pay yourself first”? Saving for retirement counts as paying yourself. And you should start right now, no matter how much (or little) you’re making. “The sooner you start saving and investing, the easier it is on your budget,” Carrie Schwab-Pomerantz, president of the Charles Schwab Foundation has said in an interview with Forbes. “The sooner you start, the less you have to save because you have time on your side.” As we showed in this example, waiting 10 years to save could cost you P3.5 million in interest.
If you don’t start as soon as you can, you’re going to have to work extra years to make up for the amount you missed out on, or go even more aggressive with your investments just to catch up. If you follow the “minus 10” rule, the older you are, the more you have to save for retirement. Neither of those options is ideal.
So start contributing small amounts to your retirement fund now and let the magic of compound interest do the rest of the work for you.

3. If you’re not making a lot of money yet, focus on your earnings potential.

earnings potentialPhoto: Shutterstock
The right degree could get you more money.
Young people just starting out on their careers may not be making that much money yet. If this is you, increase your future earnings potential by earning an advanced degree in your field, completing certifications, and getting good experience that will put you in the position to get better-paying jobs. For example, getting an MBA can greatly boost your employment opportunities, or put you on a faster track to promotions. These increases in your earning potential will then allow you to save more for your retirement.

4. Invest aggressively.

The younger you are, the more aggressive you can afford to be with your investments to maximize gains — and the more you should have invested in stocks. Retirement savers in their 20s should have80 – 100% of their portfolio invested in equities, according to Roger Oprandi Jr., a certified financial planner and senior vice president of Vega & Oprandi Wealth Partners. Even if some of your investments lose money, your portfolio will have plenty of time to recover, and the stocks (along with your investments) will have more time to grow.
If you’re already past your 20s, you may need to adjust your aggressiveness level. In any case, speak to a financial advisor about your investment priorities to ensure a healthy portfolio for retirement planning.

5. Set up automatic deposits.

automate savings
Photo: Shutterstock
Automating means never having to say you’re sorry (that you missed a payment).
When saving for a long-term goal, it’s best to set and forget. Set up a direct deposit account that takes out 10% from your payroll account every payday, and you won’t even notice the money missing. You’ll be saving for retirement without feeling like you’re putting in too much effort, so it will be easier to make it one of your financial habits.
You can automate your investments too! For example, you could make it so that you automatically invest in P5,000 worth of a certain stock monthly, with just a click. Putting your savings and investments on autopilot will ensure that your nest egg will grow in no time, and that your retirement is prepared for.

6. Make allowances for your health.

Health concerns will be one of the biggest financial issues when you retire. Your healthy retirement fund could go up in smoke in no time if you end up needing expensive medical care in your retirement years.
To make sure this doesn’t happen to you, you can set aside a dedicated fund for your projected health expenses. You can also look at hospital or disability riders you can add to your insurance plans to help lessen the cost if you’re ever hospitalized. Some plans will even cover you up to age 80. Don’t take financial risks with your health — not only do you need to be physically fit, but financially fit as well if you’re going to enjoy retirement.

7. Shop around for retirement plans.

retirement plansPhoto: Shutterstock
There’s a plan out there for you.
There are plenty of products out there for those looking to save for their golden years. For example, Sun Life has the Sun Pension Plus Plan, which pays you dividends on top of the pension fund. Insular Life’s I-Fulfill guarantees a lump-sum retirement fund by age 65, along with life insurance equal to your plan’s face amount. Different providers will have different plans for every retirement need. Determine your objectives, check out the options, and speak to professionals to find the plan that suits you and your funds best.
Also, keep an eye out for the new retirement plan that our very own SSS is set to launch in the near future: the SSS Personal Equity and Savings Option (SSS PESO) fund, which gives tax-free benefits and guaranteed earnings. 
The key to retiring rich is start early, invest aggressively. Give yourself plenty of time to reach your target goals, and you’ll make sure that you can enjoy the retirement you’ve worked your whole life for.