How much do Filipinos need to retire?

Imagine lounging by the beach and traveling the world. With lots of free time on your hands, you can do things you wanted to do, like adopting a new hobby. Does that sound like a typical retirement we have all been dreaming of? However, those things don't really come for free.

How much is enough to retire comfortably in the Philippines? I've tried to search for articles explicitly trying to do the math on this, but I couldn't find any. By law, Filipinos can retire by the age of 60 with 65 as the latest age to start getting our SSS pensions. However, even with paying the maximum contribution, you would only get around 14K per month. For an ordinary Juan, working his entire life--Is that enough?

Some people will argue that you won't be spending much when you grow old. But I would beg to disagree to that statement. When you've gotten used to a lifestyle, you would want to continue living with that lifestyle even after you retire, or at least a good fraction of it. The rule of thumb is to have 2/3 of that, since you may not be paying for kids and mortgages. So let's do the math!

I'll base this on the different income groups posted by CNN last 2020: https://www.cnnphilippines.com/news/2020/4/25/explainer-who-are-the-Filipino-middle-class.html

Say you'd want to live a lifestyle of a Middle Middle-Class, let's assume a cost of living with ₱60,000/month. That is ₱720,000 per year.

Some assumptions:

1. You will retire in 30 years

2. Inflation of 2.5% every year

3. You don't have any other source of income after you retire

4. You've only been saving for your retirement by hard cash

After 30 years @ 2.5% inflation, you will need roughly ₱126,000/month to maintain that ₱60,000 cost of living you had, 30 years ago. That's ₱1,512,000 per year! Let's get 2/3 of that as a baseline of your new retired lifestyle. That's still ₱1,013,040 or roughly ₱84,420/month.

You can use this compounding calculator to do this. Just enter 60, 000 on the principal and interest rate at 2.5 and set 30 on years to grow. (Yes, that's how painful inflation is!) http://www.moneychimp.com/calculator/compound_interest_calculator.htm

The current life expectancy of the Philippines is at 71 years old. That means most people live until that age, so you'll need:

₱1,013,040 X 11 = ₱11,143,440 (if you live til' 71)

₱1,013,040 X 20 = ₱20,260,800 (if you live til' 80)

For a ₱30,000 cost of living, which is in the Lower Middle-Class bracket, you will need roughly ₱63,000/month to maintain the same quality of life, 30 years from now. That will cost you ₱756,000 annually. Get a baseline for your retirement income of 2/3 that lifestyle, equates to ₱504,000. Using the same formula above:

₱504,000 X 11 = ₱5,544,000 (if you live til' 71)

₱504,000 X 20 = ₱10,080, 000 (if you live til' 80)

I have not calculated that with inflation during retirement, but it gives you a rough approximation of how much you'll actually need (I'm too lazy to calculate it). It's NOT a small figure. You can try adjusting the parameters (e.g. when you'd want to retire and the cost of living you want during your retirement). It may sound impossible, but it's not, especially when you start early. I'll create a separate post on that.

So there you go, that's my rough approximation of how much a typical middle-class earner will need to retire comfortably. If you have already started, then that's great. If you haven't, the best time to start is NOW. Time works well with money, and it can also work the other way around. Trust me, you don't want time to be your foe.