There’s a strategy to getting rich (and richer)

A Chinese proverb goes: "A rich man plans for the future; a poor man plans for the present." For many, planning the future–and planning it well–has opened the door for early retirement.

"I’ve made more than enough to retire on. Now, I’m doing what I’ve wanted to do without having to worry how I will support my wife," said Energy Secretary Vicente Perez, Jr. Perez, who is in his early 40s, retired last year as a regional senior officer of a US-based investment bank to join the government of President Macapagal-Arroyo.

Based on the most recent actuarial study of the Social Security System, Perez retired more than 15 years ahead of the average Filipino who retires at 60 and is expected to live until his 78th birthday.

For the next 18 years of his retirement, the pensioner will receive P1,200 a month, if he has diligently paid his SSS contributions for the last 10 years; and P2,400 a month, if his contributions stretch out to 20 years.

(At P1,200 a month, the SSS monthly pension is significantly less than the minimum daily wage in Metro Manila, which is equivalent to P6,720 a month, and slightly higher than the monthly equivalent of the 2000 national per capita poverty threshold of P13,916 a year).

Pooling the money

These days, planning for one’s retirement is no longer limited to the well-paid or to financial whiz kids. There are common unit trusts and mutual funds that pool the resources of individuals and are invested in either stocks or bonds or a combination of both.

Along this line is a congressional bill called the PERA, the acronym for Personal Equity and Retirement Income, which is being pushed by Batanes Rep. Florencio Abad. Under PERA, an employee agrees to have a certain amount deducted from his salary every payday on top of his SSS or Government Service Insurance System contribution. The amount raised is put in an investment pool that will be managed by a government-accredited fund manager. Upon his retirement, the employee gets his share of the profits made to date, tax free, by the investment pool.

For those who don’t like making investment decisions, the usual alternative is to save up a portion of their salaries. "I recommend the setting aside of at least 10% of the take-home pay and putting it in the bank. That is your emergency fund," said Citibank vice-president Aileen Litonjua.

"Having the equivalent of about six months of your monthly take-home pay is a comfortable emergency fund. If you keep too big an amount in the savings account, where you earn 2% interest, it will take you a longer time to reach your retirement fund target."

Customized banking

For individuals with higher net worth, there are private bank services such as Citigold, where each portfolio is customized according to risk appetite and investment preferences.

Such a financial service is demanded by affluent clients who need professional advice not only to allocate and preserve their wealth but also to make it grow. In such a case, a banker may be in the best position to point a client to short-term gains and long-term opportunities even as he ensures that the client has enough ready cash for his present day requirements.

"You invest excess money or money that you do not need for your daily expenses. You set that aside for your retirement fund, either by doing your own investing or by letting a financial institution do it. If a financial institution is doing the investing for you, you can forget about it until you’re ready to retire. For sure, you will have a comfortable nest egg by retirement time," said Litonjua.

Another Chinese proverb goes: "A rich man adds riches upon riches; a poor man adds years upon years." How true.