Retirement in the Philippines

After my column “In the Evening of Our lives” I had some queries about retirement. I even talked with a 62-year-old, who wants to retire in three years but wants to maintain his current lifestyle and standard of living. The issue was how much in earning assets he should have and what or how these assets should be invested to get the monthly cash flow he needs at current prices.

Retirement age in the Philippines is between 60 and 65. The government and most private companies allow optional retirement at 60 and mandatory retirement at 65, except in the military service where optional retirement is after 25 years of service.

The Social Security System (SSS) and the Government Service Insurance System (GSIS) allows optional retirement at 60 and for the retiree to start receiving their pensions the year after their retirement, with the optional one-year lump-sum payment. Pensions from private companies, on top of the SSS pensions, also allow optional retirement and payments. SSS pensions range from P3,000 to P14,000 per month and GSIS pensions from P7,000 to P28,000 per month.

Private company pensions could double the SSS pensions, while government offices which are constitutional entities, and government corporations which are specially chartered, have pensions which are double, triple or more than the GSIS pensions. So, we are looking at pensions of between P50,000 for an ex-Banko Sentral (BSP) supervisor or a senior clerk of court, and P200,000 for an ex-BSP officer or a Court of Appeals justice.

For an ordinary employee from the public or private sector, their total pensions will average P11,000 monthly. It would be very difficult for them to survive on this amount without additional cash from other sources, like investments or subsidy from the children if they live in the cities.

But they can live with this monthly income in the towns or barangays away from the cities where they don’t have to pay for transportation and expensive utilities, and if they grow some of their food. I met a guy some years ago in Camotes Island who used to work for the provincial government, and hated living in the city. So after retiring, he went back to Camotes and lived off his pension while fishing and growing vegetables in his garden, and he was happy.

The lower-middle class retiree needs a monthly cash flow of P40,000 per month to maintain his standard of living, the middle-middle class needs P100,000 per month, and the upper-middle class needs P150,000 per month. The upper-class retiree needs at least P200,000 to P1,000,000 per month depending on the lavishness of his lifestyle. Beyond these figures, are the super-rich who really don’t need retirement income. So foreigners retired and living here on their $3,000 to $5,000 monthly retirement income are comfortably living an upper-middle class to upper class standard of living. The same goes for our returning OFWs who are also getting the same dollar pensions.

To generate a P200,000-a-month cash flow and continue to live the upper-class lifestyle, one would need a net worth, that means no more debts or borrowings to service, of P100 million. P50 million should be in liquid assets, i.e. time deposits, CTFs, UITFs, and Money Market placements in five different financial institutions.

The other P50 million should be in real property, in exchange traded funds, mutual funds, and listed blue chip shares of stocks. The liquid assets should generate P2.5 million in tax-free income while the other P50 million is a hedge in case of massive devaluation or political upheavals that will make the local currency becomes worthless as it happened in Indonesia following the fall of Sukarno, and is happening now in Venezuela under Maduro. A lifestyle of golf club memberships, annual foreign vacations, four cars, and five-star dining would easily double or more the net worth requirement.

If you had P50,000 in 1969, which is equivalent to P1,000,000 now after all the inflation and devaluation during the past 50 years, and you had doubled the value your net worth every five years by your earnings, savings, and investments, your net worth would now be P 512 billion at current prices. Then you don’t have a problem with your retirement income and cash flows.