RETIREMENT PLAN

PLANNING TODAY FOR A HAPPY TOMORROW

PREPARE A COMFORTABLE LIFE

SIMPLE FORMULA FOR BUILDING A RETIREMENT NEST EGG

SPEND 50% ON NECESSITIES

30% ON ENJOYING THE PRESENT SAVE 20% FOR THE FUTURE

What is Retirement Planning? Why Plan for Retirement?

Retirement Planning is the -Limited Income

process of setting goals for
your retirement years and
actions and decisions needed
for achieving those goals.
- Difficulty in meeting basic
living expenses
- Dependency on children
- Healthcare issues with related
expenses
-Sacrifices and Hardships

WHAT A PERFECT RETIREMENT LOOKS LIKE?

1. Travel and see the world.

2. Be happy and comfortable every day.

3. Have a sense of purpose and meaning.

4. Volunteer and feel wonderful helping other people.

5. Live independently with love and purpose.

 Age today: Age at retirement: Years to retirement:
1 RETIREMENT
20 years old 60 years old 40 years

PLANNING CHECKLIST

TASK NOTES

Plan my ideal lifestyle

Started a savings account for retirement

Downsized debt (No debt much better)

Prepare your budget

Calculated income needed for retirement expenses

Budgeted cost of medical care upon retirement

Attended a Retirement 101 webinar

Acquired an investment plan purely for growing retirement money

Calculate weekly / monthly retirement savings figure (put into budget)

Review your retirement funds fees & returns

Consider risk and plan accordingly (Out living, changes in

retirement tax law, etc.)

Review and Adjust Annually :>

2 RETIREMENT INCOME SOURCES

MONTHLY QUARTERLY ANNUAL

Social Security Income ₱8,600 ₱103,200

Company Pension ₱15,000 ₱180,000

Investment Income ₱10,000 ₱120,000

Other Income ₱5,000 ₱60,000

Savings ₱500 ₱6,139.43

TOTAL ₱469,339.43 Considering retirement

income sources is one of the most important

things in retirement planning. The above table shows the assumed estimated income from different sources

monthly and annually. Retirement income may come from a variety of sources, and the percentage of each

may change over time. These sources may include a pension, Social Security, other income and savings,

and even part-time work. The after-tax benefit of each source of income needs to be considered. The

timing of when to use each source also needs to be determined.

3 START SAVING AND BUDGETING

UNDERSTANDING COMPOUND AND SIMPLE INTEREST

We often neglect to save for retirement. For people in their 20s, the future seems so far ahead

that other expenses feel more urgent. Yet these are the years when compound interest is a game-

changer: Saving small amounts can pay off massively down the road—far more than saving higher

amounts later on in life. Here's one example of its effect.

Suppose that I invested 10,000 while I was in college.

If simple interest is charged at 5% on a 10,000 that is taken out in three years, then the

total amount of interest growth is calculated as:

Simple Interest= P × I × n

Where: P=Principal i=Interest rate n=Term of the loan

10,000 x 0.05 x 3 = 1500 will be the total amount of interest

Interest in this will grow at 500 annually, or 1500 over the three-year term.

Compound Interest = total amount of principal and interest in future (or future value) less the

principal amount at present, called present value (PV). PV is the current worth of a future sum of money or

stream of cash flows given a specified rate of return.

The amount of interest if it is charged on a compound basis:

Compound Interest= (P (1+I) n) − P

Compound Interest= P ((1+i) n−1)

Where :
 P=Principal

i=Interest rate in percentage terms

n=Number of compounding periods for a year

Interest= 10,000((1+0.05)^3−1)

= 10,000(1.157625−1)

= 1,576.25

While the total interest growth over the three-year period of this is 1,576.25, unlike simple interest,

the interest amount is not the same for all three years because compound interest also takes into

consideration the accumulated interest of previous periods. Interest payable at the end of each year is

shown in the table below:

Year Opening Balance (P) Interest at 5% (I) Closing Balance (P+I)

1 10,000.00 500.00 10,500.00

2 10,500.00 525.00 11,025.00

3 11,025.00 551.25 11,576.25

Total Interest 1,576.25

Compound interest gives your retirement savings a boost. The more time your money has to

compound and grow, the more opportunity for those earnings to earn additional money. This means that if

you start early, you don’t have to set aside as much money as you would starting later.
RETIREMENT SAVINGS AND RETIREMENT CAR PLAN
COMPUTATIONS; INCLUDES ANNUITY AND SINKING FUNDS
Annuity Funds: a type of annuity in which the goal is to save a specific amount of money in a
specified period of time.

Sinking Funds: a type of annuity in which the goal is to save a specific amount of money in a
specified period of time.

For savings computation:

- To save for retirement, I invested ₱1000 each month in an ordinary annuity with 5% interest
compounded monthly. Let’s determine the amount accumulated in the account after 1 year, 10
years, and 40 years.

Total amount of savings after 1 year: ₱ 12,278.86

Formula to be used: Ordinary Annuity Formula

A=P¿ ¿

p = regular payment amount n = # of payments per year

r = interest rate a = accumulated amount in the annuity

t = years

Solution:

p =₱1000 n = 12

r = 5% (.05) t=1

A=10 00¿ ¿

A=₱ 12,278.86

Total amount of savings after 10 years: ₱ 155,282.28

Formula to be used: Ordinary Annuity Formula

A=P¿ ¿

p = regular payment amount n = # of payments per year

r = interest rate a = accumulated amount in the annuity

t = years

Solution:

p =₱1000 n = 12

r = 5% (.05) t = 10

A=10 00 ¿ ¿

A=₱ 155,282. 28

Total amount of savings after 40 years: ₱ 1,526,020.16

Formula to be used: Ordinary Annuity Formula

A=P¿ ¿

p = regular payment amount n = # of payments per year

r = interest rate a = accumulated amount in the annuity

t = years

Solution:

p =₱1000 n = 12

r = 5% (.05) t=1

A=10 0 0¿ ¿

A=₱ 1,526,020.16

SINKING FUNDS

For retirement car computations:

- I would like to have 600,000 for a new car in 10 years. To accumulate this amount, how much
should I invest monthly in a sinking fund with 5% interest compounded monthly?
 Formula to be used: Sinking Fund Payment Formula

P=
()
A r
n

1+( )
r nt
n
−1

Solution:

a = 600,000

t = 10 years

n = 12

r = .05

P=
1,000,000 .05
12 ( )
( )
12∗10
.05
1+ −1
12

P=₱ 3 , 8 63.93

Monthly payment: ₱ 3,863.93

4 LISTING DOWN MONTHLY EXPENSES AND

ESTIMATED COST UPON RETIREMENT

BASIC MONTHLY REQUIREMENTS

 CURRENT ESTIMATED COST

UPON RETIREMENT

Housing or Rent ₱3,000 ₱8,000

Transportation ₱1,000 ₱1,300

Electricity ₱1,500 ₱3,000

Water ₱800 ₱1,000

Cable TV ₱500 ₱800

Internet ₱1,500 ₱3,000

Communication ₱850 ₱1,000

Total ₱9150 ₱17,100

PERSONAL MONTHLY EXPENSES

CURRENT ESTIMATED COST

 UPON RETIREMENT

Food ₱5,000 ₱8,000

Clothing ₱3,000 ₱5,000

Travel ₱10,000 ₱20,000

Entertainment ₱500 ₱1,000

Membership ₱500 ₱800

Shopping ₱5,000 ₱10,000

Groceries ₱5,000 ₱10,000

Total ₱29,000 ₱54,800

RETIREMENT RISKS
 Inflation
 Personal Risk
 Health Risk
 Financial Risk
 Changes in Public Policy
 Others
Retirement planning considers listing down the expected expenses to determine how much money

will save for the future. Also, we must consider the risks that affect our retirement income. Inflation will
erode the purchasing power of your income over time. The various investment markets may occasionally

falter. We may well live to be 100 years old. All of these risks need to be taken into account.

5 MONITOR AND ADJUST AS NEEDED

Retirement planning allows us to sock away enough money to maintain the same lifestyle we

currently have. After all, no one wants to work right up until the end. While you may work part-time or pick

up the odd gig here or there, it probably won't be enough to sustain your current lifestyle. And Social

Security benefits will only take you so far. That's why it's so important to have a viable plan that allows you

to get the maximum amount of money when you retire. Retirement planning is such an important part of

our financial well-being. But there are other things we need to consider outside of what happens after you

retire. There are lot of factors to consider that may change or break your plans so it is important to posits

all worst case scenario and include options or back up plan for unexpected things that might happen.

Ensure that your finances are giving you the biggest tax breaks possible, so a PERA may be a good idea

if you believe you'll be earning some income later on in life. You may also want to consider what happens

to your assets after you die, which is where estate planning comes into play. Life insurance can help offset

any expenses that you leave behind for your loved ones if you become injured or die unexpectedly.