by: Kyle Kam
It’s never too early to plan your retirement. Often, it starts out with the topic being brought up by your friends or family, which can reveal planning mistakes you’ve already made without realizing it.
One might be wondering on what mistakes you need to avoid in order to have an abundant retirement. Here’s a look at five retirement planning mistakes most people make, and how you can avoid them.
Having Bad Debt
Borrowing money causes your money to be allocated for past purchases and ties us down from using it on profit-yielding assets.
With calculated risks, it's acceptable to get debt for appreciating assets like borrowing money to grow a business. Bad debt is simply money borrowed to buy a depreciating asset. This includes using your credit card to buy a gadget and paying interest on top of it. An iPhone 5 16GB that you bought last 2013 at Php28,000 is now at Php11,000 - Php15,000 for brand new units. This is a loss of Php17,000 - 13,000 in a span of 3 years, with the resale value going lower as the phone gets older.
How to avoid it: Avoid borrowing money as much as possible and buy what you can afford in cash. This will make you have the habit of living within your means and only resorting to borrowing in case of emergencies.
It’s a mistake when you peg your retirement savings at an amount that works at the current standard of living since there is an annual increase in consumer price indexes in the country. According to the Philippine Statistics Authority 2014 Consumer Price Index Report, there was a 6.7 percent increase for food and non-alcoholic beverages. Housing, water, electricity, gas and other fuels index increased at 2.3 percent.
How to avoid it: Personal finance advocates like Randell Tiongson believe in using other means to grow your retirement fund and beat inflation. Investing your money and letting it grow is one way, and products like UITFs and Mutual Funds are perfect for starting out.
Underestimating Health Costs
Healthcare is an inevitable expense that comes with aging. This is an expense that should be accounted for before the diseases hit you. Diagnostic services at the Philippine Heart Center costs around Php2,100 - Php3,200, which does not include consultation with the in-house physician, while their treatment plans for ward heart surgeries range from Php101,000 - Php 800,000. Rates for health care of other diseases may vary so it pays to be prepared when your health will call for it.
How to avoid it: Prepare by giving monthly contributions to Philhealth and getting a health insurance coverage. Keeping up to date with your payments on your health insurance premiums will help lower costs in the future.
Planning retirement presents you with hard choices to make in the present so that you can live a financially secure future. Questions like “How much do I save?”, “Where do I retire?”, or “When do I retire?” can ultimately throw a wrench in any plans you have today. The odds that you retire poor are closer to 100 percent if you don’t take any action now.
How to avoid it: If you’re married and have a family, talk to your spouse and discuss what you need to do since your income is mostly allocated to your children. If you’re single, having conversations with friends or siblings can help you all put together those plans.
The first real mistake when it comes to planning your retirement is not planning at all. But there are others that you might not think are mistakes now – but they might be when the time comes. As much as you can make these mistakes, you can avoid them if you start planning right now.
About the Author:
Kyle Kam is a Digital Marketing Specialist of MoneyMax.ph, a financial comparison website aiming to help Filipinos save money through diligent comparisons of financial products.