Money Bliss

♥ #MoneyBliss :How to Prepare for Retirement? ♥

 

First, what is retirement? Retirement is (the point in life) where a person stops employment (under an employer) completely. Often times it becomes mandatory at the age of 60 to 65. (credits to Wikipedia)
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How do people prepare for retirement? Different people prepare for their retirement differently.
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1. Some rely on the social insurance system which is usually in the form of mandatory salary deductions (SSS pension for private employees and GSIS pension for government employees). You can be an SSS member voluntarily, though. Almost all complain that pensions from these institutions are too small to cover a comfortable retired life.
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2. Others rely on insurances offered by private institutions. But, two things hinder Filipinos to avail of these kinds of insurances. One is the lack of trust in companies offering pre-need plans and the other is the rising cost of insurance premiums. Who has not heard a news regarding pensioners and beneficiaries not getting their benefits? And, remember that employees are already burdened by the mandatory social insurance contributions.
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3. The business savvy people bank on their businesses which is good as long as the businesses are being managed well, earning good and thriving in a fast-paced world. Minding a business though is not exactly a retirement if you ask me.
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4. The worst preparation for retirement for me is to rely on your kids or relatives. Sadly, this has been part of our culture since time immemorial. Deeply rooted, this may seem to be difficult to uproot but thankfully, as Filipinos become more and more financial literate, we learn that this form of retirement is no longer ideal.
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What do I have in mind for my retirement? Now, this will serve as my draft road map to my personal retirement.
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1. I’ll make sure to get the benefits I deserve as a member of a social insurance system. After all, the mandatory contributions come from my years of sweat and hard work. I’ll make it a point to at least annually check if my account is updated. I heard horrible stories of identity thefts. Some retirees learned about fraudulent loans on their accounts only upon retiring and these loans which they never applied for nor used are deducted in their retirement benefits.
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2. Instead of a pension plan by a private insurance company, I’ll set up investment accounts, most probably by expanding or dedicating a stock market portfolio for my retirement alone. I only get insurances for our health emergency needs and untimely demise. I’ve learned that it’s more practical to save and invest for your own retirement. Premiums for pensions are higher with the same risks as when you invest on your own. Well, to each his own. I just happened to be interested in investing on my own that I’m willing to read and learn so much about it.
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3. I’d like to have a business, why not? If you’ve been working all your adult life, you might get emotionally depressed when you suddenly stopped working. We want laid-back businesses, though. Real Estate, rentals and farming sound interesting to me.
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4. Invest in PERA. What is PERA?
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PERA or PERSONAL EQUITY RETIREMENT ACCOUNT (PERA) is created under Republic Act 9505 of 2008. Yes, you read it right, it was created in 2008 but only launched last December 2016 because its guidelines and implementing rules and regulations must be crafted very carefully by the Finance geniuses of our country, including the multi-awarded Gov. Tetangco of Central Bank of the Philippines.
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PERA aims to promote capital market development and savings mobilization by establishing a legal and regulatory framework of retirement plans for persons, comprised of voluntary personal savings and investments.
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Also, PERA is expected to help the economy through its potential contribution to long-term fiscal sustainability through the provision of long-term financing and reduction of social pension benefits.
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The good thing about PERA is that it is not a mandatory deduction you’ll see in your paychecks. Fund accumulation is entirely voluntary and relies on an individual’s decision and capacity to invest in his/her retirement fund. PERA is abused-proof too in a sense that they put a cap of P 100,000.00 investment annually and P 200,000.00 if you’re an OFW. PERA allows individuals to open up to five accounts invested in specific PERA-accredited product lines. One can easily open PERA accounts to BSP-BIR-IC-SEC accredited PERA institutional administrators (which usually are the banks where you and I keep our savings) and accredited professionals. As of today, there are only two accredited banks and they are Banco de Oro (BDO) and Bank of the Philippine Islands (BPI).
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There are also heaps of tax advantages in investing in PERA:
– 5 percent income tax credit on the actual PERA contribution (credit only, no refund)
– Tax exemption from the 20 percent final withholding tax from interest on bank deposit substitutes and trust funds
– Tax exemption from the 10 percent final withholding tax on dividend earned
– Tax exemption on capital gains tax on disposition of shares of stock
– Tax exemption on regular income tax from PERA
– Exemption on estate tax
– This may not be tax related but another great advantage of PERA is that if you die before the age of 55, your money goes to your heir without going into probate (a legal process which delays the release of the deceased’s money).
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However, bear in mind that if you decide to partially or fully withdraw your PERA funds before the age 55, you will incur tax fees and penalties. You are only allowed to withdraw before the age 55 without penalty (taxes only) for hospitalization of more than 30 days and/or if you suddenly incur a disability.
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Ultimately, it hopes to instill the discipline and value of preparing for one’s retirement by making an annual contribution (do I hear Christmas bonuses?) to their own account and ends the cycle of relying on one’s kin after retirement. What are you waiting for? Plan for your retirement now! Utilize PERA and reap its benefits in the future.
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