A Replacement to your SSS Pension


Do you think about your retirement? How’s it gonna be? For some, it’s a question of “how do you enjoy this stage?” but for many, it’s “how will you survive this?”.

Let’s talk about how you can prepare for your retirement. So, how much budget will you need in your Golden Years?

You might know somebody who is now a retiree. It could be your parents or grandparents. Are they happy? Do they have enough savings to sustain their needs as retirees? If the answer to these questions is a resounding “YES” then you are lucky to have them as role models to make your own retirement an enjoyable one someday.

But unfortunately, it’s not the same case for most of us. And what’s sadder about that is a lot of young professionals today don’t see how important retirement preparation is. They would say “Sir Chris, I’m too young to even think of that”. So, when do you want to prioritize that? When you’re 65?

Now if I got your attention, you would take note of these two simple things you need to do to prepare for your retirement:

First, calculate how much is your current living expenses.

Then know when you plan to retire. Is it 10, 20 or 30 years from now? Determine the inflation rate at the time of your target retirement and multiply that to your present year expenses. That’s approximately what you’ll need as a budget for your retirement in the future.

Second, we can use also the Income Replacement Rate.

The concept is basically considering or thinking ahead that you are almost reaching your retirement age. What would be your pre-retirement income?

Let me explain this further through an example. Joel was earning 1million pesos before retiring. This 1 million peso mainly goes to taxes, personal expenses, and savings. But when Joel finally retires, he won’t pay as much tax and spend as much as he did before. So most probably, he would only need 65% of the 1 million to sustain his lifestyle. That would be Joel’s income replacement rate. According to studies, the drop in our spending depends on the amount of our income before retiring. The higher your income the higher the decline of your spending once you retire.

Another example would be Mark Jay earning 2million pesos before he retired. He paid more taxes, was spending and saving more as well compared to Joel. When Mark retires, his replacement rate would only be 50% of his pre-retirement income. Meaning, he’ll need more or less 1million pesos per year for his retirement.

Now to be more specific, here are the three income ranges and their Income Replacement Rate:

  1.  Higher income earners (those who earn 2million pesos and above every year) – 50% Income Replacement Rate.
  2.  Middle earners (those who earn from P500,000 to 1million every year) – 65% Income Replacement Rate.
  3.  Low earners (those who earn P500,000 a below every year) – 80% Income Replacement Rate.

Now that you know your income replacement rate, the next right move is to know how to fund your retirement need.

The reason why many people don’t mind retirement is because they think of SSS to depend on once the inevitable day comes. The sad news is that middle and high earners won’t appreciate this at all in the future because of how little financial assistance they would get from here. SSS can help the low earners to survive their retirement but to those who have pursued their dreams to earn big this might not be your well-deserved reward for your contribution.

Think very well about it. You can do better than depending on SSS. Your happy retirement depends on the efforts of your young and able self. Remember that always.

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