Work. Work. Work. The pop song that relates our daily routine of going to work. But does life has to be all about work? The answer is no, since there is a word for relaxing and enjoying life with a pension- the word is retirement. Retirement is the withdrawal from one’s position, or job. Retirement means the reduced or has ended active working life. What does retirement feels? Some adults says that they miss the days of going to daily routine and the feeling of being productive. Some might feel they are not prepared, as the income from active day jobs would not come, and that they would have to budget the pension they receive from their years in services. In this case, retiring in your 60s is the norm. This is the norm in which our parents might have followed. This can be the norm our grandparents followed to. Is it natural then to envision our retirement to materialize on our 60s too? We may have wanted better sleep when we dream of being retired at our 40s, going to bed when tired at any time of the day, and to get up without any alarm clock. The retirement we wish to come, to bring serenity and moments savoured. No rushing around and deadlines, no manic Mondays, no more rushing to an office and spend 8 to 9 hours of our time. When we retire, we can work out and be physically active everyday. There can be no excuse to exercising, since when we are retired, we no longer concern ourselves from the busy schedules and exhausting tasks at hand at office. When we are at our 60s though, do we have a strength and energy we had back when we are at our 30s or 40s? Can we just retire now, enjoy life, and work after? How tor retire at 40 is a question that might once run through our mind. There are limitations though, if we do not plan our retirement from our work.
Employees work and report to offices in return for payment such as hourly wage, by piecework or an annual salary. We thrive and become self sustaining from the fruits of our labor. The special day we get our retirement might not need to be on our 60s. If there will be a way to get through our targets, and be financially free that we will be less dependent on our day job and be able to enjoy the things we like to do outside the office. We only have certain amount of time to enjoy life, before we pass on the baton to the future generations. It is with the life expectancy number that we compare the number of years a typical Joe might live. For Pedro, it is 68 years. Life expectancy in the Philippines has been increasing due to the availability of life saving drugs, medical services, and quality or standard of living that is becoming available to the masses. However, it is this number that gives us perspective that live is short. Enjoying life is what we ever wanted, and therefore must not be given wholly to doing the things that we do not love doing. Most people enjoy their work lives and careers. There are times that we just want to be at home, to be with our love ones and watch how our children grow. Being at office might be our only choice to give our love ones the dream they want to become someday, and have quality education. Many OFWs would like to stay in the Philippines, but the benefit of earning more overseas have drove 2.3 million Filipinos to work abroad.
There really are much more to do in life. Life is meant to be experienced and enjoyed. We should look at ways in retiring early, ideally at our 40s and remain financially independent. How much does it cost to live up our ambition to be self sufficient even away from office. Our energy is still high, and we can still enjoy travel around the country and explore its beauty. We may also travel outside the country and experience other cultures and see new places. This is very doable, if the retiree has wealth or inheritance they can tap on while being retired at young age life in their 40s. To the low to middle range income employee, an early retirement can be a challenge: financially. There is nothing wrong to aspire for an early retirement and realize the importance of time while we still have it. We give some tips and considerations when aiming to retire on our 40s.
Simulate how to Retire at 40s
We will model the amount of money needed to retire at our 40s. As discussed, the amount of money must be grown with the use of investments offering positive returns on investment.
We will simulate based on the available tools in retirement calculation. One of the most used, and very surprising tool is the FIRE simulator. The link for the FIRE simulator is given by clicking here.
Shown below is the PSE Composite index (Philippines) yearly returns. The data can be viewed on this link.
- Retirement Year: 2019 and Retirement End Year: 2049 based on the life expectancy of 68 years.
- Say for example, the 8 year PSEI index gain/loss is at 14.80% (from 37.62%, 4.07%, 32.95%, 1.33%, 22.76%, -3.85%, -1.60%, 25.11%, 118.39%), we have identified Growth of Cash: as 14.80%.
- Initial Yearly Spending: is hypothetical and set to Php 96,000 solo person expense and not renting (from budget of Php 8,000 per month when retired.
- Total portfolio when about to retire hypothetically set to Php 2,000,000. The amount is invested in stocks (75%) and bonds (25%)
Resulting figure from computation is shown below:
|Success Rate||Avg. Portfolio at Retirement|
|Ending Portfolio||Yearly Withdrawals||Total Withdrawals|
|Average:||Php 2,743,397||Php 96,000||Php 2,976,000|
|Median:||Php 1,969,872||Php 96,000||Php 2,976,000|
|St. Dev.:||Php 3,351,421||Php 0||Php 0|
|Highest:||Php 10,608,238||Php 96,000||Php 2,976,000|
|Lowest:||(Php 3,278,573)||Php 96,000||Php 2,976,000|
|Withdrawal Analysis||First 5 Years||Beginning Third||Middle Third||Final Third|
|Average:||Php 96,000||Php 96,000||Php 96,000||Php 96,000|
|Median:||Php 96,000||Php 96,000||Php 96,000||Php 96,000|
|St. Dev.:||Php 0||Php 0||Php 0||Php 0|
|Highest:||Php 96,000||Php 96,000||Php 96,000||Php 96,000|
|Lowest:||Php 96,000||Php 96,000||Php 96,000||Php 96,000|
|Dip Analysis||Portfolio Dips(cycles)||Max Dips(in a cycle)||Withdrawal Dips(cycles)||Max Dips(in a cycle)|
|Cycles dipped >10% below initial:||77||31||0||0|
|>20% below initial:||65||30||0||0|
|>40% below initial:||53||27||0||0|
|>60% below initial:||39||23||0||0|
|Individual Dips||Portfolio Dip||Cycle Start / Dip Year||Withdrawal Dip||Cycle Start / Dip Year|
|Lowest Dip:||(Php 3,278,573)||1969/1999||Php 96,000||1871/1871|
|2nd Lowest Dip:||(Php 3,104,194)||1968/1998||Php 96,000||1871/1871|
|3rd Lowest Dip:||(Php 2,950,002)||1969/1998||Php 96,000||1871/1871|
|4th Lowest Dip:||(Php 2,279,311)||1969/1997||Php 96,000||1871/1871|
|5th Lowest Dip:||(Php 1,902,621)||1973/2003||Php 96,000||1871/1871|
At initial portfolio of 2 Million Philippine pesos based on the investments on stocks and bonds, the hypothetical case of retirement at age 40 results to 74.36% chance of success and the amount can be sufficient for the next 30 years. As the graph shows above, the dipping below zero pesos to the negative side of the graph indicate the initial portfolio of 2 Million Philippine pesos is not enough for retiring at 40s or more which accounts to 25.64%. Having enough money in investment portfolio means that the budget of Php 96,000 yearly can be maintained as the person retires. This expense varies, and running your own simulation by tweaking the values can show a different result. This example clearly shows that it is important to save for retirement.