Investing for retirement is one of the best things you can do for your future self. When done right, it can give you financial security and the freedom to pursue your passions during your golden years.
So, how do you start, and which investments should you choose?
Things to consider when investing for retirement
Before choosing investment products for retirement, there are 2 things to know: your timeline and money goal. Here’s what you should do:
1. Know your time horizon
Your time horizon tells you how long you should wait before withdrawing your investment. Think about how soon you want to retire.
If you’re in your 20s or 30s and plan to keep working until you’re 60, you have a long-term duration of three or four decades. Since time is on your side, you can explore more investment options, including the more volatile ones if they suit your risk tolerance.
A longer duration means your money has more time to grow, and you will not be affected by short-term changes in the market.
If your target is early retirement, you must save what you can and aim to grow your money faster. To do this, you may need to have multiple sources of income and invest in assets with the highest possible returns.
2. Set a target
How much will you need to retire comfortably? Do you plan to start a business or rely on savings and passive income? These are some of the questions you need to ask yourself to see the whole picture of what you’ll need when you are no longer working.
Follow our guide on how to calculate your retirement budget. Once you have a timeline and a target number, it’s time to look at investment products to get you there.
What are the best investments for retirement?
Your risk profile and specific goals should inform your decisions when investing for retirement. Here are a few options to consider:
- If you want to start a retirement fund
Join voluntary savings programs. These can supplement your government-mandated pension benefits or your company’s provident funds. One such program is the government-initiated Personal Equity and Retirement Account or PERA.
In a nutshell, PERA offers a way to grow your money through investments while providing tax benefits if you’re qualified. SSS PESO and Pag-IBIG MP2 are other government-backed savings schemes to consider.
- If you want a regular income stream
Income-generating products can replace your salary after leaving the 9 to 5 grind. These include assets with regular payouts such as bonds (through coupon payments) and some stocks (through dividends).
With enough funds, you can buy real estate property and earn a steady income by renting it out.
- If you want to reach a certain amount of money
Investing for growth can help you achieve your target amount faster. This involves choosing products with the highest potential to appreciate.
Take note that fast-growing investments could drop in value just as quickly. Before choosing these, you should have an aggressive risk profile to avoid taking on more risk than you’re comfortable with.
Can you invest for both income and growth to support your retirement? Yes, but your chances of success would be higher when you build separate portfolios.
With more than one portfolio, it’s easier to keep track of your progress for each goal and move things around if necessary.
Time is an important factor when planning for retirement. It will be best to start as early as possible and remain consistent in working towards your goals.
