Previously, I shared an article entitled how to compute your SSS pension in the Philippines. That basically give you the glimpse of how much you’re going to receive from SSS the day you reached your retirement years.
Today, I’m going to expose some harsh reality and compelling reasons why you shouldn’t rely on your SSS pension for your retirement. Let’s begin.
How SSS pension and SSS contribution works
In a nutshell, SSS pension of qualified retired individuals are coming from contributions of new SSS members. Haven’t heard of that? Yes! The active working employee is the one paying the elders monthly pensions. Excess are being invested by SSS in various investment instruments and sometimes also use to pay retired members.
So basically, if the young ones refused to pay their SSS contributions today, everything will mess up. Our elders will suffer. Why? Because again it came from the contributions of the active employees today.
Though SSS is investing other portion of the funds, they are not making enough. Mean to say, the large chunk of SSS pension is really coming from new members contributions. Thus it is safe to say:
No new members paying = No pensions for retirees
Why you shouldn’t reply on your SSS pension
Relying on your SSS pension alone for your retirement is not a good idea. Not safe and not a better option. Aside from uncertainty if SSS will have enough fund to support the future retirees, it will not be enough to cover your living expenses when you retire. You also need to consider the inflation rate that will greatly affect the value of your money over time.
Let have a basic example.
A salary of P25,000 will have a SSS contribution of P581.00. This is based on our previous example on how to compute SSS pension in the Philippines. Here’s a quick snapshot:
Employer contribution: P1,208.70
Total contribution per month: P1,790.00
Average monthly salary credit (AMSC): P16,000.00
Given that the employee paid all his contribution for the whole 30 years, his total SSS contribution will look like this: P21,480(P1,790 x 12) per year and P644,000 for 30 years(P21, 480 x 30).
Using the first formula to compute the SSS pension, we’ll have the following:
=P300 + (AMSC) 20% + (AMSC) 2% for year of service in excess of 10 years
=P300 + (P16,000*20%) + (P 6,000*2%*20 years)
=P300 + (P3,200 + P6,400)
In short, it will yield to a P9,900 monthly SSS pension if we follow the previous example.
Given that you avail the monthly pension option instead of lump sum, will P9,900 monthly be enough to support your living expenses on your retirement years? Hmmm..I doubt. Let’s estimate.
For the sake of illustration, let’s have the following numbers(again for illustration only) as expenses:
Electric bill = P2,000
Water bill = P500
Internet bill = P1,000
Food = P6,000
Medicine maintenance = P1,500
Looking at the figures above, it shows that your P9,900 SSS pension will not be enough to cover your monthly expenses. In fact you’re still short of P1,500 following the numbers. It can even go higher and there could be additional.
Please note that we only compute the basic needs and expenses you might have. And since you’re old that time, hospitalization and doctor’s fee will also become a factor. And don’t forget, inflation may go up that time so your P9,900 can only do little as expected.
Now, can you rely on your SSS pension alone? Big NO.
Sure thing it can be a great help and additional, but it cannot sustain. If you want to have a peaceful and comfortable retirement years you must do something today to build a better retirement fund.
Alright, I know and it’s given. If you’re an employee right now, you don’t have options but to pay and contribute to your SSS. That’s correct! And that’s why I said it will be a great help and additional. You have to pay your contributions BUT you also need to find ways now on how to build a retirement fund aside from your SSS pension. That’s the smartest thing you can do.
Now you know the truth, what you should do?
Don’t think of working again on your retirement years, that’s not a good idea. You may ask help from your children but also not a good idea. The best thing you can do is to save and invest right now. Yes, start building your retirement fund now!
Save and Invest for your retirement
Setting aside a little amount today and putting it on a good investment vehicle can definitely ease your headache in the future. A principal investment of P5,000 with an additional of P2,000 monthly in 30 years with 8% interest and compounding 1x per year can become P2,769,110. That’s the power of compound interest and long-term investing.
Investing in stock market, mutual fund or UITF are some of your best options. You can also start a business or invest on other instruments. There are many other options. The key is to start now and invest long-term. I’ll repeat, start now and invest long-term!
If you don’t have any idea about investments and personal finance, I suggest you invest in yourself first by reading books, blogs and magazines. Attend seminars or webinars. Join facebook groups or online forums. Research. Ask. And then take action.
Taking small steps each day can go long way over time. Time is your best friend and number one asset. Use it on your favor. I hope this has been informative, until next time. Cheers!
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