Retirement Fund Plans in the Philippines (w/ Tips & Strategies)

Retirement Fund Plans in the Philippines (w/ Tips & Strategies)

Retirement planning is a crucial aspect of financial management, especially in the Philippines, where social security benefits often fall short of ensuring a comfortable life post-retirement. The importance of meticulously planning for retirement cannot be overstated as it safeguards financial stability and independence during the later stages of life.

Given these circumstances, exploring various retirement fund plans in the Philippines and methods becomes imperative for Filipinos aiming for early retirement, or in other words, aiming to FIRE.

Reminder: In this article, I will be sharing options but I am not suggesting that these are the surefire ways to achieve FIRE. Please conduct due diligence and know that for every investment, there are risks involved.

Best Retirement Fund Plans in the Philippines

Early retirement, a dream for many, requires a strategic approach to savings, investments, and financial planning. The goal is to build a diversified portfolio that ensures a steady income stream even after retirement. Here are some retirement fund options that you may consider:

1. Government-Sponsored Retirement Plans

SSS Pension Plan

The Social Security System (SSS) is a comprehensive program aimed at private sector employees, self-employed individuals, and voluntary members. Eligibility for SSS benefits requires at least 120 monthly contributions before the age of retirement. The benefits encompass a retirement pension, disability benefits, death benefits, and more.

Pag-Ibig Pension Plan

Also referred to as the PAG-IBIG Regular Savings Program, this retirement plan allows you to withdraw your PAG-IBIG contributions after 20 years of contributions or upon retirement at the age of 60 or 65.

GSIS Pension Plan

The Government Service Insurance System (GSIS) caters to public sector employees, offering similar benefits to the SSS but with additional features tailored to government workers.

Should you solely rely on these pensions? Better not to over rely on these as your only retirement income source. According to an article by Philstar dated 2022, once an SSS member retires, the member will be entitled to a monthly pension that could range from Php 2,000 to as much as nearly Php 20,000.

When I visited an SSS branch, I asked for an estimate of the possible benefits one may receive given a certain amount. If your monthly contribution is Php 700 per month and assuming you’ll be contributing until age 60, you may receive Php 2,800 per month as your pension. If you contribute the maximum of P2,800 per month, you will most like receive Php 10k to Php11k per month. If you think this isn’t substantial (which I highly doubt that it will) to cover your monthly retirement needs then it’s best to find other alternatives or better yet, invest on your own.

2. Insurance Plans

Insurance plans are one of the well-known retirement fund plans in the Philippines by providing financial security and income during retirement. These plans typically involve paying premiums over time, and in return, they offer benefits such as a lump sum payout or regular income after retirement. They can help cover living expenses, medical costs, and other needs, ensuring a stable financial future.

On the other hand, non-life insurance products are policies that cover properties and other liabilities.

Universal tips: Get health insurance for the purpose of protection against sickness, critical illness, total and permanent disability and hospitalization, and accident. On the other hand. endowment plans may serve as an additional retirement funding since you can get 10% of your face amount starting on the 6th year of paying period until the age 100. For example if your insurance coverage is Php 1M, you will receive Php 100k every 2 years starting on year 6 of paying period until the age of 100.

My real best tip: Go for an insurance company who renders good after-sales service and isn’t just recognized as the Top 1 for NEW SALES. The fact is all insurance companies are still businesses – they try their best not to pay out claims since they have a team of experts whose job is to find loopholes.

3. PERA (Personal Equity Retirement Account)

PERA is a voluntary retirement savings program that allows individuals to invest up to Php 100,000 annually with lots of tax incentives to encourage saving. Tax incentives can give your investments an extra boost as you have less expenses to pay. For example, you can get 5% credit on your income taxes each year which can be used to pay for your income tax liabilities. If your income tax is Php 150,000, and your total PERA contribution amounts to Php 100,000, you’ll be entitled to a 5% tax credit of Php 5,000. You’ll pay only Php 145,000 in income tax for the year.

More info about the tax incentives can be read in this article but nonetheless, contributions to a PERA account are invested in various financial instruments including mutual funds and government securities, offering potential growth over time.

Is Investing in PERA investment worth it? Some have mentioned that although it is tax-free, the downside is that it charges high annual management fees. The question is, how high is “too high” for you? You might want to check for any withdrawal issues.

4. Real Estate

Real estate investments also play a pivotal role in early retirement planning. The Philippine real estate market has shown consistent growth, making it an attractive sector for investors. Buying properties for rental income or capital appreciation can provide a steady income stream and significant returns upon sale.

Examples of using real estate as a retirement plan include:

  1. Rental Properties: Purchasing residential or commercial properties to rent out can provide a steady stream of income. For instance, owning an apartment building or a series of single-family homes can generate monthly rental income.
  2. Vacation Rentals: Investing in properties in popular vacation destinations and renting them out short-term can generate substantial income during peak tourist seasons.
  3. Real Estate Investment Trusts (REITs): Investing in REITs allows individuals to invest in real estate without directly owning properties and without the ginormous cash outlay. REITs pay dividends and can be a source of regular passive income. More on this later.
  4. Flipping Houses: Buying, renovating, and selling homes for a profit can be a way to increase retirement funds. You may look into foreclosed properties through Pag-IBIG and banks as these are being offered at a more affordable price but with the same value as the properties in the market. This also requires a keen understanding of the real estate market and renovation costs.
  5. Reverse Mortgage: Reverse mortgage programs in the Philippines such as the Mabuhay Program allow Filipino Senior Citizens to convert home equity into cash without selling the property and with no monthly mortgage payments.
  6. Downsizing: Selling a larger home and moving into a smaller, less expensive property can release equity, which can be used to fund retirement expenses or other investments.

Tip: If you’re not a fan of dealing with people then rental properties may not be for you unless you hire a property manager. On another note, you can leverage on acquiring properties and sell them when an emergency arises.

5. REITS

If you don’t have enough cash outlay to acquire real estate, you may try REITS wherein you will buy stocks of real property companies. REITs rent out, lease and sell properties. It works like investing in stocks but the focus here is real estate. The company will collect rent income on properties they own and out of this, they then pay back investors through dividends. One of the benefits of investing in REITs in the Philippines is that they are required to distribute 90% of their annual income to shareholders.

My best tip: If your goal is generating cash flow, you may try REITS but if it’s for capital appreciation, you may want to find something else.

6. Pag-IBIG MP2

One of the top choices when choosing a retirement fund in the Philippines is Pag-IBIG MP2 because it is a low-risk investment that’s backed up by the government and the minimum requirement to open an account is Php 500.00. You may invest as much as you want on a monthly or yearly basis. I wrote more info about MP2 and how its dividend rates are substantially higher than time deposits in this MP2 article, but do take note that your money will be locked-in for 5 years.

Before investing, make sure you won’t be needing the money in 5 years and your initial retirement year won’t fall within the 5-year timeframe. For example, if you plan to retire next year but your MP2 is still on its 3rd year (which you can’t pre-terminate or withdraw unless it’s under approved circumstances), you may need to find alternative sources to pay for next year’s expenses.

Tips for MP2: There are 2 kinds of dividend payments (yearly and lump sum after 5 years). If you want to earn more, choose the lump sum payment.

The real question lies in its withdrawal issues. There have been several cases wherein accountholders are having difficulties with the release or are waiting for an extended period of time. You may check Reddit forums or Facebook groups dedicated for MP2s to read more about these unfortunate issues.

7. Stocks

The stock market offers significant potential for high returns to both short-term traders and long-term investors. However, stock investing can be risky, and profitability can be quite unpredictable.

Naturally, you want to ensure substantial earnings from your investment by the time you retire. The best strategy is to invest in blue-chip stocks of well-established companies in the Philippines, known for their impressive historical performance and proven track record of stability and profitability regardless of market conditions.

Additionally, many blue-chip companies distribute dividends to their shareholders, which can boost your retirement savings.

Tip: Blue chip companies have erratic income cycles meaning a company that’s blue chip today can be garbage tomorrow, so you’ll need to monitor the stock every now and then. Price movements can move against you but if you’re just after the cashflow then it doesn’t really matter.

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Diversification remains a cornerstone of successful investment strategies. By spreading investments across different investments, individuals can balance potential risks and rewards. Long-term planning is essential, requiring a disciplined approach to saving and investing.

Successful Retirees in the Philippines

When it comes to achieving early retirement in the Philippines, there is no one-size-fits-all approach. To illustrate this, let us delve into the experiences of 3 people whom I’ve had the chance to talk to. They shared their stories on how they successfully retired early and are now enjoying the fruits of their labor. I hope these serve as an inspiration on how various retirement plans and methods can be effectively employed to achieve early retirement.

*Note: Names have been changed to protect their privacy.

Arlyn began her career in the corporate world, working as a financial analyst. At the age of 43, she decided to retire early to focus on her passion for travel and photography. Maria’s strategy involved aggressive savings and investments in stocks. She also diversified her investment portfolio by purchasing rental properties. Although she faced challenges such as market volatility and tenant issues, her disciplined savings and investment approach eventually paid off. Maria emphasizes the importance of starting early and being consistent with financial planning to achieve early retirement.

Carlos worked as an engineer for a multinational company. He retired at 48, aiming to spend more time with his family and pursue personal projects. Carlos’s approach included maximizing his contributions to the Social Security System (SSS) and investing in a combination of government bonds and high-yield savings accounts. He also started a small coffee shop business that generated passive income. Carlos faced the challenge of balancing work and family life while managing his investments. His main takeaway is that a well-rounded plan, combining stable investments and passive income sources, can significantly ease the path to early retirement.

Ana opted for early retirement at 40. Her strategy included investing aggressively in rental properties and expanding her blog for passive income. Ana also engaged in freelance writing and speaking engagements to supplement her income. Her journey was not without hurdles, such as the need to adjust her lifestyle to match her post-retirement income. Ana learned that flexibility and a willingness to adapt are crucial elements in sustaining an early retirement.

Retirement Fund Plans in the Philippines: Which one is for you?

Achieving early retirement in the Philippines is not a distant dream but a realistic goal. Moreover, retirement planning in the Philippines is not just about accumulating wealth but also about managing it wisely.

Ultimately, a diversified investment strategy, coupled with long-term financial planning, can significantly enhance the likelihood of achieving early retirement in the Philippines. By leveraging various investment options and maintaining a disciplined approach, one can build a robust financial foundation for a comfortable and secure retirement.


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Retirement Fund Plans in the Philippines (w/ Tips & Strategies)

By Ameena Rey-Franc

Recognized as one of the Top Finance Blogs in the PH. Ameena Rey-Franc (founder of TTP) is a former Banker and BS Accountancy graduate turned Blogger, Keynote Speaker, and entrepreneur. Currently an RFP delegate, she is also the Author of a book about Financial Resilience and has held seminars for reputable companies like GrabFoodPH, Pru Life UK, VISA, JPMorgan Chase& Co., Paypal, Fundline, Moneymax, and many more. The Thrifty Pinay's mission is to empower women to LEARN, EARN, and be FINANCIALLY-INDEPENDENT no matter what life stage they are in.