A couple of weeks ago, I was able to set up a meeting with a doctor that I used to cover as a medical representative from my first pharmaceutical company. The last time I saw him was eleven years ago. I was just too happy to see him again.
Prior to that, we have exchanged messages through Facebook about investment -- his retirement fund in particular.
Let me give you a brief background about this doctor. He is 50 years old, married and no kids.
Financially, he earns Php150,000 on average monthly, most of his money is in banks, he has P2M insurance coverage and aims of having a P15M retirement fund by age 65. Our meeting was scheduled because he wants to learn about growing his money through the stock market.
Fill in the Financial Gaps
Truth is, I can just tell my doctor to go to the COL Financial website, download the account opening forms, then fill these up, sign and send it to the COL office. Once his account is active, he can start buying his first shares. His money will grow through capital appreciation and dividends. Then talk with him about other things and end the meeting. Just like that.
But I didn't. Why?
Because I saw financial gaps that needed to be addressed ASAP.
Let me share with you these gaps. May you find these useful as you may be on the same boat with my doctor.
1. Insufficient Insurance Coverage
My doctor has P2M insurance coverage and Php120,000 monthly expenses. In case of untimely death today (knock on wood), this insurance money could only last for roughly less than two years. 1 year and 5 months to be exact.
Why? Let's do the math.
Insurance Benefit / 2,000,000
________________ = ____________ = 16.67 or 17 months
Monthly Expenses 120,000
This is only for income replacement. We have not even included the final expenses yet (hospital bills and burial), money to pay off mortgage or other debts, charitable donations, and money to pay estate taxes.
If you have kids, your insurance coverage should also include the education of your kids until college.
Imagine this. When the insurance money is gone, what kind of life will your family have?
2. Very Little Time to Prepare for Retirement
One of my mentors taught me that you have to start building your retirement fund NOW. The moment you started earning, that is the best time to start preparing for retirement.
And as another mentor said in one of his lectures, "Preparing when you are near retirement is like learning how to swim when the boat is already sinking."
I learned about investing for long-term goals such as retirement back in 2013. I was 30 years old then. And without procrastinating, I started setting aside a part of my income for my retirement fund.
You may think that it's too early for that. I would say otherwise.
Why?
Because in investing, time is our greatest ally. To understand this fully, see the photos below.
These three doctors were classmates during residency training. They were 25 years old then when a financial advisor presented to them about investing for their retirement fund.
Of the three doctors, only Dr. NOW began his investment at age 25 and continued for 15 years, until he was 39.
Ten years later, Dr. WAIT started investing, but TWICE the amount of that of Dr. NOW. He also invested for 15 years, from age 35 until 49.
And then finally, 10 more years later, Dr. LATE entered the picture and began investing. But because he was already earning so much more, he invested THRICE the amount of Dr. NOW, also for 15 years, from age 45 to 59.
When they retired at 65, guess who had the biggest retirement fund?
Drum roll, please.
It was Dr. NOW with 15.1M! Why? Because his money has the longest time to compound.
Photo credits myfinancemd.com
My Doctor Admits Being Dr. Late
Again, the key is financial education.
My doctor wants to have a 15M retirement fund and is only 15 years from retirement. Basically, he would need to save or invest at least 1M to reach his target amount. And yes, that amount is HUGE. Maybe even close to impossible. So, again, start today with your small amount and allow it to just grow a very long period of time.
3. His Target Retirement Fund is Too Little
I can hear you say, "What!?!"
Yes, you've read it right. I will repeat, based from his current expenses, his target retirement fund is too small.
You may say that his expenses will be less when he retires.
Well, he may not have transportation expenses then, but he will have travel expenses.
He may have paid off all his loans then, but what about medical expenses? We all know how financially draining it is to be sick.
His current expenses will only be diverted to other kinds of expenses.
Using my doctor's provided information and using the Time Value of Money (you can download the app or learn the more complex version through RFP), he still needs P25M for retirement for Principal Liquidation. This amount almost doubles if he wants Principal Intact and just live on interest.
That's how much.
Bridging the Gap
After being able to identify the gaps, I offered my doctor a VUL that addresses both his insurance and investment needs.
And because he is already near retirement, investing purely in the stock market is not a sound advice because of its volatility. The market can crash anytime, and by "anytime," it can happen when you retire. It is safe to divide his investment into fixed income and equity fund.
Ask your trusted financial advisor of the right investment product that is tailor-fit to your budget and needs.
Stop Procrastinating. Act NOW.
You have a choice.
You can start funding at need, or BEFORE THE NEED. I encourage you to do the latter. Simply because it is way cheaper then.
I have heard stories of parents in their 70s who are still working because they have to. Why? Because they have overheard their children complaining about how expensive it has been when their parents are with them.
I have heard stories of parents choosing NOT to be hospitalized, although necessary, because they have no money and they do not want to pass the burden to their kids.
There are abandoned elders in Anawim who used to be OFWs, teachers and government employees. They were earning money. But they traded their own future for the future of their children. I am not telling you to not take care of your children. That is our responsibility as parents. What I am telling you is, you can start taking care of your future now while taking care of your children's needs. The key is financial planning.
Writing about this gets me teary-eyed, because I have been to Anawim. Personally, I do not want to be a resident of Anawim. I want to be a donor of Anawim. Truth is, seeing the lolos and lolas made me act to start building my retirement fund.
How will be life for you when you grow old? YOU DECIDE.
There is a reason to fear old age if you are not doing anything today.
Make it a decision and a commitment to yourself that YOU WILL RETIRE RICH.
Be very blessed!
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P.S.2 If you want to know how much Target Amount for Retirement do you need, you may send me a private message on Facebook or email me at financialplanningforpinoys@gmail.com
