You probably don’t have an idea nor hear the word 401(k) here in the Philippines.
401(k) is an American term for employee’s retirement fund. Investopedia illustrate it as “a retirement savings plan sponsored by an employer. With a 401(k), you control how your money is invested. Most plans offer a spread of mutual funds composed of stocks, bonds, and money market investments. The most popular option tends to be target-date funds, a combination of stocks and bonds that gradually become more conservative as you reach retirement.”
We don’t have 401(k) or anything like it here in the Philippines. The closest thing that we have here similar to 401(k) is the SSS. But is SSS enough for your retirement? Maybe it is enough for your living expenses but not to accommodate the lifestyle you deserve after retirement.
After spending most of your years on Earth studying, doing assignments, reviewing for exams then taking a work that involves a lot of deadlines and stressful paper works, you deserved a relaxing lifestyle – the one that involves a lot of vacations and tours inside and outside our country with your loved ones. Can you imagine how relaxing it is to tour Palawan, Davao, Boracay, Hong Kong, Europe, America and more with your wife? That is the life you deserve to have after retirement. Can SSS provide that? I guess the answer is no.
Companies provide employee retirement benefits for their employees but most of the time the big benefits are only for managers and executives. So most people think as path to financial success is to perform well on their job, get the necessary experience and land that position. Easy as it sound, isn’t it? But I’m afraid, that way can cost you too much time enough for you to have million for retirement. Imagine the time frame before you can be promoted or have a managerial position job and companies also require specific years on that position before they established a retirement benefit fund for you. Maybe it can take 10 years.
So how to create million within that 10 years’ time frame? The answer is in the title itself – 401(k) your salary. You don’t need to wait for your employer to sponsor a retirement fund for you because you can do it yourself.
How do 401(k) works? Simply automatically deduct a certain percentage to your monthly salary (20% is strongly recommended) just like how your employer deduct mandatory government deduction for you. Make it also a mandatory deduction for yourself, call it a retirement contribution and put it directly in the stock market or a growth investment fund and let that money work for you.
Investing today only needs as little as P5,000 initial investment whether you will directly invests in stocks or you’ll just put it in a growth investment fund managed by professional. I strongly recommend direct stock investing because it is cost and tax effective but stock investing requires more homework than just investing in a growth fund. Either way, both are growth drivers of money that can create millions for you.
Start today, 401(k) your salary and RETIRE EARLY with EIGHT DIGIT of NET WORTH that you can enjoy with your family.
Jobel F. De Rosas is an optimistic and enthusiastic young professional who have a great passion for Finance and Capital Market. He is a CPA who strongly advocates Financial Literacy. He believes that Financial Literacy is one of the major gaps that separate Philippines from developed countries. Visit his Website or follow him at Facebook and Guaranteed Millionaire Page. You can also email him at carranzo18@gmail.com
yes, this is my first time that i encounter this term. Hopefully, i can follow this so soon.
i want to retire early from being a mere employee, not only because i like to enjoy luxuries in life but also to begin my dreams. question, is it good to build my retirement fund through mutual fund?
Investing in mutual fund can be a good choice because it is less risky than other kinds of investments like stock investments.
I’ve found this site when I typed in “401k in the Philippines “. I live in the USA and participate in it. My workplace 401k plan matches 3% of $ the employees put in. Say you put 3% of each paycheck you receive if you earn $5k a month before taxes, $150 gets deducted from your pay check and $150 will be given to the 401k account by the company (aka $150 free money). The max limit an employee can put in is $19,000/year (2019)that’s give or take 30% of your paycheck if earning $60k yearly.
There is a lot of things involved in 401k e.g. funds selection, salary % contribution, you can even barrow from it and the interest go back to your 401k when you pay it back, but the most important thing is to start contributing to it, even just up to the employee match aka free money.