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4 Financial Milestones to Achieve Before You Can Retire




Some of us want to retire at the typical retirement age of 60 or 65. Some prefer to retire earlier, perhaps at 50 or 45 or even 40 years old, if possible. Regardless of the desired age of retirement, how would you know if you’re ready to retire?

There’s an interesting article on CNN Money that tells us about four (4) financial milestones every person should achieve before one can decide to retire.

Here are four (4) financial milestones you should have already achieved before you can really say you’re ready for retirement.

Financial Achievement #1: Save enough to cover 3 months of living expenses

Retirees will have their retirement money in the form of a monthly pension or a lump-sum package. So why still be concerned with 3 months worth of living expenses?

The answer: to be financially prepared in case of an emergency.

You don’t know what could happen. A calamity — flood, earthquake, typhoon, fire — might strike destroying your house. A medical emergency might require you to undergo a major surgery. Other unpredictable events could happen, and some of them may require huge amounts of cash.

Thus, you should be ready with an all-cash “emergency fund” that you can tap anytime. This emergency fund gives you immediate access to money which you’ll need in case of an unforeseen event. Preferably, this emergency fund should be at least three (3) months’ worth of living expenses in order not to cause a disruption in your finances.

How to achieve this milestone: Save and park your emergency fund in a time deposit or liquid investments such money market mutual fund or UITF that you can withdraw anytime. Do NOT put your emergency fund in stocks or real estate since it is not easy to liquidate or sell these assets. It may be possible to immediately sell those, but at a loss, and of course, you don’t want to do that.

Financial Achievement #2: Own a house

Another financial milestone you should have achieved before retirement is owning a house. Your place of residence should already be an asset, not a liability, by the time you retire.

If you took out a housing loan to buy a house, this mortgage should have already been fully paid. Otherwise, if you’re retired and you’re still paying the monthly amortization of your housing loan, you might suffer from a financial setback if you’ll need to find a stream of income that can cover your loan’s monthly amortization.

How to achieve this milestone: If you’re going to get a housing loan, choose a payment period that corresponds to your retirement age and your ability to make monthly payments during that payment period.

For example, if you’re 40 years old right now, it doesn’t make sense to get a 30-year housing loan. You’ll be 70 by the time your mortgage is fully paid. And if you retire at the age of 65, where will you get the money to continue paying amortizations per month until 70?

So two things to consider before getting a housing loan: (1) the number of years before your retirement and (2) your ability to make the monthly loan payments during these remaining years to retirement.

Financial Achievement #3: Pay all your debts

A happy retiree is someone who is not tied down by any financial obligations. And a happy retirement is when you’re financially independent — free from all financial obligations.

Aside from the housing loan in “Financial Achievement #2”, you should have paid off all other debts obligations you might have, including credit card debt, car loan, personal loans, and other forms of financial obligations. You won’t be be able to enjoy retirement if you’re still concerned about making the monthly payments to pay off these loans.

How to achieve this milestone: Decide not to get any additional loans, especially if you’re close to retirement age. Regarding your current debts, start paying them off now one by one.

What you should do is list down all your debts and rank them based on the interest rate. The ones with the highest interest rate are the ones that also suck the biggest money out of you. So decide to prepay or terminate these high interest-bearing loans first.

Warning! Do NOT get another loan just to pay an existing debt.

Financial Achievement #4: Prepare a “nest egg” or fund that could replace 80% of your current income

Retirement shouldn’t necessarily lead to a drastic scale-down of your lifestyle. To continue the life you prefer, you need to have access to a steady cashflow that could pay for your desired lifestyle.

Thus years before retirement, start preparing a “nest egg” or a source of cash that could provide you with at least 80% of your monthly salary. This pretty much assures you of a lifestyle that may be the same as the lifestyle you had when you were still relying on your employment income.

Sure, a part of this nest egg could come from your pension fund or retirement package, but if you’re going to rely primarily on SSS (Social Security System) or GSIS (Government Service Insurance System), we’re sure this won’t be enough. Years before retirement, start building a nest egg that could produce at least 80% of the monthly salary you had.

How to achieve this milestone: Save and invest. Right now.

Saving and investing can help grow your money, but of course, choosing the best investment option that suits your risk tolerance and investment objective is key.

What investment options are available? To get you started, here’s our Primer and Guide on various investment options available in the Philippines:

All set to retire? If you’ve achieved these four (4) financial milestones, then yes you’re on your way to a delightful and financially comfortable life of retirement!

Source: “4 financial milestones to reach before you retire.” (CNN)







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One thought on “4 Financial Milestones to Achieve Before You Can Retire”

  1. PwedePadala says:

    By this time, is it advisable to get a term insurance to cover the estate tax for the mortgage-free house?

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