Sunday, May 7, 2017

How To Start Preparing For Our Retirement?

I'm 34 years old and i plan to retire at the age of 50. I have 16 years to prepare for it.

STEP 1: Determine your average monthly expenses (needs and wants included).

Let's assume that i need PHP 50,000 a month.

STEP 2: Add Inflation Rate.

I'm from the Philippines, and as of December 2016, the Philippines Inflation Rate is at 2.60% (SOURCE: http://www.tradingeconomics.com/philippines/inflation-cpi)

YEARAGEMONTHLY EXPENSES
20173450,000.00
20183551,300.00
20193652,633.80
20203754,002.28
20213855,406.34
20223956,846.90
20234058,324.92
20244159,841.37
20254261,397.25
20264362,993.57
20274464,631.41
20284566,311.82
20294668,035.93
20304769,804.87
20314871,619.79
20324973,481.91
20335075,392.44

Based on the table above, i will need PHP 75,392.44 a month when i reached the age of 50 in order to maintain my current lifestyle.

STEP 3: Annualized it!

PHP 75,392.44 x 12 Months = PHP 904,709.23

Based on the computation above, I will need an Annual Net Income of PHP 904,709.23 in order to maintain my current lifestyle.

STEP 4: Let's review our options in earning passive income!

Option A: Savings Account

BANKBANCO DE OROBANK OF PHILIPPINE ISLANDSMETROBANKSECURITY BANK
ACCOUNT NAMEPassbook Savings AccountPassbook SavingsPassbook SavingsRegular Build-Up Savings
SOURCE:https://www.bdo.com.ph/personalhttps://www.bpiexpressonline.com/https://www.metrobank.com.ph/https://www.securitybank.com/
MINIMUM INITIAL DEPOSIT5,000.00 10,000.00 10,000.00 5,000.00
MINIMUM MADB REQUIREMENT10,000.00 10,000.00 10,000.00 5,000.00
MINIMUM BALANCE TO EARN INTEREST10,000.00 25,000.00 10,000.00 10,000.00
GROSS INTEREST RATE PER ANNUM0.25%0.25%0.25%0.50%

The highest Gross Interest Rate in the table above is 0.50% per annum.

In order to meet my target of PHP 904,709.23 Annual Net Income, how much capital do I need?

PHP 904,709.23 / 0.50% = PHP 180,941,846

I will need PHP 180,941,846 to earn PHP 904,709.23 at 0.50% Gross Interest Rate Per annum.

Option B: Time Deposit

BANKBANCO DE OROBANK OF PHILIPPINE ISLANDSMETROBANKSECURITY BANK
ACCOUNT NAMEPeso Time DepositRegular Time DepositPeso Regular Time DepositPeso Time Deposit
SOURCE:https://www.bdo.com.ph/personalhttps://www.bpiexpressonline.com/https://www.metrobank.com.ph/https://www.securitybank.com/
MINIMUM INITIAL DEPOSIT5,000,000.00 5,000,000.00 5,000,000.00 5,000,000.00
GROSS INTEREST RATE PER ANNUM1.125%1.125%1.125%1.90%

The highest Gross Interest Rate in the table above is 1.90% per annum.

In order to meet my target of PHP 904, 709.23 Annual Net Income, how much capital do I need?

PHP 904,709.23 / 1.90% = PHP 47,616,275.26

I will need PHP 47,616,275.26 to earn PHP 904,709.23 at 1.90% Gross Interest Rate Per annum.

Option C: Unit Investment Trust Fund (UITF)

BANKBANCO DE OROBANK OF PHILIPPINE ISLANDSMETROBANKSECURITY BANK
FUND NAMEBDO SUSTAINABLE DIVIDEND FUNDBPI Philippine Equity Index FundMetro PSEi Tracker FundSB HIGH DIVIDEND PESO EQUITY FUND
NAVPU133.3994 104.2200 1.0999 1.1442
ROI YOY %23.98 9.31 12.57 11.38
ROI YTD %17.80 13.58 15.15 11.22

(SOURCE: http://www.uitf.com.ph/#gsc.tab=0)

The highest Gross Interest Rate in the table above is 23.98% per annum.

In order to meet my target of PHP 904,709.23 Annual Net Income, how much capital do I need?

PHP 904,709.23 / 23.98% = PHP 3,772,765.76

I will need PHP 3,772,765.76 to earn PHP 904,709.23 at 23.98% Gross Interest Rate Per Annum.

Option D: Mutual Fund

FUND NAMEPhilequity PSE Index FundPhilippine Stock Index FundPhilequity FundATR Kim Eng Equity Opportunity FundFirst Metro Save and Learn Equity Fund
YIELD-TO-DATE6.19%5.50%4.82%4.31%4.17%
1-YEAR-RETURN2.10%0.86%2.42%5.52%-2.16%
3-YEAR-RETURN4.30%3.87%3.80%0.74%0.34%
5-YEAR-RETURN7.78%7.74%7.23%5.45%4.16%

(SOURCE: https://philpad.com/best-mutual-funds-in-the-philippines/)

The highest Gross Interest Rate in the table above is 7.78% per annum.

In order to meet my target of PHP 904,709.23 Annual Net Income, how much capital do i need?

PHP 904,709.23 / 7.78% = PHP 11,628,653.34

I will need PHP 11,628,653.34 to earn PHP 904,709.23 at 7.78% Gross Interest Rate Per Annum.

Option E: Stock Trading

Monthly % Gain1%2%3%4%5%
Compounded Yearly % Gain12.68%26.82%42.58%60.10%79.59%

The highest Compounded Yearly Gain in the table above is 79.59% per annum.

In order to meet my target of PHP 904,709.23 Annual Net Income, how much capital do i need?

PHP 904,709.23 / 79.59% = PHP 1,136,712.19

I will need PHP 1,136,712.19 to earn PHP 904,709.23 at 79.59% Compounded Yearly Gain Per Annum or Minimum of 5% Gain Per Month.

Let's Summarize:

OPTIONSROI-YOY %CAPITAL REQUIREMENT
Savings Account0.50%180,941,846.00
Time Deposit1.90%47,616,275.26
Mutual Fund7.78%11,628,653.34
UITF23.98%3,772,765.76
Stock Trading 1% Gain Per Month12.68%7,134,930.84
Stock Trading 2% Gain Per Month26.82%3,373,263.35
Stock Trading 3% Gain Per Month42.58%2,124,728.11
Stock Trading 4% Gain Per Month60.10%1,505,339.82
Stock Trading 5% Gain Per Month79.59%1,136,712.19

I choose Stock Trading to prepare for my retirement. 

If you look at the table above it would be very difficult to raise the capital requirement for me to meet my target Annual Net Income when i reach the age of 50 if i would choose Savings, Time Deposit or Mutual Fund.

Why not UITF? Because if i choose UITF i would be limiting my opportunity to earn.

If i consistently gain 1% per month on average my annual return in stock trading will beat the returns provided by Savings Account, Time Deposit and Mutual Fund.

If i consistently gain 2% per month on average my annual return in stock trading will beat the returns of UITF.

And i believe that in 16 years, it is possible for me to learn how to consistently gain 2% per month or 26.82% per year in stock trading. 

Just look at the Top Gainers for this month, it has only been a week into May and we have 81 Stocks that posted more than 2% gain already


At the same time i won't be limiting my opportunity because there would be days, weeks, months or years that i can earn more than 2% in a given trade and that adds significantly more on the upside.

How about you? How are you preparing for your retirement?

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