Starting retirement planning at 22 years old!

By Randell Tiongson on February 28th, 2022

QUESTION: Hi Randell, I am 22 years old and working at my first job. My dad tells me that I should already start saving for my retirement, but I think it’s too early for that. There are so many things that I want to save money for, like traveling to Europe and buying my own place. Besides, I’ll probably make more money as I get older, which means I can set more aside for my retirement. Do you think my dad is right? What’s a good age to start saving for retirement? Thank you very much! — Anna, from Facebook

Answer: Anna, your dad is right. The sooner you start saving for retirement, the better. In fact, your first job is the best time to start preparing for your golden years—even if you’re only earning an entry-level salary. There are many reasons why you should be doing it now.

You’re probably still single and living with your parents. This means you don’t have any bills to worry about or other full-time responsibilities like caring for a child. Even if you are contributing to the household expenses, this probably doesn’t amount to how much you would actually spend if you were living on your own. Given the lack of financial responsibilities at this point, you may be tempted to spend your salary on shopping and keeping up with your friends. But this is a great opportunity to begin setting money aside for your mid- and long-term financial goals.

It’s good to know that you plan on traveling the world or buying a house. These things are necessary for your growth. However, these should not get in the way of planning for your retirement.

Consider this scenario: Let’s say you begin saving for retirement at age 22. You set aside P24,000 a year (or P2,000 a month), and you putt this money in an investment vehicle that grows 8 percent a year. By the time you are 65 years old, you will have P8.5 million to use for your golden years.

Now let’s say you wait until you are 35 to start saving. You put away the same P24,000 a year, but for only 30 years, and earnings grow at 8 percent annually. By the time you are 65, you will end up with only P2.9 million. This is less than half of what you would have saved if you had started at 22!

Anna, you are very wise to already be thinking about retirement at the best age to start saving for it. And you are not the only one in your peer group. A survey I once read showed that 36 percent of Filipinos age 18-25 are already starting to prepare for their retirement. The next step is to start building your fund.

At this point, you need to make sure you use the right instrument that gives you the most returns. In this same survey I read, it shows that Filipinos age 36-45 are more reliant on traditional bank products like savings accounts, which are generally ineffective methods for growing a retirement fund. On average, a savings account will only grow 0.06 percent annually. That means if a 35-year old sets aside P24,000 a year in a savings account for 30 years, it will only grow P726,735.

Younger generations, however, seem more aware of better options for their retirement funds. Twice as many 18-25 year olds are looking to use investments for their nest’s egg, compared to older generations. It’s great to know that young adults are becoming more educated about growing their money. I encourage you to do the same and learn more about investment options.

While you are young, you can still afford to use more aggressive approaches to investment. Educate yourself about moderate to aggressive investment vehicles, like unit investment trust funds (UITFs), mutual funds, VUL, stocks and cryptocurrencies. These options are high risk but have great potential to give you greater yields in the long run, which makes them ideal places to put your retirement funds in. These funds are also great places to invest money for your mid-term financial goals, like traveling to Europe or buying a house. Evaluate your expenses carefully and only place an amount that you’re sure you won’t miss. If you withdraw your money in three years or less, you run the risk of capital loss.

There are other things you need to think of when planning for retirement, such as the lifestyle you want to have when you retire, and unforeseen events like medical expenses. Read books, attend financial seminars or talk to your dad about ways to maximize your working years so you can retire comfortably. Don’t delay starting your retirement fund because the best age to start saving for retirement is now.

Let me leave you with an awesome advise written thousands of years ago: “Go to the ant, O sluggard; consider her ways, and be wise.”—Proverbs 6:6, ESV


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Starting retirement planning at 22 years old!