The earlier you start saving for retirement, the more achievable life goals can become. But mindset matters on how to accomplish it effectively. Many tend to think saving requires having large amounts of money. But starting with a small amount can lead to a generous sum over time.

How compound interest becomes rewarding 

The advantage of early saving lies in compound interest, or the interest you earn on the money you've saved and the interest that keeps adding when you don't withdraw it. 

To illustrate, here's how much you make if you put ₱6,000 in a savings account with a 5% interest rate.

Compound interest shows how saving even a tiny amount can be rewarding in the long run. You can earn more if you increase the initial investment amount.

Retirement funds to consider

While compound interest is beneficial, it cannot be your only strategy for saving for retirement. Setting aside at least 20% of your monthly income is a good start. 

But, as financial experts say, how you save is as important as how much you save. Apart from putting your money in a regular bank account, explore these options when retirement planning.

Pag-IBIG Fund MP2 Savings Program  

Apart from housing loans, the Home Development Mutual Fund (HDMF), also known as Pag-IBIG Fund, offers a voluntary savings initiative for members called the MP2 Savings Program. HDMF uses the funds to invest in government securities, time deposits, and corporate bonds. When you open an account (₱500 is the minimum investment), your savings can earn higher tax-free dividends than the regular Pag-IBIG savings account based on the investments HDMF makes. 

Personal Equity Retirement Account (PERA)   

If you foresee that your Social Security System (SSS) or Government Service Insurance System (GSIS) pension plan is insufficient for your needs, then ask your bank about the Personal Equity and Retirement Account (PERA), which invests in various types of managed funds. 

Because of the tax-free benefits, investing in PERA (₱1,000 is the minimum investment) potentially provides you with higher earnings than regular investment options. You can withdraw your earnings without paying taxes after contributing for at least five years and enjoy tax credits on your income tax. If anything happens to you, your PERA contributions won't be taxed, so your loved ones won't have to worry about additional taxes during a difficult time.

Insurance with investment  

Another way to boost your savings for retirement is to invest in financial solutions offering life insurance and investment. This dual approach offers the potential for higher savings while providing security for you and your loved ones in the event of unforeseen circumstances.

AIA Philippines' AIA Future Builder offers life insurance and investment in a single package. The premium you pay goes toward insurance in case of unforeseen circumstances and also toward expertly managed funds that yield interest in the long term. AIA Future Builder also offers the flexibility of increasing the amount of your investment over time, especially as your income grows. 

A critical illness diagnosis may require more care than a regular health insurance plan can cover. Adding critical illness coverage to your current life insurance can protect your savings from being drained in case of a serious health issue.

All investments carry risk, but you can reduce it and improve returns with diversification. A financial advisor can recommend an investment mix based on your risk profile, age, goals, and financial circumstances.

Insurance with investment  

Another way to boost your savings for retirement is to invest in financial solutions offering life insurance and investment. This dual approach offers the potential for higher savings while providing security for you and your loved ones in the event of unforeseen circumstances.

AIA Philippines' AIA Future Builder offers life insurance and investment in a single package. The premium you pay goes toward insurance in case of unforeseen circumstances and also toward expertly managed funds that yield interest in the long term. AIA Future Builder also offers the flexibility of increasing the amount of your investment over time, especially as your income grows. 

A critical illness diagnosis may require more care than a regular health insurance plan can cover. Adding critical illness coverage to your current life insurance can protect your savings from being drained in case of a serious health issue.

All investments carry risk, but you can reduce it and improve returns with diversification. A financial advisor can recommend an investment mix based on your risk profile, age, goals, and financial circumstances.

What to keep in mind when saving for retirement 

Having a target retirement income in mind allows you to plan your savings effectively. This involves thinking carefully about how much money you will need to live on once you stop working. You should consider whether you plan on staying in your current location or moving elsewhere, as well as your retirement age.

However you picture your retirement, you want to maintain the same, if not better, standard of living. That desired retirement lifestyle will inform how much you need to save. Remember to consider inflation as well. An item with a price tag of ₱500 in 2019 can cost you ₱662.82 in 2024—a 32.56% increase (based on a 5.8% average inflation rate).

To determine your retirement income, consider your monthly living expenses and savings. Then, plug the numbers using this Financial Needs Calculator. How much did you get? The eight or nine-figure result will surprise or overwhelm you, and that's why planning for retirement is vital.

Save as early as possible, starting with any amount you can spare. After building an emergency fund, take the time to look into retirement funds that can help grow your money. 

Remember, while investing can reward you with high returns, it is not a guarantee. Consult a trusted professional like an AIA Life Planner to understand your risk and protect you and your family with insurance. Start saving for retirement safely!