A Lesson from the Vetoed SSS Pension Increase Bill

Last year, the Senate approved the bill granting an extra P2,000 monthly to SSS pensioners. This was in response to the two million Filipinos who receive a meager amount of P1,200-P4,000 monthly pension which is not enough to pay for medicines due to illnesses that come with old age and other needs. There were some speculations though that the approval was linked to the 2016 elections. Nevertheless, retirees and pensioners were hopeful that the increase will happen.

However, the pensioners’ mood soured when Pnoy vetoed the bill this Thursday, 14th January. Apparently, Pnoy said that the increase will significantly decrease SSS’ income that will result to negative funds and undue closure by year 2029.

Here’s an excerpt of the president’s message:

“…the proposed pension increase of P2,000 per retiree, multiplied by the present number of more than two million pensioners, will result in a total payout of P56 billion annually. Compared against annual investment income of P30 billion-P40 billion, such total payment for pensioners will yield a deficit of P16 billion-P26 billion annually..In view of these considerations, I am constrained to veto” (House Bill No. 5842).

Source: http://www.interaksyon.com/article/122711/pnoy-vetoes-p2000-hike-in-sss-pensions

With the turn of events, what can we learn from Pnoy’s decision?

If we think about it, retirement should be a time to enjoy the fruits from years of our labor. But it seems that if we rely on our government for our retirement needs, there is no guarantee that we will be assured of our future. Even if we receive the highest monthly pension limit of P13,000, it will still not be enough to sustain the increasing cost of living especially during our retirement years.

So, what do we do now while we have the ability to earn?  

The best step to take is to look for different instruments that will fund our retirement. SSS pension is there to assist our future financial needs but it should not be the main source of our retirement fund.

We may look at different options out there by learning how savings, insurance, mutual funds, UITFs, stocks, bonds and other financial vehicles can help in reaching our goals.

It sure is better to save and invest early. I have a disclaimer though, make sure that we entrust our money in reliable institutions. Because in the end, it may already be too late and we may end up regretting not taking any action to secure our retirement needs. Don’t you agree?

4 Things That Kobe Bryant’s Retirement Could Teach Us About Personal Finance

If you are an NBA fan, you might have heard the news that one of the living (and playing) legends of the league announced his retirement last Sunday (Nov 29, 2015). Yes, I’m referring to Kobe Bryant. He’ll be playing only until the end of this season and will start facing a new stage of his life – Retirement.

Of course, we’ll not be talking about the Sports angle of this story. Let’s talk about what we can learn from one person’s story of success and perhaps emulate (on a smaller scale maybe) that could lead us to our own journey to Financial Success.

Here it goes…

Attributes to www.ThePlayersTribune.com
Attributes to www.ThePlayersTribune.com

I. We are not capable of working FOREVER.

Yes, walang FOREVER (no such thing as forever). Everything ends.

As the famous ironic quote says “The only constant thing in life is change”. Our mental and emotional state change, or physical ability deteriorates. This means that we cannot work forever. We cannot keep on depending on our active income to support us for the rest of our lives.

Here’s a more dramatic verse from Kobe’s poem ending his career where he earned a total of $680 Million:

You gave a six-year-old boy his Laker dream
And I’ll always love you for it.
But I can’t love you obsessively for much longer.
This season is all I have left to give.
My heart can take the pounding
My mind can handle the grind
But my body knows it’s time to say goodbye.

That’s the reason why we should and understand the second lesson (and take it seriously).

II. Build a second (third, fourth, fifth, etc…) Income Stream

Specifically, “Less-Active” to PASSIVE Income Stream

Knowing that our body will respond and perform differently when we are young compared to an age of more maturity (and seniority), we have to anticipate how we are going to live past the prime of our lives.

CNN reported that Kobe has earned around $680 Million from his 20-year stint at the NBA, majority of which were earned during the last few years as he acquire the “legend” status. Imagine how much he will be giving up by deciding to retire.

However, aside from his basketball career, Kobe do endorsement stints on the side for well-known brands like NIKE. Coming from a very physical and tiring profession, Kobe will still be able make money from less-active projects.

The lesson here is this, while we take our journey to Professional or Entrepreneurial success, we have to build an income stream that will require less energy and less stress compared to what we are currently doing. Everything should be aligning, our physical deterioration with our financial sources – from an active income, to a less active income, and eventually, to a passive income.

III. Invest in your Passion

Successful and happy people tend to do what they love to do, and that’s what we really want to achieve. At the end of the day, it seems that it will fill good to be wealthy, but it definitely feels good to be happy.

I don’t know where Kobe invests all his money, but based on my research, he have investments that are directly or indirectly related to the sport that he loves.

During 2013, he set up Kobe Inc. with the vision of owning and growing brands and ideas that challenge and redefine the sports industry while inspiring the world. I believe Kobe Inc. is a holding company that invests on other businesses (similar to Ayala Corporation, MPIC, amongst others).

The first investment made by the company was a sports drink called BodyArmorJust this 2015, he teamed up with a venture capital firm to invest in the The Player’s Tribune – a popular website that operate in the sports niche.

While we can make money on various ways, be it active, less-active, or passive sources of income, doing something that we really love will makes everything sustainable, since we are more likely to stick to something we love, through thick or thin, than to something we don’t.

My realization is that on the quest to generate less-active income, it could be an opportunity for us to explore the things that we love to do. Even at this point, say we are in a position that we don’t really like our primary source of income, we could always use our leisure time to make our passion profitable.

Easier said than done, but I remember a quote from some videos that I’ve watched that could inspire you anyway, “Version one is always better than version zero”. It just means that doing something, to achieve our passion in this case, is always better than doing nothing.

IV. Diversify

Diversification does not necessarily apply only to investments, but also to source of income.

With a variety of sources of income, we are able to decide freely on what’s best for us. Relying solely on a single income stream could probably lead to frustration and desperations specially if we don’t love what we do.

 

The Value of Investing in Life Insurance

Here’s an interview with Registered Financial Planner, Marvin Germo, at UNTV discussing the value of Life Insurance.

Discussion Summary

Marvin Germo really made this conversation with life insurance very interesting. One, because he talked about it in a very lively manner, and because he made everything sound so simple.

Here’s a recap of the key points discussed in this video.

Ano nga ba ang Life Insurance?

Lahat ng bagay ay may risk – risk na masiraan ng sasakyan, masunugan ng bahay, na tayo ay magkasakit, or mamatay ng maaga ang isang breadwinner ng pamilya.

Kailangan natin ng Life Insurance para protektahan ang mga taong umaasa sa isang breadwinner sa risk na mawala ng maaga ang tao kung saan sila nakadepende.

What will encourage people to buy life insurance?

Maraming misconception tungkol sa life insurance. Maraming nagsasabi na “Hindi pa naman ako mamamatay”, anjan din ang dahilang “Ibang tao naman ang makikinabang jan”.

According to Registered Financial Planner Marvin Germo, ang pagkuha ng life insurance ay pagiging responsable – paraan ng paghahanda na dahil hindi natin alam ang mangyayari sa hinaharap, we are ensuring that our family is well taken care of.

Ang life insurance ay tumatayong safety net para siguraduhing may aasahan ang ating pamilya mawala man ng maaga ang breadwinner ng pamilya.

Pwede bang mama-claim sa Life Insurance kahit buhay pa?

Ang mga benepisyo ng life insurance ngayon ay hindi lamang kapag namatay tayo, kundi may mga benepisyo na pwede natin makuha kahit tayo ay buhay pa.

Meron dalawang problema na ina-address ang life insurance:

– We die too soon
– We live too long

Maaari natin gamitin ang Life Insurance upang mapaghandaan ang ating Retirement or Education ng ating mga anak.

Get Life Insurance while you are still young

Mas mura ang life insurance habang mas bata pa tayo.

Bukod doon, ang life insurance ay isa sa mga bagay na dapat natin kuhanin habang di pa natin ito kailangan, dahil kapag kailangan na natin ito, maaaring di na tayo makakakuha pa.

Do I Really Need to Purchase Life Insurance if I Already Have That Benefit From My Employer?

Most Filipinos in the working class are employees. And since a very common benefit from employers are life insurance and health cards (HMOs), the need to purchase a separate individual life insurance is no longer necessary, right?

Besides, if one already own a car, why does he need another one? That’s luxury! So if I already have a life insurance policy from my employer, why would I need another one?

WRONG.

Let’s put it this way (oh I love metaphors!).

Does having a job necessarily say we have enough resources to sustain our lifestyle?

Not necessarily. Few questions needed to be answered. First, how much do we earn? Second, how much do we spend? Third, how far do you want to go with life?

Or say you have one set of clothing (shirt, undergarment, pants, etc…). Does having a set means you have enough? Obviously not since you needed to be “covered” for the rest of the week.

For both comparison, answering the question “How much do we need or how long do I need it” is very crucial before we can say we have enough.

Life Insurance is not different, and definitely investments (but let’s reserve that on a different conversation).

Understanding the Need

Life insurance plays different vital roles in the way we plan our finances. We have to understand that the question is not if we have life insurance, the question is how much coverage do we have.

Let’s take a look of the most common uses of life insurance to help identify whether what your company provides is enough.

Life Insurance for Income Replacement

Alright, before you leave this page after reading yet another financial jargon, allow me to explain what this alien term means.

Income Replacement generally refers to the ability of life insurance to provide income to the family during an untimely death of the family’s breadwinner. Life insurance “replaces” the lost income of the breadwinner caused by an untimely death..

Now, say your company gives you P500,000 life insurance benefit, will that amount continue to feed your family, pay the bills, bring your children to school, and shoulder their lifestyle in the next say 5 or 10 years.

If you answer no (and I’m sure you will), then adding up more life insurance coverage is necessary.

Shouldering the Cost of Death

Everyone is different, we have different lifestyles, different views in life, different likes and dislikes, and a very long list of things we do differently.

There are two life experience that we are 100% sure that we share – we were born, and someday, at our own time, we will face death.

For people who are in the stage wherein they are still building their wealth, life insurance provides a safety net to ensure that an untimely death will not compromise the journey to financial independence of the family left behind.

Simply put, we take responsibility to fund the costs relating to our own death (morbid, I know, but it’s one thing we should openly talk about). Let us not be a burden to anybody else.

Now, does your P500,000 life insurance coverage from your employer would suffice the cost of death? Well, studies say it could take around 1M to 1.5M to cover the cost of death in the Philippines.

Protecting the fruits of your Hard Work – Your Assets

There’s one scary thing about dying with too many assets named after us. We call these horror Estate Taxes (Alright! I might be exaggerating too much).

When a person dies, all the assets/properties he have accumulated over his lifetime will be frozen by BIR until appropriate taxes are paid be the heirs. We refer to these taxes as Estate Tax.

“Frozen” means your heirs won’t be able to access your bank accounts, investments, and real estate properties. Without having the ability to access your assets, how could they be able to pay the Estate Tax?

That’s where life insurance comes in.

Using the same example, is your P500,000 life insurance coverage provided by your employer enough to pay the estate tax? Let’s put it this way, if you have successfully built your wealth through your lifetime and have accumulated P20,000,000 worth of assets (savings, investments, and real estate), P500,000.00 is not enough.

At most, you’ll be needing P4,000,000 life insurance coverage.

Add the fact that your life insurance coverage from your employer usually does not extend after retirement.

Now, is having life insurance benefit from your employer enough?

Given the above considerations, it’s not in most cases.

Having a life insurance benefit in your company doesn’t necessarily mean you have enough. You are dressed today, but not for the rest of the week.

Remember that the question is not if you have life insurance. The question is how much life insurance coverage do you have.

In the next articles, let’s talk about how to compute the ideal life insurance coverage that you should have in order to have a solid financial plan.