My Financial Life Strategy

Back when I was still asking my Sunlife Financial Advisor Sasha So Seng Yu to process my life insurance application, I had lunch with a close friend of mine. She taught me to compute for my “Financial Life Strategy” as she called it, which is basically computing how much I would need to live on when I have already retired from regular work and would need to derive this “living allowance” from what I had invested when I was younger.

So first, my friend asked me what age I am now (which is 40) then she asked me what age I intend to retire (and I said 80). She was taken aback by that (but I really don’t intend to retire actually, because like my medical idol Dr. Augusto Litonjua said “what would I do with myself if I retire?”) I’d probably be bored to death not doing anything all day, after a lifetime of being active and being in the writing profession. So the formula then is retirement age (80 years) less my current age (40 years) = 40 years left of work. Assuming the Good Lord allows me to live that long that is.

She then used this formula: 72 less 6% inflation rate = 12 years. She didn't exactly know how her source came up with the number 72, except that it’s an actuarial fact. She used 6% inflation rate because that’s what her insurance agent used to compute for my friend’s life strategy (which is not far from the truth because I think inflation is at 5% right now). The 12 years means that every 12 years of my life starting age 40 I would have to double my living expenses.

So what does that mean? It means that at the moment my monthly living expenses is at 25,000 pesos per month. That means 25,000 pesos x 12 months in a year = 300,000 pesos for year 2014 alone. But since every 12 years my living expenses will double so at age 52 my expenses become 600,000 pesos per year, at age 64 my expenses become 1,200,000 pesos per year, and at age 76 my expenses become 2,400,000 pesos per year. She stopped the computation at age 76 because I already got the idea clear in my head.

It gets more interesting now – she said I’d have to have “seed money” of 24 million pesos invested at a 10% interest rate so that by age 76 I would have a regular influx of 200,000 pesos per month for living expenses = 2.4 million pesos per year. Of course, that’s assuming that I’d somehow be able to come up with 24 million pesos by age 76.

Having left me with such happy thoughts, my friend didn't explain how I’d manage to come up with 24 million pesos seed money. But I checked my own current income. I am currently being paid 220 pesos per hour as a writer. That means eventually I’ll be working 8 hours per day at that rate as a writer. And that money is just enough to cover my current living expenses. So what that means is that I would need 228.3105 pesos per hour in surplus income for 8 hours per day for 365 days per year for 36 years.

In jest, I told my friend via text “I guess I have to suck up to my boss then so he’ll give me that surplus income”. However, that amount is not really far off from reality. It just means that I have to do really well in my job and somehow find a way to legitimately earn that surplus income of 228.3105 pesos per hour. Weirder things have happened so perhaps God will show me a way by which I will earn that. Right now, it’s a mystery. An interesting mystery, yet a mystery nevertheless.

So I also conclude that my Financial Advisor Sasha So Seng Yu was correct in steering me towards mutual funds and advising me to get into the Equity Fund at this point in time. This way I optimize the potential of my investment to earn the maximum amount possible, given the time I have to live. However, I still need to figure out what I’d have to do in my job to be qualified to earn more, given my talents and skills at the moment. Perhaps in time it will become clear to me what I’d have to do, even if right now I have no good ideas yet cropping up in my head.