Three Stage Retirement Plan

Achieving financial freedom begins with establishing a specific GOAL with a deadline. After reading The Millionaire Next Door (TMND) By Thomas J. Stanley, I decided to incorporate the formula provided in the book in my Retirement Plan. Instead of having one goal with a very long duration, I decided to divide it into three short stages. Smaller goals will make it easier for me to achieve and will motivate me each time I complete it.


Goal Setting

The FIRST STAGE of my retirement plan is to become an Average Accumulator of Wealth before I turn 40. The book states that a person needs to have a net worth his/her age multiplied by his/her annual household income then divide it by ten to be considered an Average Accumulator of Wealth.

Age x Annual Income / 10

This formula provides an exact figure serves as my first goal. Although it is prone to changes, since future income is unpredictable, I used the inflation rate to establish a conservative estimate of my future income.

The SECOND STAGE of my retirement plan is to become a Prodigious Accumulator of Wealth (PAW) before reaching 50. PAW have a net worth twice that of AAW.
Age x Annual Income / 5

The FINAL STAGE of my retirement plan, which begins at age 60, is to accumulate investments equal to TWENTY TIMES my annual expenses or TWICE the net worth of a PAW, which ever is higher. This amount will allow me to retire and live with less than the returns on my investments.

How Much Do I Need to Invest

Establishing the Duration, Amount to be Invested, Rate of Return and Goal Amount is essential in creating realistic and achievable plans. It is important that to use realistic figures in your projections in order to formulate an achievable plan.

Returns of 100-200% per year can be achievable to a few gifted individuals but expecting this rate of return consistently for the next 20-30 years is close to impossible. The PSEi on the other hand has a compounded averaged growth rate of about 15% per year from 1986-2015. This is the growth rate I intend to use in my retirement plan.

Amount to be invested depends on the income of the individual. A single person earning Php 100,000 a month and lives below his means can afford to invest 50% or more of his income. While a person with dependents earning minimum wage will have a hard time setting aside 50% of his income for retirement.

Retirement Plan Calculator

Retirement Plan

Using the average annual return of 15% per year, I need to invest at least 20% of my annual income in order to achieve each of my goals. As of January 2015, my net worth amounts to 16% of my FIRST goal. My portfolio consist of equities, bonds, mutual funds, VUL and currencies. Most of my investments are invested automatically through monthly investment programs. Although I am still considered an Under Accumulator of  Wealth, I am currently on track with my retirement plans.