The Social Security Pension Plan - Is it enough to cover your retirement?

This article is the continuation of my previous post titled The Philippines Social Security System – SSS. I advise reading the article to have a full grasp of what we will discuss here.

We are not fortunate enough to find the fabled Fountain of Youth which can grant us eternal beauty and vigor. To put it simply we will all grow old. The activities that we usually do while we are still young are just a distant memory now. It is an inevitable destination for all of us!

The lingering question now is how are you going to survive your old age without any main source of income. Most of us will say, "Our Pension Plan of course". The next question is, is it enough? Given the fact that inflation rate is at 3.5% as of October 2017. In order for us to know if it is enough, we need to do the math.

The SSS Pension computation is calculated using three (3) formulas. The formula that gives the biggest answer will be used to determine your pension.

Formula 1 (Condition 1)
  • Php 300 +
  • 20% of the Average Monthly Salary Credit +
  • 2% of the Average Monthly Salary Credit x (Credited Years of Service – 10)

Formula 2 (Condition 2)
  • 40% of the Average Monthly Salary Credit

Formula 3 (Condition 3)
  • Php 1,200 If contributions reaches 120 Months (10 Years) but less than 240 Months (20 Years)
  • Php 2,400 If contributions is 240 Months (20 Years) or more

Now for a concrete example: Michael Juan Jordan is a regular employee that is earning a wage of Php 12,500/month and is working for at least 23 years. Based on the table of contributions The Philippines Social Security System – SSS his Average Month Salary Credit (AMSC) is Php 12,500.

Using formula 1:
  • Php 300 +
  • 20% of Php 12,500 = Php 2,500 +
  • 2% of Php 12,500 x (23 - 10) : Php 250 x 13 = Php 3,250
  • His computed Monthly Pension is Php 300 + Php 2,500 + Php 3,250 = Php 6,050

Using Formula 2
  • 40% of Php 12,500 = Monthly Pension is Php 5,000

Using Formula 3
  • Jordan's credited years of service is 23, so he will receive a Monthly Pension of Php 2,400.

Comparing the three results, Formula 1 gives the highest number (Php 6,050). So this will be Michael Juan Jordan's Monthly Pension Plan. Now, put yourself in Jordan's shoes and think if is it fair to receive this amount after of working for 23 years! Is this enough? Only time and the economy can tell.

That is how SSS computes our pension plan, the computation assumes that you will have no dependents by the time you reach retirement age, check the SSS website for more details. Hope you like my article and can help to enlighten others out there.

Note: I will also create a page and a mobile app calculator regarding this. So don't forget to subscribe and follow my blog.

Your Life In Perspective.
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