The Iran-Iraq War has been raging for six weeks, and the blockade of the Strait of Hormuz has driven oil prices sharply higher, escalating the inflation crisis. Pension plans are once again in the spotlight. Also this year, Taiwan’s statutory claiming age for Labor Insurance Old-Age Pension has been raised across the board to 65. Have you ever thought about how much money you would need after you retire to make ends meet? How much retirement income does Taiwan provide today? And how much more would you need to add to be enough?
How does inflation affect our retirement funds?
In a recent warning, Robert Kiyosaki, the author of Rich Dad Poor Dad, said the world is on the brink of a world war due to oil-related issues. And as the baby boomer generation enters retirement, many people are facing a double blow—market volatility and inflation eroding their finances—making it difficult to ensure a steady cash flow. On top of that, with the social welfare system under pressure from funding shortages, retirees who lack comprehensive financial planning may face serious challenges to their quality of life in their later years.
(Robert Kiyosaki: The world is on the brink of war because of oil issues; recommends investing in gold, silver, and Bitcoin)
Higher inflation will directly affect the returns of assets such as the stock market. On the one hand, if prices keep rising, purchasing power in real terms declines. Today’s 100 dollars may be greatly diminished by the time you retire, so when planning the money needed for life after retirement, you will also have to increase the amount.
What retirement programs are available in Taiwan?
Taiwan’s retirement programs mainly fall into three categories: the National Pension, Labor Insurance, and Labor Pension.
National Pension old-age benefits
The National Pension is designed for people who have not participated in other social insurance programs (such as Labor Insurance, Farmers’ Insurance, public servants’ insurance, and military insurance) and provides basic retirement protection. Nationals who are aged 25 and under 65, and who have not been receiving relevant social insurance old-age benefits and have not participated in Labor Insurance, Farmers’ Insurance, public servants’ insurance, or military insurance, are required to enroll in the National Pension. When they turn 65, they can apply to claim old-age pension benefits.
Labor Insurance (including old-age benefits)
This is social insurance for people who are employed, and it includes benefits for injury, disability, maternity, death, and old age. When workers reach retirement age (generally 65), they may choose to receive the old-age pension monthly or take the old-age benefits in a lump sum.
Labor Pension
It is divided into the old system and the new system. The old system applies to workers who started working before July 1, 1995 (Republic of China year 94), and the pension is paid by the employer. The new system applies to workers who started working after July 1, 1995 (or workers who choose to switch to the new system); the employer monthly deposits at least 6% of the worker’s salary into the worker’s personal account, and employees may also choose to deposit up to an additional 6% into the same account. After a laborer turns 60 and has at least 15 years of work tenure, they may choose to receive the pension monthly or take it as a lump sum.
How do you calculate how much retirement pension you can receive?
Taking as an example most laborers enrolled in the labor pension new system with additional contributions, after retirement you will receive two pension components, namely:
Labor Insurance old-age pension benefits
Under the current制度, Labor Insurance old-age pension benefits are calculated using “the average monthly insured salary over the highest 60 months of the enrollment period.” They are issued using the following two methods, with the better option selected:
Average monthly insured salary × years of service × 0.775% + 3,000元
Average monthly insured salary × years of service × 1.55%
To claim, you must be at least 65 years old and have at least 15 years of insurance coverage. The above is the monthly payment method, and the Labor Insurance Bureau also provides an online calculation service.
If you calculate using the maximum insured salary of 45,800元 and 40 years of enrollment, you can receive 28,396元 per month.
You can also apply for a one-time lump-sum payment, calculated as: average monthly insured salary × number of benefit months.
Labor Pension under the new system
Meanwhile, the labor pension under the new system is accumulated in the personal account by both the employer and the individual. If you are at least 60 years old and have more than 15 years of work tenure, you may choose to claim the principal of your personal retirement account and the accumulated returns in a lump sum, or you can, according to the pension life table and factors such as average remaining lifespan and interest rate, calculate the monthly pension amount to be paid out on a quarterly basis.
We believe most readers qualify for the labor pension new system. In addition to checking the amount contributed to your personal account, if your income tax rate is higher and you are not good at managing finances, you can also choose to make monthly contributions of 6% of your salary into your retirement account to achieve tax-saving effects (contributed amounts are not included in personal income tax return filing).
How much money do you still need for financial freedom to be enough?
After understanding roughly how much support labor pension and Labor Insurance pensions can provide for your retirement life, another important number is: how much money will you spend per month after retirement? Some people have lived frugally, while others, after retiring, want to travel around the world and experience different lives—so the amount needed naturally varies greatly.
The author recommends first calculating based on your current cost of living, and then using data to quantify your freedom so that your dream becomes concrete.
- Retirement needs calculation
(A) Estimated monthly living expenses after retirement (present value): $ ________________
(B) Estimated Labor Insurance pension you can receive per month: $ ________________
© Monthly funding gap (A – B): $ ________________
(D) Total target amount for financial freedom (C × 12 months ÷ 4% withdrawal rate, or × 25 times): $ ________________
- Time and compound interest (Rule of 72)
How many years until you retire? _______ years
If your annualized investment return rate is ______% , the number of years for your assets to double is 72 ÷ return rate = _______ years.
This article, “Oil prices rise and push inflation crisis—are your retirement funds enough? How should you calculate and plan?” was published earliest on Chain News ABMedia.
