With the challenges of keeping up with the rising cost of living, it’s no surprise that we do not spend a lot of time and effort on retirement planning. We hear of harworking people, particularly OFWs, who spend decades working but still end up poor in when they retire. We all get old at some point so it is better to be prepared than not.

The primary challenge in retirement is how to continue earning an income, because our expenses certainly do not cease when we decide / forced to stop working. So what do Filipino retirees do? The majority rely on the pension benefits from the SSS or GSIS. It is certainly better to have a pension rather than not. It is provided for life and the amount given monthly is consistent. It is also unlikely to fail as the government will do what it can to support it. The only problem that everyone points out is that it is never enough for a good quality of life. It becomes obvious then that we need to supplement this pension. Retirement is when you no longer want to spend most of your time earning a living. Passive income therefore becomes the goal.

Passive income is derived from investing in assets that do the work for you. In fact, the pension itself is a form of investment because employees contribute to the SSS / GSIS throughout their working life. There are many investments to choose from: stocks, bonds, real estate, crypto, small business, mutual funds, etc. This blog is about REITs, so the rest of this post will be all about it.

The first thing I like about REITs is that they hand out quarterly dividends. For a retiree, this makes it easier to budget. These dividends are purely passive as well. The only “work” that you do is to transfer the money from your brokerage account to your bank account – that’s it. Are these dividends guaranteed? Most certainly not. Filinvest REIT cut its dividends because the office REITs are facing the challenges of remote work. The other REITs however have managed to maintain or increase (AREIT, RCR, MREIT) their quarterly dividends. This blog keeps track of which REITs are able to grow their dividends consistently – it would be tantamount to having a salary increase for a retiree.

For a young person fresh out of college with a 40-year investment horizon, small amounts invested in a good quality REIT today could equate to a substantial dividend income when you retire. If you speed things up and invest more, you may even have the option of retiring in your 50s or 40s. This is made possible by the dividend snowball effect – using the dividends to buy more REIT stocks which leads to higher dividends to buy more REITs and so on.

The risk profile of REITs would suit most retirees as well. The cardinal rule of investing is: higher returns carry higher risks. On one hand you can place money in a savings account earning minimal interest rate and on the other you can invest in a business venture that can quadruple your money or lose it altogether should the business fail. I think REITs sit in a happy middle of the returns-risk continuum. REITs earn a fairly predictable rental income from their managed properties and pass that to their shareholders, earning yields of 5-8%.

As much as I like REITs (hence this blog), they do not form 100% of my portfolio and a good retirement plan is to have multiple sources of passive income. To all future and current Pinoy retirees, happy investing and good luck to us all!