Why is retirement planning is so important?  According to EPF, 70% of Malaysians who withdrew their savings at the age of 55 use it up in less than 10 years*.  Malaysians’ life expectancy is also steadily increasing to about 75 years**, so it is important to build enough savings to last our retirement years. 

A study by the Asian Strategy & Leadership Institute finds that most households in Malaysia have zero savings.  Almost 90% of working Malaysians earn less than RM5,000 a month, and only half of them are active EPF contributors.  About 80% of the workforce will not have enough money at retirement to sustain themselves. 

The good news is, be you are 25 or approaching the big 4-0, it is never too early or too late to start planning for your retirement.  What you want is, once you have reached the golden age, you just want the peace of mind knowing that you have well-padded bank account and a secure roof over your head. 

There are also factors such as inflation and the rising cost of goods and healthcare to consider, which will increase your living expenses.  Having a proper plan will help you achieve a worry-free retirement. 

1. – What Is Your Magic Number?

Taking a passive stance on your retirement and underestimating your financial needs is a huge gamble.  You must also bear in mind that the goal after retirement is to enjoy the same standards of living as your working years, or better.  Planning early for retirement is about ensuring you have enough funds or monies to cover for your expenses as well as your loved ones upon retirement. 

Start by figuring out how many more years you might work.  For example, if you are 25 now and you plan to retire by age 50, you have 25 years to save for your funds.  Next, consider your life after retirement.  You should have at least 20 times your current annual expenditures to maintain your way of life. 

2. Start Saving Now

If you are 25 and start saving for your retirement now, you will also reaping 25 years’ worth of compounding interest on top of the savings itself.  The earlier you start saving, the more your money can grow.  There should be a savings goal from the start and this can be easily implemented since the minimum investment amount required is only a few hundred ringgit only. 

Historical data shows that the Consumer Price Index and household income expenditure continue to be on the rise, which means the later you start on a plan the less you will have in provision you are your income to allocate for savings or investments.  The earlier you start saving, the more your money can grow.  Start early also allows you to spread your risks over a longer period and provides for a greater means to maximize investment returns, which in turn lowers the effect during market cycles. 

3. Revisit Your Budget

There is no set figure for how much you should set aside as the figure is dependent on the particular life goals of the individual concerned.  The amount, however, should high enough to prevent any person from accumulating unnecessary debts from unplanned expenditures. 

Financially savvy millennials want to pay off debts as quickly as possible because compounded interest works both ways; in favour of young investors but against young borrowers.  Sticking to a monthly budget is the most reliable way to save and pay off debt.  Don’t spend more than what you earn. 

According to EPF, a good guideline to follow is to allocate 30% of your income for savings, which is linked to the goal of being comfortably retired.  The EPF’s definition of a comfortable retirement comprises financial security, good health and a happy meaningful life. 

4. Protect Yourself and Your Loved Ones

Insurance products should not be overlooked during retirement, as they help provide financial security and mitigate health risks, if and when they arise.  An insurance plan not only serves to offer protection, but also lowers the possibility of having your savings depleted due to critical illnesses or emergencies.

Health costs are on the rise.  According to PwC’s Health Research Institute, medical cost trends in 2017 experience a 6.5% growth rate. 

Many Malaysians take their health for granted and don’t have back-up plans for illness.  By the time you retire, medical costs will be far higher than they are today, and you will have increasing needs for healthcare as you grow older. 

It’s important to consider a medical protection plan to cover hospital, outpatient and other healthcare needs. Beyond that, you must take note that after 65 years of age, if you have a known medical condition, or have made previous insurance claims, you may not be able to renew your policy. So, it’s important to ensure that your retirement plan includes funds for situations like this.

A life insurance is designed to protect your family and your dependents from financial troubles due to unexpected eventualities. Remember that insurance premiums are generally at their lowest when you are young and healthy. Sun Life Malaysia offers a wide variety of products that will suit you depending on your circumstances.

5. Build an Investment Portfolio Ones

As soon as you have worked out your savings and insurance needs, the balance can be used for investment purposes. 

Retirement is an expensive state of affairs, but it doesn’t have to be a cause for concern if you have already begun saving for it.  Unfortunately, our financial literacy has become a key life skill especially since only about 40% of Malaysians are ready for retirement. 

Those who go through life by making sound financial decisions will potentially be more resilient and end up with a much higher standard of living throughout their lifetime, including retirement.  With the right knowledge and skills, individuals can live within their means, manage finances and improve chances of achieving their ultimate financial goals.

A financially literate Malaysian would be aware of the importance of long-term financial planning and will actively save for the future,” he said, during his speech at the launch of a ‘financial management for retirement’ module.

To Conclude

Retirement is when you stop living at work and start working at living. 

“A Goal Properly Set Is Halfway Reached” 

‘ Zig Ziglar

If you would like to ensure that you have a nice little nest egg when retirement rolls around, start taking your financial health seriously by adopting a long term perspective and stop spending merely for the sake of instant gratification. 

Happy planning folks!

For more information, please contact Ooi Eng Hong via email MY.OoiEngHong@gmail.com or WhatsApp (019) 319-2970