1) So, what’s your number?
We’re not being cheeky! What this means is whether you know how much is needed in order to retire comfortably. Based on conventional wisdom, you would need to have at least RM1mil in savings by the minimum retirement age of 60. Other financial experts are of the opinion that you’ll need 80% of your current expenditure as a ballpark figure of a post-retirement budget.
However, Datuk Shahril Ridza Ridzuan, who is CEO of the Employees Provident Fund (EPF), looks at it differently since an accurate number for retirement would be different for everyone.
“If you have RM228,000 at the age of 55, you should have enough to draw down about RM1,000 a month until your life expectancy of 75. Whether that is enough for you, it’s basically up to you, in terms of your own budgeting and spending. That’s why when we talk about your basic savings, it’s not an amount that we insist you must have, but it’s a guidance we give to our members for them to plan for their financial planning,” he said.
How to go about it: Come up with a budget to track how much your current expenses are. It would give you a rough idea of what living costs will be like after you stop working, and you’d be able to start saving accordingly. Bear in mind that spending doesn’t really decrease in the early stages of retirement; for example, many retirees would want to ramp up travel plans.
In addition, remember not to overspend on major occasions. People in their 30s are typically faced with major events such as wedding day celebrations, welcoming their first child or even purchasing the first property. While these are important milestones, check the health of your finances first, before deciding to blow all your savings in one go.
2) Get your retirement portfolio ready
Retirement is an expensive state of affairs, but it doesn’t have to be a cause for concern if you’ve already begun saving for it. The deputy governor of Bank Negara Malaysia (BNM), Abdul Rasheed Ghaffour, advocated that 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.
How to go about it: There are three main factors that would contribute to your retirement portfolio: personal savings, EPF withdrawals and investments. While it’s a general rule of thumb that you should be saving 30% of your salary every month, the good news is that the first two aforementioned factors actually tie in together to help with that.
First off, make sure that you’re contributing every month to your EPF, and that would be 11% automatically taken care of. Now all you would need to do is save an additional 19% of your salary. If you haven’t begun saving, your 30s is a good time to start! If you need to adjust your spendthrift habits, start small and slowly increase the amount each month till you hit the sweet spot.
As for investments, there is a wealth of options in the market for you to choose from. Some of these include unit trusts (mutual fund), stocks investment, and Private Retirement Schemes (PRS). While the first two could possibly help you to generate much higher returns during a bullish market, the last one is meant to act like a supplement, with its ability to generate interest in itself for you.
3) Review all your insurance options
Many people forget to consider their own longevity when they make provision for the future, more so when they think they still have decades ahead of them. Even though the life expectancy of Malaysians is at 75 years old (according to The World Health Organisation’s World Health Statistics 2017), there is a high chance that one will live to see many years beyond that.
Apart from factoring in inflation, Malaysians need to face the rising costs of healthcare expenditures. Malaysia Health Insurance calculates that the prices of medical treatments double every six years, which is an increase of approximately 15% annually.
Findings from a BNM focus group discussion with retirees paint this situation in a clearer light: in the event of an emergency (or for the purchase of higher priced items), they would either still rely on their children or swipe their credit card.
How to go about it: Look at alternative ways to manage your healthcare costs in later years – taking on long-term care insurance or critical illness insurance is one example. The former is a policy that covers the care that you would generally require in your later years such as in-home services, medical attention in a nursing facility or adult daycare programmes. The latter is a policy for coverage on critical health problems.
Premiums are based on the age and the health of the applicant at the time of the purchase, so the younger and healthier you are when you sign up for a policy, the less expensive it typically will be.
“A goal properly set is halfway reached,” said Zig Ziglar, and our 30s is probably the best time of any to start setting proper retirement goals. If you’d 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.