Can your RETIREMENT FUND BECOME RETIREMENT FUN??
As you know, the minimum retirement age of an employee in Malaysia is 60 years old. And why? It is because it suits with an average life expectancy of 74.5 years according to the Statistic Department.
And thanks to the improved healthcare services, 60 years old is now considered a decent age for retirement. “Yeah….. 60 Years old and still going strong…!!” But here’s come the question. As Malaysians, are we prepared for a comfortable retirement? Can our Retirement Fund make our retirement FUN??
Looking at the retirement age, we are expected to live 15 to 20 years of post-retirement life. And we need to make sure that from now on we need a plan and make sure we live comfortably after 60y years old. But the reality is, in Malaysia, a happy retirement for most Malaysian is still far from reality. Why??
According to AKPK, more than 50% of Malaysian may not be financially ready for retirement. Why? Didn’t we save money every month? Yes, we did. But most of us were saving less than 10% of our monthly salaries. True or not? Tepuk dada tanya selera, hari ni rasa nak makan laksa!!
Besides that, out of 14 million members of the EPF, only 7 million members are actively contributing to EPF. According to EPF, in March 2018, almost half of the members at age 54 years old only have savings of RM31,000 in their account and most of them are nonactive members. Shocking??? If like this don’t talk about retiring early at 50 years old, even retiring at 60 years old is a problem now.
Why is this happening to most Malaysians? Are we not working hard enough?? Nope. We are motivated to work hard so we can live a comfortable life today. But we rarely think about what will our lives be when we get older. “No worries got EPF and FD. I think I save up enough for my retirement.” You think. But is it really enough?? What is the mistake we made when we try to save up and plan for our retirement?
1. Not having a goal or plan.
Most of us are very passive when comes to retirement planning. We solely depend on EPF savings and let it run automatically. And to be honest, this is a huge gamble. For your information, many retired Malaysians finished up their EPF savings within 5 years and do not have a backup plan. 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. Not having a plan will see you running into financial difficulties and possibly placing a heavy burden on your family members.
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.
2. Not diversifying our savings
As mentioned, we rely too much on EPF. But we should realize that EPF should not be our only source of retirement funds. Despite growing at a rate of about 4% to 6% a year, there are also other options with similar or better returns to consider. Take examples like PRS. AIA PRS funds performance can be considered stable and good return with an average at 4% to 8% in long term.
3. Withdrawing from your EPF Account 2
While your Account 1 is strictly off-limits till retirement age, EPF has made it possible for you to make withdrawals from your Account 2 under specific circumstances. You can make withdrawals for the down payment on a home, to repay a mortgage, for further education, or unexpected medical bills.
However, unless you are in a bind, and are disciplined enough to replenish the funds when you’re back on your feet, it may be wiser to leave that money in the account, especially if the funds aren’t being used for a growing investment.
Instead, look into growing your EPF funds further. The EPF allows members to withdraw up to 20% from their Account 1 for investment in EPF-approved unit trusts after the Basic Savings* in Account 1 has been set aside
4. Starting the savings habits late
Believe me. The sooner your start saving, the earlier you can retire. By starting the saving process early, you can enjoy the magical power of compound interest. Take an example, you save RM10,000 and your bank gives you 3% per year in interest, you will have RM10,300 at the end of the year.
The next year, you will begin to earn interest on RM10,300, and at the end of that year, you will have RM10,609.
Now, imagine you add RM1,000 every month into the same account. At the end of 10 years, you would have amassed RM153,235. Without compound interest, you would only have RM130,000. This means that you earned RM23,235 just from compound interest.
It’s advisable to start saving in your 20s so that you have more time to let compound interest do its work. Saving your money in the bank is not the only way you can let compound interest work for you. You can look at other investments such as a saving plan for 10 years to 20 years and enjoy the dividend payout every 1 to 2 years and invest in moderate-risk funds such as AIA Balanced Fund if you are not a risk-taker in investment.
5. Allowing Debt to Pile Up and Finish up your bonus.
Many of us believe that since we are contributing to EPF, got ourselves a house, a bit of saving…… ok. We are safe. We can spend our bonus annual bonus like there’s no tomorrow. Enjoy dulu…!!!
I will suggest we look into another way round. In my opinion, instead of spending the bonuses immediately, look at how we can use it to settle our debts for example like car loans, credit cards, mortgages… then look into growing our savings or investments.
Well, to be honest. Is no fun at all. Ada duit tak boleh enjoy. Well, that’s not true. I am not asking you to put all into savings or paying debts. Set aside a portion to pampered yourself after minus up all your bills payments, debts, and savings or investment. You deserve it anyway. Just have to plan it wisely.
6. Not putting health care costs into account.
Many of us take our health for granted and do not have a backup plan for illness. By the time we retire, the medical cost will be far higher than they are today, we will have increasing needs for healthcare as we get older. But how about if we have to retire early due to illness?
So it is important to consider a medical and income protection plan to cover hospital, outpatient and other healthcare need not just for during retirement, but also when a critical illness like stroke and cancer happens.
Plan your medical protections according to your needs and of course, nowadays medical cards in the market have coverage of more than an RM1million annual limits for claims and no lifetime limits.
At the same time, plan your income protection by looking into critical illness coverage with 5 times your annual income. It is important to ensure that your retirement plan includes funds for situations like this in order for us to avoid using up all our savings.
That’s all from me today. I hope this can help us to understand and give ideas on how we should plan our retirement fund by avoiding certain mistakes and making sure we will have enough retirement funds to live comfortably and happy when retirement comes.
Remembers, retirement funds are to retire fun. Start your savings and investment today. If you are concerned about risk, take a look into an insurance savings plan which comes with coverage and savings at the same time. Support you during rainy days and still continue to help you prepare for your retirement funds.