Living well in retirement is not beyond reach


Safe bet: Money in the EPF is seen as an investment because the provident fund gives a decent rate of return.

AN aged couple living in Kampung Subang, located on the outskirts of Petaling Jaya, can hardly get by the month without having to depend on handouts from neighbours and well-wishers.

The man, who is past 75 years old, is suffering from cancer while his wife, who is five years younger, has diabetes and high blood pressure.

They don’t live in poverty, but they are not living comfortably either, scrapping the bottom of the barrel every other day.

They had a son who passed away two years ago. Having worked their entire lives as rubber tappers, they do not draw a monthly pension. Their only source of a steady income is the grand total of RM350 they receive from the welfare department every month.

It is hardly enough to meet household and medical expenses. But they have been getting by with assistance from neighbours and well-wishers.

Their biggest asset is their house, which they paid up for with their savings in the Employees Provident Fund (EPF). When they bought the house in the late 1980s, it was worth only RM40,000.

Today, the house, which comes with a small compound, is worth more than RM200,000.

Technically, the couple is better off than most retired Malaysians. According to various surveys, most Malaysians have less than RM50,000 when they reach the age of 55 and tend to exhaust it all in less than five years.

At 60, most Malaysians are broke and have to go back to work to support themselves. This couple is already past their 70s. They are broke and unable to work too.

This is the malaise of Malaysia’s growing ageing population. Economists have deemed that Malaysians cannot afford to retire.

This is true to a large extent, but does not have to be that way for a majority of the older folk.

If only the couple decide to monetise their biggest asset, which is the house, they would be able to live comfortably for the rest of their lives.

They can easily dispose of their property for RM200,000 and live the rest of their lives comfortably if they go on maintaining their frugal life style.

Assuming they spend RM1,500 per month from the proceeds of the sale, the proceeds can keep them going for another 11 years or more. Probably, by that time, both of them would not be around.

But disposing the property is not something they would want to do. That is not the Asian way of departing from their loved ones.

The house is not regarded as an investment but as an asset that is to be passed on to the next generation. While it is noble to pass on a property to the next generation, it is also something that not all are able to afford.

When the savings are in the EPF, it is viewed stoutly as something that cannot be touched and to be kept for retirement. Money in the EPF is seen as an investment because it gives a decent rate of return.

However, a property paid off with the help of savings in the EPF is not regarded as an investment.

Instead, it is viewed as a prized asset that provides a roof over the head. It is seen as something to be passed on to the next generation.

While having a roof over your head when one is retired is a sign of stability, what is needed really is only a permanent shelter.

There is a distinct difference between owning a roof over your head and enjoying permanent shelter.

In the western world, property is regarded as an investment. There is no dire urgency to own property and pay up for it completely. Instead, senior citizens prefer to rent. All they want is permanent shelter.

Senior citizens use the property as leverage to take loans to supplement their cost of living during retirement. Banks offer financing schemes that allow senior citizens to unlock their equity in the property.

Under such schemes, known as a reverse mortgage, the banks give a conservative loan for the property. There is minimal or zero monthly repayment.

Every few years when the value of the house appreciates, it allows the owner to draw a bigger loan.

It meets the demand of the banks and the senior citizens. The latter are able to unlock the equity put in to buy the property and get permanent shelter.

As for the financial institutions, they get the first right over the property and are comforted that it will be occupied by the owner. The mortgage is at base line value, so the risk of not being able to recover the loan amount in full is minimal.

Upon death, the property is disposed and the bank recovers its liability in full. The balance is given to the next of kin.

Property is the best hedge against inflation. It tends to appreciate in value over time. Hence, every five to 10 years, house owners in the west tend to refinance their properties. They don’t see the need to pay off the loans in full.

The Asian culture, however, is different. Asians have a penchant to own and pay off fixed assets such as property and land.

They don’t see their homes as an investment. That is why most people are not able to retire at the age of 55 or even 60.

Going back to the old couple in Kampung Subang, they are determined not to sell the house. Instead, they want to leave it to their grandson, who hardly visits them.

If they adopt the western culture, they would be able to lead a comfortable life until their last days.

This is the effect of sentiment ruling over investment logic.

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