Start financial planning early to ensure a comfortable retirement. Do not wait until the final years of your working life to only just start thinking about your retirement funds.
Here’s how you can plan your finances for your golden years
WHEN it comes to retirement, most Malaysians have one thing in mind – their Employees Provident Fund (EPF) savings that they have accumulated over their working life.
Mandatory retirement savings are generally viewed as our nest egg for the day we retire.
However, taking into account the cessation of a stable income when we retire, how certain are you that your nest egg will comfortably see you through your golden years?
In fact, referring to EPF statistics, only 18% of its total members have accumulated the minimum recommended retirement savings of RM240,000 at age 55.
Even more alarming, 6.1 million members currently have less than RM10,000 in their accounts, of which 3.6 million have less than RM1000 – levels at which members cannot guarantee their retirement.
Furthermore, out of almost 15.2 million registered members, only 7.7 million (about half) are active contributors, as of December 2021.
Bearing in mind the rising costs of living, as well as other expenses such as healthcare or other emergencies, it is not surprising that many Malaysians may end up with insufficient savings or pension to rely on upon retirement.
So, how then can you ensure you have enough money for a comfortable retirement?
Start planning now
First off, retirement planning should start early. Do not wait until the final years of your working life to only just start thinking about your retirement funds.
You should also refrain from withdrawing your mandatory savings, unless absolutely necessary.
It is also wiser and more prudent to diversify your savings, rather than put everything into one basket, such as investing your entire wealth in property or solely relying on EPF savings.
‘Don’t let worries about your future keep you up at night. Make a plan instead,’ says chief executive officer and country head, Principal Malaysia, Munirah Khairuddin”.
Many Malaysians would withdraw their mandatory savings once they reach retirement age of 55 or 60 and place all the money in a bank account.
However, this would not be the best and wisest way to ensure you have enough to last you for the years to come, bearing in mind the cessation of stable income once you have retired.
This means you will no longer be able to replenish what you have used up as you did before.
Diversify your investments
Consider creating passive income by diversifying your investment to income generating activities, such as unit trust or private retirement schemes.
You would be well-advised to do this as early as possible – the earlier you start investing, the better potential returns you will earn due to the compounding effect.
In a nutshell, compounding effect refers to interest that accumulates when earnings for a specific period are added to the principal amount invested.
Interest for the following period is computed on the principal plus accumulated interest.
This means you don’t withdraw the interest earned from your capital. Just leave the return in your investment account and let it compound. Your next interest return will be calculated using the accumulated principal plus interest.
For example, when you save RM10,000 in a fixed deposit account at 4% interest return per annum, after 10 years of the money remaining untouched, you will have a total of RM14,802.44 in your account.
Leave it there for 20 years, and you will get a total of RM21,911.23.
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Principal, a leader in institutional asset-management around the globe, is in over 88 countries.
This widely experienced company has a reputable track record in helping more than 45 million customers worldwide from diverse backgrounds with different financial capacities and financial goals make the most of their investments.
“Don’t let worries about your future keep you up at night. Make a plan instead,” says chief executive officer and country head, Principal Malaysia, Munirah Khairuddin.
“Getting started is key. Do this today – review the contributions you’re making to your savings fund. Did you get a raise? Were you able to make cuts on other expenses?
“Increase your retirement contributions accordingly and check in with a financial professional to make sure you’re staying on track.”
Private Retirement Schemes
With licensed and professionally trained financial consultants and retirement specialists, you can be sure of good advice from Principal to help you plan your financial journey towards a comfortable retirement.
One option you can consider is complementing your EPF contributions with private retirement schemes to build sufficient savings for your retirement years.
At the same time, you can enjoy up to RM3,000 per year personal tax relief (terms and conditions apply) on top of the RM6,000 per year tax relief for mandatory retirement savings contribution and life insurance premiums.
This could be as much as RM840 saved per year, depending on your tax bracket, when you invest in private retirement schemes.
With Malaysia just eight years short of becoming an aged nation in 2030, statistics indicate that the percentage of ageing population in need of government assistance is expected to increase rapidly from 3.5 million in 2021 to 5.3 million (15% of the population) by 2030, and 7.4 million (21% of the population) in 2042.
This raises policy challenges in areas such as employment, income security and health care, underscoring the importance of having adequate savings and income for future financial security as well as to withstand any future financial shocks.
“Financial planning doesn’t have to be overwhelming. Research shows that people who spend even a small amount of time learning about personal finance are 75% more confident in their financial future.
“So by starting, you’re already on your way,” says Munirah.
Find out all about building your nest egg towards a well-deserved retirement today at www.principal.com.my/en/goal-my.html.
Disclaimer: We recommend that investors read and understand the contents of the funds’ prospectus and product highlights sheet (PHS) available on the Principal website which have been duly registered with the Securities Commission Malaysia (SC). Registration of these documents does not amount to nor indicate that the SC has recommended or endorsed the product or service. There are risks, fees and charges involved in investing in the funds. We suggest that you understand the risks involved, make your own risk assessment, and seek professional advice, where necessary. The materials have not been reviewed by the SC. The past performance of a fund should not be taken as indicative of its future performance.
