Exposing retirement myths and how to overcome them

Ask anyone about the importance of planning for their retirement and the answer is a resounding “Yes, it is important”.

Yet, no matter how crucial retirement planning is, most people do not seem to have the urgency to equip themselves with a proper retirement plan that will see them through a financially secured retirement.

There is a reluctance to plan for the future as retirement often seems to be a far away but the reality is that it will come sooner than we think.

The adage that “people don’t plan to fail but fail to plan” is a good reminder that our retirement future needs to be addressed now with a proper retirement plan and action, in order to ensure that the future does not come as a “surprise” but that we have the ability to influence it now.

In trying to understand the mindset of Malaysians on the subject of retirement and why they lack interest in taking control on their financial future, the Private Pension Administrator Malaysia (PPA), has found five common excuses, which are based on unfounded assumptions or myths on how people plan for their retirement. 

This together with a lack of urgency often led them to procrastinate in taking action now to secure their retirement plans.

The 5 Retirement Myths

Myth 1:  Malaysians believe their EPF savings will be enough to take care of them through their retirement years. The common assumption made is that their EPF contributions will be adequate for them to replace their earned income when they retire. 

However, their EPF contributions may or may not be sufficient to replace their earned income.  The 2011 EPF 2011 statistics showed that 72% of EPF members who are at the pre-retirement age of 54 have savings of just RM50,000 and below.

Coupled with that, 50% of retirees spend their entire EPF savings within five years.

Myth 2: Many people assume their children can take care of them during their old age. But due to escalating cost of living, some children find it difficult to even provide for their own family what more for their own old folks.

Myth 3: Some people reckon it is too early for them to start saving for retirement, while others think they can’t do much because it is already too late for them to start. No matter when you start saving, time and the wonder of compounding are your best friends when it comes to retirement saving.

Myth 4: Working after retirement. Choosing to work after retirement is one thing, but being compelled to work just to survive is another.

Myth 5:  People believe they can reduce their expenses when they retire. But in reality, if he or she is used to a certain lifestyle, it is not easy to adjust. In addition, we live in a rising inflation environment and medical cost is continuously increasing, it is imperative to plan your finances adequately for our retirement.

To have a financially secured retirement, the people’s mindset must change. Research shows people do not plan adequately for their retirement and when they retire, there is either little or no wealth due to the lack of financial literacy and being woefully under-informed about the basic financial concepts.

Financial illiteracy may stunt people’s ability to save and invest for retirement, undermining their well-being in old age.

Poor financial decision-making as a cause of the retirement security crisis and render retirees the most vulnerable to economic hardship in retirement.

The problem becomes more critical as retirees move away from professionally managed pension toward do-it-yourself financial planning. This is telling as statistics show more than half of retirees in Malaysia spend their entire EPF savings within five years.

It is easy to fall into the trap of depleting your retirement savings if one treats the savings as a windfall and not keeping it invested to garner passive income.

Whilst the above the retirement issues have been commonly raised, the lack of interest and urgency for people to take planning for their retirement seriously, suggests that there is a need to bring the retirement issues to a personal level whereby individuals can find out for themselves what they need to focus on to properly plan for their retirement.

PPA has come out to help individuals plan for their retirement by focusing their attention on 3 main issues that must be addressed now. We will share more next issue on how you can plan and take action now towards achieving a financially secured retirement.

Datuk Steve Ong is CEO of the Private Pension Administrator (PPA), the central administrator for the Private Retirement Scheme (PRS)

The PPA is tasked by the Securities Commission Malaysia to promote the growth of the PRS industry, create general awareness and educate the public on retirement saving. The PPA also works to protect the interests of PRS contributors.

For more details, visit www.ppa.my