The definition of "retiring well" varies from person to person. For most, it may involve maintaining good health (physical and mental), and achieving a certain level of living standard after retirement.
Some may consider attaining financial freedom as one of the top priorities for an ideal retirement. Others may simply want to be able to spend time with people they love or doing things they enjoy.
People who are about to retire in the near future should evaluate their retirement savings to gauge whether they have enough to support their spending needs after retirement, says Manulife Investment Management senior managing director Elvin Tharm.
One should target their retirement savings to generate a post-retirement income of at least 75% of their salary, he adds.
Tharm says that research findings by Manulife indicate that Malaysians generally face a huge retirement income gap – which is the gap between the expected retirement expenses and the amount of retirement income they can confidently achieve based on their current financial status.
“We also found that most Malaysians prefer holding on to cash instead of deploying their savings into investments. 44% of people in the country allocate their household assets to cash and bank deposits, and only 24% of them have allocated their assets to investments such as mutual funds, stocks, bonds, exchange traded funds, and real estate.
"With inflation, medical costs, and prices of daily necessities on the rise, their cash savings and income will erode over time,” says the head of retirement proposition, strategy and transformation for Asia Retirement.
Those who rely on their cash savings once they reach age 60 could be most at risk of not having enough in retirement.
"This goes to show there’s an need for people to plan better for their financial well-being and find an effective way to produce recurring income when they retire,” he says, adding that people should maintain their investments post-retirement.
“We expect inflation to stay elevated and markets to remain volatile for an extended period so we advise people to stay invested even after retirement. Retirees should avoid over risky assets and consider long-term income-oriented and diversified multi-asset strategies to generate a sustainable income as well as potentially benefit from capital appreciation to mitigate against inflation,” he says.
According to the Diverse Asia Report, Malaysia is 22 years from being an aged society, where 14% of the population is aged 65+. The Securities Commission Malaysia (Sept 2021) also states that Malaysia is expected to become an ageing society, with people aged 60+ making up 15% of its total population by 2030 and this poses a challenge for the Malaysian retirement savings landscape structurally, he adds.
The defined “retirement age” is getting higher with people delaying their retirement to 65 or beyond.
“With people getting healthier due to medical and technological advancements, people can remain productive for a longer period and hence can work longer. From a financial perspective, there are advantages of a higher retirement age, including reducing the burden of government pension funds, allowing people to work and save longer for retirement, extending health insurance coverage through employment, providing meaningful purpose in life, such as contributing to society, maintaining social circle, etc,” he says.
Manulife Investment Management’s recent research reveals that over 50% of Malaysians expect to work after retirement. The reasons vary among the different generations, households, and genders – from family obligations, desired lifestyles, and financial status.
“In Malaysia, it’s considered the children’s responsibility to give attention and support to their parents. A national survey (NPFDB, 2016) showed overarching support has been provided to older adults by younger generations. Most of Malaysia’s older population (95.3%) receive support in the form of financial assistance, cooking and serving food, doing household chores, and for companionship and accompanying them on outings and visits. While male offspring tend to provide financial support, female offspring are expected to provide support to parents (and in-laws) in the form of daily necessities and food,” he says.
There are essentially four main categories of familial support: financial (including paying bills, buying goods or services, or offering capital or credit); instrumental (including help such as housework, cooking, shopping, running errands, transport, and personal care); emotional (showing care and compassion for an older person, helping them cope with their emotions and experiences, or ensuring they don’t feel isolated and alone); and informational (offering advice, guidance, or useful information on a broad variety of subjects, including financial, health, or other digital/administrative assistance).
Over the last two decades, the average household size has been shrinking gradually. In addition, the decline of multi-generational households that were once a common way of life has taken their toll on the feasibility of familial support that older generations would previously have been able to rely on during their old age. Only 9% of people in Malaysia say they are saving and investing in the elderly’s expenses, the lowest in their financial objectives, which may also explain why a majority of them expect to work after retirement, highlights Tharm.
Globally, women aged 65 or older received 26% less income from pensions than men on average, according to an OECD report from 2021. A significant factor that frequently impedes women’s accumulation of retirement wealth is the stop-start nature of their working lives such as when they have children, says Tharm.
“This may explain why women in Malaysia are more pessimistic about achieving their retirement goals – only 46% of women think they are likely to meet their retirement saving target versus 49% for men, and that 53% of women feel they are likely to work after retirement compared to 49% of men,” he adds.
Some possible solutions include governments introducing policy reforms and educational initiatives to resolve the retirement gap.
“Create a balanced multi-pillar pension ecosystem and additional contributions to Pillar 3, increase government support and monetary incentives (increase tax deductible quota for Pillar 3), increase retirement financial education, improve digital and product offerings to encourage saving, and improve accessibility and attractiveness of retirement products,” says Tharm.
More can also be done by the public and private sector to mitigate or reduce the gap. Industry players can provide income solutions (both pre-and-post retirement) to help cultivate a retirement ecosystem that prompts public saving, he concludes.
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