Start saving for retirement early in your working life

  • People
  • Friday, 11 Nov 2016

Financial consultant Rohani Mohd Shahir said everyone needs to save or invest at least 20 of their salary. Photo: The Star/Samuel Ong

Retired clerk Rajasivam Krishnan, 72, withdrew RM120,000 from his EPF account after his retirement 17 years ago. As retirement savings go, the amount was not enough.

But Rajavisam and his wife have managed to live comfortably as they have other sources of income, such as his wife’s pension and their children’s monthly contributions.

“Our monthly expenses are about RM2,000 and that covers grocery and utility bills, petrol and miscellaneous expenses. My wife, a former teacher, receives about RM1,800 each month and a big chunk of her pension goes towards the cost of running the house.

“Any extra money is kept in savings for emergencies and annual family holiday trips,” said Rajasivam, who spent a chunk of his savings on his two sons’ college education.

He is grateful his sons give them RM500 each month.

“Their contribution covers repairs of our 15-year-old car, the part-time cleaner’s monthly fees and other odds and ends. While our savings keep us afloat, we worry constantly if there’s enough money to get by,” said the grandfather of six.

In a Utopian world, retirement would be a time for the elderly to relax and enjoy themselves after years of labour. But the grim reality is that many Malaysians will worry about money in retirement, like Rajasivam and his wife.

The Employees Provident Fund has various engagement programmes for its members to help them plan for their retirement. Photo: The Star
The Employees Provident Fund has various engagement programmes for its members to help them plan for their retirement. Photo: The Star

In fact, this couple in a considerably better financial position than most elderly people.

With the projected lifespan of Malaysians at 75 years old, the Employees Provident Fund’s (EPF) initial recommended retirement savings was RM196,800.

This sum could sustain a senior citizen who retires at 55 years old for at least 20 years at a withdrawal rate of RM820 per month.

Effective Jan 1 next year, this amount will be raised to RM228,000 to increase post retirement monthly sustenance to RM950.

But 65% of EPF members have savings of less than RM50,000 at age 54. The 2015 EPF annual report states about 80% of its active members have an average savings of RM100,000 and less.

These grim statistics clearly show that the majority of Malaysians are not sufficiently prepared for retirement.

Without proper planning and retirement savings, some senior citizens find they cannot afford to retire.</p><p>Photo: The Star
Without proper planning and retirement savings, some senior citizens find they cannot afford to retire. Photo: The Star

EPF has also pointed out that one in three Malaysians does not have a savings account, and most have not saved enough to last them more than five years after leaving the working world.

It is reported that 90% of rural households have zero saving. In urban households, 86% do not have savings.

It’s all about the money

Retirement planning should start from a person’s first working day, said Hijrah Wealth Management Sdn Bhd founder and principal consultant Rohani Mohd Shahir.

“Set aside 20% of your salary for retirement from the start.

“From the 20% set aside, which is over and above the mandatory savings to EPF, it is recommended the employee splits it into three main basic instruments. That is, 10% towards contribution to takaful (for Muslims) or premium for insurance, 5% for a savings account (or Tabung Haji for Muslims) and the remaining 5% into a unit trust fund.

Financial consultant Rohani Mohd Shahir said everyone needs to save or invest at least 20 of their salary. Photo: The Star/Samuel Ong
Financial consultant Rohani Mohd Shahir said everyone needs to save or invest at least 20 of their salary. Photo: The Star/Samuel Ong

“The money will slowly accumulate, amassing into an attractive fund nearing retirement. It’s also a good protection plan,” added Rohani who believes that retirement planning should start at least 30 years before.

To avoid being financially strapped after retirement, Rohani advised people to save extra money to combat the rising cost of inflation, medical bills and expenses.

Mapping out your financial goals in the tenure it is to be achieved, the quantum and the financial instruments selected are vital strategies to achieving financial peace.

“Keep track of savings. Be mindful of where the money is being channelled to and think before purchasing items beyond your means,” said the author of four personal money management books.

She added the younger generation is vulnerable to consumerism and peer pressure and often does not prioritise personal money management, resulting in credit card debts and bankruptcy. The increasing number of Gen Y being bankrupt is a warning for all to heed.

“Young urban professionals want the latest tech gadgets, cars and post about their lifestyle in the latest social media.

“They need to understand the importance of prioritising their financial needs and think of ways to make their money grow with investment plans and insurance/takaful policies,” she said, adding it is crucial for parents to educate their children on the importance of savings.


Rohani explained couples should be transparent about savings, asset and liability management and retirement planning. To ensure a happy retirement, align your retirement plans and ensure it syncs with your spouse’s future financial goals.

“Couples must talk about their plans and gauge the amount of money needed for post retirement.

“Women should take an interest in financial planning as a majority will be left alone to manage their finances upon the death or departure of their spouses,” she said, adding couples can supplement the family income by taking on second jobs.

Dr Niki Shuhada advised retirees to invest their EPF withdrawal wisely. Photo: The Star/M.Azhar Arif
Dr Niki Shuhada advised retirees to invest their EPF withdrawal wisely. Photo: The Star/M.Azhar Arif

Life Success Resources’ managing partner and financial planner Dr Niki Shuhada said retirees must also learn to adapt and live within their means.

Retirees must plan carefully before splashing hard-earned EPF savings on costly holiday packages, expensive dinners or new cars.

“A great retirement can be achieved by planning to maintain the lifestyle one had just before retiring. The amount to prepare monthly is based on your last drawn salary, so that you do not have to downgrade your lifestyle upon retirement.

“Calculate the amount needed during retirement and start saving today in the right instruments to ensure you hit the savings goals for retirement,” said Dr Niki.

To avoid retirement funds from shrinking quickly, one could think about moving into a smaller home at a location with better amenities, she opined.

“In the long run, it would stretch a person’s ringgit further.”

Dr Niki said a financial planner would be able to help individuals map out their savings and investment plans to meet their retirement goals.

“Besides savings in EPF, aspire to save as much as 30% to 50% of your earnings (covering insurance policies, monthly regular savings, Private Retirement Scheme, and housing loan),” she said.

Upon retirement, retirees could also park their EPF money into suitable savings or investments account and investment plans that can continue to generate better profits.

Rising costs of living and changing family dynamics mean that the elderly must ensure they have set aside enough funds for their retirement years. Photo: Reuters

“Retirees should only use the profits as their income after retirement. Through this method, their basic fund remains untouched. Profits earned is used for a retiree’s day-to-day expenditure. Basic funds can generate more profits yearly for retirees usage in the long run.”

To mitigate the impact of inflation, plan your savings and investments now in instruments that can give higher returns than inflation rate.

Economic indicator website reports Malaysia’s inflation rate rose 2.0% year-on-year in May 2016.

“Since we can’t catch up with inflation, stash extra savings for a rainy day.

“Invest in instruments that can give better returns such as unit trusts, government-initiated private retirement scheme and insurance products. Essentially, we need to be financially literate for our retirement planning,” said Dr Niki.

Prudent financial management

The Credit Counselling and Debt Management Agency is at hand to provide free advice of money management.

LIVE according to your means and think twice before splurging on impulsive buys.

This will help everyone have sufficient cash flow throughout their golden years, said Nor Akmar Yaakub, head of financial education at the Credit Counselling and Debt Management Agency (or Agensi Kaunseling & Pengurusan Kredit, AKPK).

She believes financial planning is a skill everyone must acquire ... “money management isn’t rocket science nor Albert Einstein’s theory of relativity.”

Nor Akmar advised young adults to start thinking about retirement planning because people are getting married later in life.

“More Malaysians are starting a family in their mid 30s and early 40s. At retirement age, they have young dependants. People need to put aside extra money for rising medical costs, children’s education and property. Essentially, complete any loan repayments before retiring,” said Nor Akmar, adding people should consider real estate investment trust (REITS), unit trust and investment plans to diversify their cash flow.

AKPK, a wholly-owned subsidiary of Bank Negara Malaysia, gives free advice and assistance to help Malaysians manage their finances and debts. Since its inception 10 years ago, 460,000 individuals have attended the agency’s counselling services. Of that, 156,892 enrolled in its debt management programme (DMP).


Consumers who approach AKPK are from all walks of life, with problems to repay debts due to poor financial planning, ignorance and lack of financial discipline to live within their means.

Information technology engineer Patrick Raj, 56, lost his job in 2011 after his company downsized. As the sole breadwinner in his family, Raj worried about household expenses, loan repayments and feeding his family of six. But his biggest financial dilemma was having to settle RM50,000 in credit card bills.

“The loss of job was unexpected and I only had savings to sustain my family for six months. When I was employed, I used to fork out RM5,000 for credit card bills. When I got retrenched, I had sleepless nights worrying about my growing credit card debt, especially with high interest rates,” said the father of five, who earned RM10,000 as an engineer.

He turned to AKPK for help. In 2011, he signed up for their DMP, where a financial plan was created for him, in consultation and agreement with the financial institutions (FIs) involved.

“With their assistance, I manage to restructure my finances where I pay RM1,000 for my credit card debts. So far, I’ve managed to settle RM20,000 of my credit card bills and have another RM30,000 to go,” said Raj, who doesn’t own a credit card now.

Raj, now a freelance IT consultant, advised consumers to be careful with their finances.

“The bitter lesson has taught me to spend wisely. Always keep aside money for a rainy day. And most importantly, never try to keep up with the Joneses’,” he said.

It's always a good idea to keep money aside for contingencies.
It's always a good idea to keep money aside for a rainy day.

Financial difficulties could also be triggered by unanticipated or change in circumstances such as health problems, death of a breadwinner, loss of employment and business failure.

AKPK’s core services are financial education, financial counselling and DMP.

Its financial education modules are designed and catered to fit specific stages in consumers’ lives – tertiary, entering the workforce, starting and raising a family and retirement.

Financial counselling teaches consumers how to manage money wisely to enable people to spend within their means and achieve their financial goals. DMP helps individuals better manage their monthly debts repayment.

Nor Akmar said consumers shouldn’t shy away from the agency, which aims to nurture more financially astute borrowers.

“People have a misconception that seeking help from AKPK meant people are in debt or bankrupt. We want to change the perception that AKPK provides more than debt management.”

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