Enough For Retirement

Put your eggs in many baskets. That’s the best way to ensure you will have enough to spend after retirement.

A Million ringgit just isn’t what it used to be. So if you’re thinking of retiring at 40 after making your first million, you might have to make new plans.

Simply having a chunk of money in the bank will not guarantee security, especially after you retire and face a completely different lifestyle with new financial needs. What you need is a sustainable retirement fund that will protect you from the uncertainties of the global financial situation and the increasing cost of living.

Personal financial coach and financial planner Carol Yip encourages people to plan their retirement savings wisely. She believes that people should have various reserves of funds, and regularly review their lifestyle to assess whether their nest egg will be sufficient.

Aside from daily living expenses and post-retirement luxuries, medical costs are our biggest concern during this period.

Even if we are in relatively good health, old-age diseases will start to creep up on us and take their toll in our fifth or sixth decade.

With the rising costs of healthcare, will our savings be enough to cover doctors’ bills, medications and annual checkups? We cannot leave this up to fate.

A 2008 survey conducted by a local insurance company found that although 72% of the respondents claimed they were saving for retirement, 41% did not have a concrete plan for how to build their retirement funds. They just saved as much as they could and hoped that it would be enough.

(The survey interviewed 1,024 Malaysians with a monthly household income of RM3,000 and above, living in urban centres in Peninsular Malaysia and Sabah and Sarawak.)

Of those who saved, 64% did not consciously separate their savings for retirement. The survey was repeated in 2009, where as many as 91% of respondents said they were not sure how much would be needed for retirement.

“Many people have no clue about saving for retirement. We are so immersed in our daily work and challenges that financial planning becomes our lowest priority,” Yip laments.

This has led to far too many people who save haphazardly, or not at all, only to face the cruel truth when they lose their fixed income.


Children can be a form of life insurance, says a financial consultant - File photo The key point in retirement saving is not to begin only when you are retired or close to it! Instead, you should start saving as soon as you have a salary, so that you’ll have more time to set funds aside and grow it into a handsome pot of money.

“Knowing what you want to do at retirement and how much it costs to live the lifestyle you desire are crucial factors to consider. This should form the basis of a good retirement plan,” advises David Lee, senior wealth manager of Prudential Assurance Malaysia Bhd.

If you don’t know where to begin, there are many tools (see below) or experts available to help you work out your retirement “number” and plan your savings accordingly.

Retirement saving isn’t about hoarding money. It is about devising a plan that meets your unique financial situation and needs. It is also important to understand where you are in life now and where you are heading before making any plans.

Yip advises people to treat their lives as a business. “When you run a business, you have business plans, budgets, management meetings, and projections.

“Similarly, look at your own life and ask yourself, ‘Am I going to make more money next year, or is it going to be tough? Will I get a promotion or more bonuses? Is my lifestyle getting more expensive? Am I going to get married and have children?”

Constant review of your lifestyle, priorities and needs will help you determine whether your plan needs to be modified. For instance, if you get a salary raise, you can afford to make new investments, rather than spend it all on a bigger car.

People should create their own forms of retirement funds, or what Yip calls “self-insurance”. One is spoilt for choice, as you can choose to invest in fixed deposits, unit trusts, equities (stocks and shares), investment-linked insurance, property or even investment in a business.

Your choice of financial tool(s) depends on how much time you have, how much risks you are willing to take and your income level.

If you are in your 20s or 30s and are just establishing your career, regular investing and saving is an effective and convenient way to help you reach your retirement goal, says Lee.

“There are insurance products that ‘force’ you to save on a regular basis, and subsequently pay you a stream of guaranteed monthly income at retirement. As you have more time to ride the ups and downs of the market, you can also afford to take more risks investing in equities.”

If this article is sounding alarm bells because you are nearing retirement but have nothing apart from your EPF savings, it’s not too late to begin.

“At this age, you should ideally have adequate insurance protection, especially medical insurance,” Lee says, adding that people starting in their 40s or 50s should take far more conservative investment risks.

Most people would have FD savings, but if you are concerned that FD returns cannot keep up with the inflation rate, you could put the lump sum money in single premium insurance plans that offer a shorter accumulation period and provide guaranteed monthly income upon retirement, he adds.

It is important to look for an insurance plan that will ensure you get an income payout, regardless of the market situation in the near future.

Yip advises people to learn about the features of an insurance policy before buying it, just as they would understand the “specs” of a car before a purchase. “Many people are very confused by the description of the coverage, so they face confusion when they make a claim.

“You cannot blame the insurance company for not serving your needs. The onus is on you to find out more information about what you are buying,” she stresses.

Yip says, frankly, that an insurance policy may not be able to cover a person for every eventuality that occurs, or be enough to cover all the medical costs in the event of an illness.

This is why she strongly advocates getting the family involved.

“Family is a very important part of financial and retirement planning. Family members should think about how to save collectively for the future. Be creative. For instance, create a fund which members can chip in, for medical emergencies later on. This will also prevent any arguments or ugly scenes when the time comes.”

Yip also suggests that children can be a form of life insurance. So, involve them in your retirement savings and support.

“The Singapore Government has made this law through the Maintenance of Parents Act, which requires children with appropriate income level to support elderly parents who are not able to subsist themselves,” she explains.

If possible, delay retirement, she adds. “Continue to work for as long as possible so you can have peace of mind that you are able to support yourself and your family until much later. Having a job is a form of insurance by itself!”

Lee’s advice is to diversify your retirement portfolio. In other words, spread out your eggs into several baskets, so that your retirement plan will not be affected by just a single financial event.

Retirement planning is nothing to fear, even if you don’t have a mind for numbers. So start planning for your nest egg today, to ensure a comfortable and enjoyable life in the years to come.