Retirement @ Financial Independent

A survey from MoneyRates.com finds that only 52% of people started saving for retirement by age 40, and saving rates generally don’t improve until people near the end of their careers. An HSBC Global report also stated that more than half retirees regret not having saved earlier for retirement. What was even more upsetting was the fact that only 21% of Malaysian retirees acknowledged the importance of starting retirement planning by the age of 30.

 

A study by Nielsen Malaysia shows 79% of Malaysians are not prepared for retirement. Its latest findings show 50% Malaysians planned to retire, or have left the workforce earlier than 60. 69% respondents also say they plan to rely on their personal savings and investments as primary source of income after retirement.

 

While some may have personal savings and investments, what is worrying is that the EPF 2014 annual report revealed that by age 54, 68% of its members had accumulated savings of only RM50,000 and below, due to the many qualified withdrawals they had made beforehand.

 

Earlier this year, EPF stated that nearly 80% of workers who will turn 55 this year will not have enough savings in their account to live above the poverty line. It claims, only 23% of its members aged 55 have RM196,000 in their EPF accounts, the recommended minimum savings’ level needed to sustain them until the age of 75.

 

This shows that Malaysians nearing retirement age did not have enough funds to sustain a basic lifestyle for more than five years, and EPF further states that 50% of retirees exhausted their savings within five years of retirement.

 

To make matters worse, according to EPF Strategy Management Department head Balqais Yusoff, in a report, bankruptcy rates in Malaysia are increasing, with 25,000 declared bankrupt yearly. This means that extra savings is crucial as EPF does not provide an adequate retirement income.

 

Furthermore, with life expectancy growing, and the rising cost of living, how can Malaysians generally start planning to save enough, or probably change their habits during their working life to at least have enough money when they retire?

 

Invest in Property

There are several ways of maximising your EPF savings now to generate more income later during retirement and while it may still be awhile till you can have full access to fully utilise both accounts, 1 and 2 under EPF savings, you can already start planning ahead and prepare to use it in the near future. The best thing to do with your EPF savings is investing and buying properties through EPF savings, then renting it out.

 

“Properties are able to contribute income through rental payments for our retirement as both the income and asset values of said property is protected against inflation. EPF Contributors are allowed to withdraw savings from Account 2 before the age of 50, particularly when it comes to purchasing loans for housing, medical and education, among selected others.

 

Invest in Mutual Fund

Invest unit trust agents approved by EPF Fund Management Institutions to handle funds in Account 1. This is to ensure a much more secure handling of your savings. Unit trust is always a safer option compared to attempting to trade stocks on your own. Basically, you should leave the handling of your EPF savings to the professionals.

 

By investing your EPF savings on unit trusts, you will be segregating your money and not putting it all in one place, instead, you will have the chance of receiving good investments, with higher returns.

 

Diversify Sources Of Income

While EPF is considered to be one of the safest retirement investments, you should set aside entirely supplementary retirement savings to complement our EPF savings for your golden years.

 

The Private Retirement Schemes (PRS), is a voluntary scheme that allows individuals to contribute voluntarily in a long-term investment scheme towards their retirement. Individuals may choose to invest based on their own retirement needs, goals and risk appetite, for long-term returns.

 

Since the launch of the first PRS fund on October 31, 2012, PRS has hit more than 100,000 members according to the Private Pension Administrator (PPA).

 

Up to RM3,000 of PRS contributions are tax deductible each year, and for those between the ages of 20 and 30, the government has rolled out the PRS Youth Incentive, encouraging youths to set up accounts by depositing a RM500 one-off incentive into each account that amasses a minimum of RM1,000 in a year.

 

Health Matters

Getting medical insurance is important, and it is definitely encouraged to start protecting your health at an early age. You should never wait till you get sick as medical insurance is only available to those who are in good health. Plus, the older you are, the more the insurance is likely to cost.

 

Medical bills can quickly deplete your retirement savings, and in Malaysia, the medical inflation rate, which is the increase of medical costs, is between 10% and 15% every year. There is no denying that healthcare costs are a major concern and even bigger expense for most retirees.