Retirement In Malaysia

Most malaysians are not well-prepared for retirement, with 2.8 million people only, or 38 per cent of active Employees Provident Fund (EPF) members, having met the basic savings amount of RM196,800. This was stated in the EPF Annual Report last year. This year, the latest survey found that only 958,100 out of 13 million contributors, or 7.37 per cent, have more than RM150,000 by age 55. Shockingly, 90 per cent of rural households and 86 per cent of those in urban areas have zero savings. Syariah financial planner Dr Niki Shuhada Shukor said this was a worrisome trend as retirees would be unable to sustain their lives after they stopped working.

Niki, a consultant with more than 20 years experience, said retirees had to accumulate a lot of savings to ensure a strong principal sum so they could reap good dividends and bonuses. She said the savings and asset gathering phase fell within the accumulation period, which was prior to retirement. After that is the consumption period, which will deplete the savings. 

“People need to estimate their monthly expenses based on the expected salary before retirement. “They also have to prepare for major life events that need huge expenses, like the time when their children pursue tertiary studies or get married. 

“They have to start saving early in their work life so they will not have to pay so much a month. “Only by doing this that they will have a lifetime stream of income to support their living based on the compounding interest.” Niki said those new to financial planning could start off with buying insurance, takaful and unit trust, or join a private retirement scheme because the younger they were, the smaller the amount they would need to pay. She said to select a savings plan for retirement, the expected returns per annum needed to be bigger than the inflation rate.

“Some retirement and insurance products can offer rates that are higher than inflation, thus individuals can seek certified planners for advice, attend seminars or do their own reading to get more information.” Niki said Malaysians should not depend on EPF alone, and must look for other products like private retirement schemes or invest in Amanah Saham Bumiputera.

According to her, 50 per cent of a person’s monthly income should be allocated for expanding wealth (savings, asset accumulation) and protection (insurance). “The retirees need to ensure that they have peace of mind after retirement. They have to cover all expenses that enable them to enjoy a lifestyle they have before. They also have to settle their outstanding loans. 

“Apart from planning for their medical needs, they need to provide for social engagements like going out with friends, eating out and leisure activities like travelling  and golfing.” She said there was a growing trend among retirees to use their savings to travel the world too often, thus finishing their money very quickly without managing it well. Therefore, she said, even those who were old, and had decided to stop working and enjoy life, must be made aware of financial planning to optimise their nest eggs. 

Wealth management consultant Rohani Mohd Shahir said the increasing life expectancy and high lifestyle preferences required individuals to have reliable strategies in managing finances. Rohani said having dependencies, including children and parents, might result in a setback to one’s savings when family emergencies occur. 

However, for Muslims, it was an obligation for children to take care of their aged parents. “In the event their children are unable to support them financially, they may have to find other sources of income like doing business, providing services or disposing their assets.” She suggested the concept  of  allocating 20 per cent of the monthly income to meet retirement goals. From the 20 per cent allocation, an individual should  allocate 10 per cent for protection, five per cent for savings and another five per cent for unit trust. 

She said people could diversify their income by choosing different categories of  unit trusts and other investment instruments. Besides that, in order to ensure financial discipline, deductions should be made through auto debit so that the monthly allocations would not be missed. “The less money one has in his account, the lesser the amount that he is going to spend on.” 

She said lifestyle changes were required as one aged and children needed to be taught how to be prudent at a young age. For married couples, Rohani said they could set up a joint-account for emergencies. “An individual needs to have at least six months’ salary for emergency money. For families who often eat out, try  to cut down to once or twice a month. 

Home-cooked food is easier on the pocket and the money saved can be used for other things.” For medical needs, insurance could help retirees cover their treatments and avoid them from becoming a liability to their caretakers. The insurance protection will cover hospitalisation, critical illnesses, permanent disability, and death, among others. 

She said EPF had established Retirement Advisory Services (RAS) Centres to help people plan for their retirement needs. RAS was meant to help EPF contributors achieve a sustainable retirement plan, including those who were going to retire or those who had just retired. 

RAS also conducts awareness and education programmes on basic financial and retirement planning. The service is available at the centres in Kuala Lumpur, Petaling Jaya, Johor Baru, Penang, Kota Kinabalu, Ipoh and Kuantan.