If you’re like me and many other young working adults in Malaysia, you probably haven’t given much thought to your retirement. Especially if you’re just starting out in your career and still in your tender 20s. Why would you?
There’s so much time (or so we think) ahead and you’re probably trying to figure out the best career path that will lead you to your millions and achieve that goal of ‘early retirement’. Maybe you’re an investment banker, or you’re a teacher, maybe even an entrepreneur and boldly going where so many choose not to go. Whatever your occupation, profession, or passion; I’ll take the bet that we’re all living in the now, the present, and we aren’t even thinking about growing our wealth or securing our financial future for retirement. It might be at the back of our minds, but let’s deal with it as we cross the 40-year mark. Right?
Worse still, how many of us contribute a portion of our monthly income to EPF and not even know what it is, how it works, and why the 11% or 8% option should even matter? *hands up*
I’m not here to preach or give you a listicle of the top 10 reasons you need to contribute to your retirement. I am here in hopes that I can make a difference amongst my fellow peers across Malaysia, because just like you, I didn’t give an (insert profanity word of choice) about retirement, until very recently.
What changed?
I witnessed family members of my own struggle with their insufficient retirement funds, and that is as close to home as it gets.
There will come a time in our lives when our parents, our friends’ parents, and our aunties and uncles retire. The luxury and comfort of life that some of us might have enjoyed by living off “mama papa’s” hard earned income will soon fade. We will begin to see the struggle first-hand and watch as our family or friends, struggle to survive on their insufficient retirement funds. Many have no choice but to live a more frugal life, and if they’re lucky, their friends or children will help ease some of the financial burdens.
At this point, it clicked – we work so hard for the most part of our lives, and for what exactly? To live on the bare minimum and not even enjoy the fruits of our labour? There needs to be a better way to prepare for the day we are no longer employable.
Shocking truth – Malaysians Have ZERO Savings!
The majority of us will retire poor. That’s the hard truth. We are NOT prepared for retirement and that’s a hard pill to swallow.
BNM assistant governor Jessica Chew Cheng Lian said 33% were ‘very worried’ about their financial health when they got old, while the remaining 59% were ‘a bit worried’.
EPF recently reported that only 22% of those aged 54 have enough savings to last only 5 years upon retirement. That means they are out of retirement funds before they even turn 60, but still, have at least another 15 years of retired life ahead of them.
Also shocking: 68% of EPF members aged 54 have savings of less than RM50,000.
Let that sink in for a little while.
RM50,000 might seem like enough, because it buys you a Myvi car, so surely it will be enough to last many years after retirement? Think again. The cost of living is higher and our life expectancy is longer too, this means we live longer in a more expensive environment (taking into account inflation).
Assuming a monthly expense of a household is around RM1,000, that will only last you 4 years (RM48,000). This takes into account that all you spend on is bare necessities because we all know RM1,000 is barely enough to survive in urban KL.
I tried to calculate my own expenses to see if I could survive on RM1,000 per month.
Based on the above, I’ve busted my retirement budget for the month by RM380 and I have nothing left for insurance, or even for a little bit of entertainment. What about households that support their spouses too, RM1,000 is kacang (peanuts) and isn’t even worth much these days! It just isn’t possible.
Even with RM100,000 in retirement savings, that will only last you 8 years after retirement, and surely we all hope to live beyond 63 years, considering that the life expectancy of Malaysians is now between 72 to 77 years. And if in some magical world, we are able to survive on RM1,000 a month from the age of 55 to 75 (20 years), we would need at least RM240,000 in our retirement accounts!
The fact is, retiring at age 55 is a lavish dream that many of us cannot afford. We end up working far beyond our retired years to make ends meet. EPF too has acknowledged the rising costs of living and the increased life expectancy of Malaysians that they have increased the basic minimum savings amount.
EPF Basic Savings for retirement has increased from RM196,800 to RM228,000
“The EPF Basic Savings quantum is revised periodically according to the minimum pension for public sector employees, or every three years, whichever is earlier, with the last revision having taken effect in 2014. In view of the escalating cost of living and longer life expectancy, the EPF has made the decision to revise the Basic Savings upwards to RM228,000 from RM196,800.
Accordingly, members will now be required to have higher savings in their EPF account in order to be eligible to participate in the EPF Members Investment Scheme (EPF-MIS). The scheme provides members with an option to enhance their retirement savings through placing a portion of their EPF savings in Account 1 to be invested in unit trust funds or via private mandate managed by the appointed Fund Managers Institutions (FMI) under the EPF-MIS.”
Nurini Kassim, EPF Head of Corporate Affairs Department
How can I start planning for my retirement?
For starters, start getting into the habit of saving. Think about your retirement and have a plan of action as early as your 20s. Why? Because the earlier you start saving, the better. Your money will grow because of compound interest, or interest on interest (on interest). You will see greater returns over the 30-year tenure (assuming you start saving at the age of 25).
“Not being able to afford retirement is scary to me. I can’t imagine how unbelievably stuck that must feel. I don’t want to be 60 and in pain but have to push myself to go to work every single day just to be able to pay for medical bills.
This is why I am a big fan of EPF, PRS and achieving financial freedom. And if the maths say I must start now, in my 20s, then I guess I must start now. Maths doesn’t lie!”
Suraya Zainudin, Personal Finance Blogger, Ringgit Oh Ringgit
Retirement aside, we aren’t even financially stable to take care of ourselves if we lose our jobs. Think about it – if you were to lose your main source of income right now, would you have any emergency savings to help see you through at least 3-6 months?
According to the “The State of Households II” report by the Khazanah Research Institute, only 10.8% of households in Malaysia are resilient to financial shocks caused by factors such as unemployment, physical impairment, death, divorce and changes in interest rates or financial markets.
Adding to that, Bank Negara’s Financial Inclusion and Capability Study in September shows that only 18% of Malaysians could survive more than 3 months if they lost their main source of income, and only 6% were able to survive for more than 6 months. To make matters even worse, over the past 5 years, more than 20,000 Malaysians have filed for bankruptcy. Shocker!
The key takeaway here? Save, save, save.
“Don’t save what is left after spending; spend what is left after saving”.
Warren Buffett
About Nadia Khan
This article was posted by Nadia is the Content Manager at CompareHero.my. You can find more of her articles in here.
