Below is another case study I’ve done for a reader. This is the email I received from him.

Dear KC,
I will be 40 years old soon. I am married with a 10 years old daughter. My wife is same age as me, she is a housewife. I have very little knowledge about the profession of financial advisory as retirement always seem far and away. Reading your book awakes me to the importance of financial planning and the quality of life.
My asset as bellow:
1) House (own stay) – Market value of RM800K with RM470K loan outstanding.
2) Second house tenanted at RM850/month. The market value is RM300K with no loan.
3) Share holding of RM840K, all invested in KLSE.
4) EPF RM460K.

Could you please advise if I have saved enough to meet the following requirements?
1) Do I have enough for retirement with monthly income of RM6500? I plan to retire as soon as possible. I will still continue to work after retirement but it would be nice not have to work for money.

2) Education fund for my daughter at about RM300K current value. The education fund is my second goal. It is up to my daughter where she chose to study. I hope to have the resources available if needed.

3) I do not have any insurance except those provided by the employer. Please recommend basis insurance requirement after retirement. Currently the employer provides PA & medical for family. No coverage upon cessation of employment. Should I take up medical insurance upon retirement? How much is sufficient for the family?
I plan to sell the second house and invest the proceeds in equity for higher return.
Thank you.

Retire with monthly income of RM6500

To retire now with passive income of RM6500/month (78,000 per annum), assuming that the average annual return of 8%, Ron would need to have an investment portfolio of RM975,000.

Looking at Ron’s current asset:
– Share holding of RM840k in Bursa Malaysia
– Second house of RM300k
– EPF RM460k

His total assets are RM1.6million. Let’s exclude EPF from the portfolio, he still have RM1.14 million. To get RM78k return per annum from RM1.14 million worth of investment assets, he just needs to generate 7% return.
His retirement need is met in this case. To generate a 7% return per annum, it is pretty much achievable with the right mix of asset allocation.

Ron mentioned that he plan to sell the house to be invested in equity. But I wouldn’st suggest that because of several reasons:

1. If all his money is invested in equity, it is like putting all your egg in the same basket. Unless he is very good in stock picking and knows what he is doing. Warren Buffett invests almost all his money in stocks and he takes care of his portfolio really well.

2. His second house is giving a return of 3% per annum [RM850 x 12)/300k], which is much lower than the required return of 7% per annum. But properties appreciate over time. Another option is to refinance the house in order to withdraw more capital to be invested in the stock market. Doing this, he can still grab the full return when the house appreciates, while he is making money in the stock market and only paying low interest charges to the bank.

Anyway, there is no absolutely right answer for this. If Ron knows stocks very well compared to real estate, he can definitely sell the house and make more money from stock using the same amount of capital.

As a conclusion, Ron can retire already!

Education fund of RM300k

Since Ron’s daughter is only 10 years old, she will only need the large amount of education fund maybe 8-10 years later. At that time, Ron can withdraw his EPF account 2 for his daughter’s education fees.

Insurance Planning for retirement

Basically, Ron would need to get his family well-covered with insurance protection to prevent any unforeseen illness. Since Ron can afford to retire now, if he chose to stop his employment, it is advisable to get his personal insurance coverage effective.

There are 5 categories of life insurance coverage:

1. Personal Accident plan – this can be purchased from general insurance companies and also online at Tunemoney.

2. Hospitalization and surgical benefit – this is the medical card we often talk about. Most medical card cover until age 80 with adequate lifetime limit. It depends on the hospitalization package you prefer. I would suggest to get a lifetime limit coverage of not less than RM300,000 per person.

3. 36 critical illnesses – For a person who is actively earning money now, I suggest to be covered at least 3 times of your annual income. But for a retiree, probably RM100,000 would be enough just to fund the nursing care and some outpatient medication. Most of the major medical fees are covered if you have a medical card.

4. Total Permanent Disablement – This benefit is included when you are covered for 36 critical illnesses.

5. Death benefit – This benefit is also included when you are covered for 36 critical illnesses. For a retiree, death benefit is not so important compared to those actively working adults who are the breadwinners in their families.

You can allocate 5-10% of your income for insurance planning. Normally it is adequate to get your family well covered. In Ron’s situation, he can allocate about RM400-600/month for insurance planning.

Ron, well done!

You are doing a lot better than majority of the population at you age.


Personal finance author and trainer

    17 replies to "He can retire now & afford his daughter’s RM300k education fund[Case Study]"

    • Yap Ming Hui

      I think that KC has done a good job in sharing useful personal finance knowledge and experience with the public. Has has done it again with his comments for Ron’s case.

      If I may share my view on Ron’s case, I would suggest 2 points.

      1. Before deciding to sell the second house, Ron should get a holistic financial plan done. After having the big picture of his financial situation, he would know what should be the target ROI for his investment portoflio, be it 7%, 10% or 15%. By then, he can decide better whether he should sell the second house to invest into equity or keep the second house for diversification purpose. To invest for higher return is not specific enough, You need to know the specific ROI that you are targeting for.

      2. A holistic and comprehensive financial plan will also help you to ascertain how much death coverage life insurance you need. By having a premature death scenario, you can determine how much coverage you need to support the living standard that you want for your family. The same applies to medical insurance needs.

      Hope my suggestion is useful.

    • firdausprudential

      the money he get now maybe not enough in future. but well, he still got lots of money compare to the majority of Malaysian.

      the problem in this case study is His RM800k house is not fully repaid.


      He can retire now & afford his daughter’s RM300k education fund[Case Study]…

      Case study on wealth management…

    • Noed

      First of all, is RM6500 per month the expected cost of living to sustain his current lifestyle while still under employment or after he has entered his retirement?

      I strongly suspect this is not sufficient to maintain the lifestyle he may have wanted over a longer horizon. The few reason stated below:-

      1) He may still need money to serve for his housing/car loan after entering retirement. that may have been budgeted, but what if theres a renovation/car major overhaul required?

      2) He will need to put a lot of money into insurance to stay protected, since the whole family not covered, we are talking about easily RM1k per month for husband+wife+kids. Has this been budgeted? Medical insurance is important, and they are forever getting more and more expensive.

      3) If he keeps spending all the 7% return from his totals wealth year after year, his total asset will always be the same amount, but the value of the assets will worth less due to the fact that inflation will erode the value. RM6.5k sufficient to maintain todays lifestyle, but what about 15years later, when he is turning 55yo, things become cheaper is it? He needs to earn more than what he spend on a consistent basis to make sure he can step into a comfortable retirement.

      4) how old is the kid now? sure RM300k now enough for education in the future?? If you say the 300k will be compounded to a higher value when he kid grows up and need the money, that would mean that this 300k is solely for the purpose of childs education and not for his retirement. Should have then be excluded from his retirement fund, and tah dah, a whole new picture all together.

    • Vehnu

      Ron did a good job. How he saved up that much is purely his skills and smart way of managing his cash flow. Im no one yet to advise much here. Im quite sure I am heading to the right direction for now. I will definately post of up something once I hit my goals.

      What I can say is, planning is aside but most important is Positive Thinking. Whether or not realistic, think positive and dream positive. Think about how you want to live life and that is what will come to you. I looked back at my child hood dreams and I believe I am getting everything I wanted before.

      You may have heard about The Secret, get the DVD and watch it. That will explain what you have now is what you asked for. Ask for more and you will get more.

      Wish everyone all the best in 2010!

    • Avatar Lover

      oh this is really great case study.

      thanks man

    • Zainol

      Ron should not think of retiring yet.

      The answers given are based on the assumptions that his investments in Bursa Malaysia are still positive, but the trend is unpredictable. He might easily lose 20 to 30% very quickly.. Is he able to collect the rental from his 2nd house easily? If the tenant moves out, what next? Is the house easily sold? When he retires, he still has a car to drive around? Medical insurance is a very big matter. The probability of women above 30 getting breast cancer in Malaysia is very high – has he thought of this for his wife? Costs of Medical treatment for cancer run into more than a hundred thousand ringgits!

      His RM800k house is not fully repaid, and once there is a default, there goes RM470k from his liquid assets.

      Ron should do more in depth assessment before throwing in his towel!!

    • neeo

      This is an interesting case study. And i really appreciate it.



    • This is an interesting case study, I have re-blog on this case with my own view points at a href= rel=nofollowmy blog/a. Sorry KC, didnt mean to be rude, but I just find this an interesting case.

    • Tim

      Hi KC,
      I noticed despite Ron being able to retire early, I noticed that he still has RM 470k in outstanding loan.

      Of course, he could use his EPF savings to cover it or he could get some cash from refinancing his second house.

      But however, if he does that he would effectively be depleting his overall wealth. Do you think it would be wise for Ron to work a few more years to service his primary houses debt since that property is not generating income as he lives in that house?

      Best regards,

    • headhunter

      When I was younger my dream was to retire early (40 years of age) which obviously I have failed to achieved and underwent many screw ups instead. I recall that I didn’t really understand what it took to retire at 40 and there wasn’t serious step by step efforts, in fact such notion had been forced asides as merely a dream. Now that I can never retire at 40, well way over 40 now and still toil so hard under the sun, I have changed my mind completely. Don’t mean to be sour grape but it is so strange that most people who retire at 55 (the correct retirement age after all) had managed to live for a few more years and then kaput. Most of my friends are having this observation and we think it is such as strong phenomena that almost all of us view retirement very negatively i.e. kaput faster!

      Why is that so? well a phenonena or not, the retirees have quite a predicted life styles. I strongly believe that it is important to keep both mental and physical active and alert. Perhaps that the reason why old age working businessmen or politicians live long life. If retiring is bad then continue working whether for the money or not must be better. So much so dreaming of retiring early, LOL!

      Perhaps, early retirement is good if one has enough passive incomes or retirement money to keep active, like in politics, travel the world arounds, etc. If not, i.e. if the money is only enough to surive then one needs to be careful, that’s all I am saying.

      Like you Sayeed, I enjoy working, may be I am a workaholic ya. But all work no play makes Jack a dull boy. I think the opposite is to adopt a motto of “work hard play hard”.

      Play hard in my wife ‘sdictionary is a long oversea vacation once or twice a year – that’s not too kind to my pocket of course. So if I have a complaint, I would complain to her that all my hard work is just to ensure the vacation is possible…sounds terrible but it’s a price for a workaholic and for someone who refuse to retire early.

    • Sayeed

      Hi KC / Ron;
      Ron has what it takes for him to assign his assets well placed for him for his latter years, but retirement from work now, there is more to it.
      For me, I take my job as income to not only support my current income statement (income – expenses); but also a a mean to get additional income. If the income from job is giving 30% net income after minus tax and expenses, and if that 30% is somewhat like 3k or 4k, do you think earning extra 36k to 48k per annum without including yearend bonus and with all expenses paid is a good return…i don’t know, but if you look at it, i don’t mind staying at work for a while now… is good. I rather the retirement have in tangible benefits more than monetory, then by all means Ron should.
      Adding to this would be besides the importance of insurances, and education fund, get hold of ways into getting money making more money….property would be a good bet. Echoing KC’s comments, Ron is already top 5% people in the world for being financially sound. Keep up the great job and I am excited for you.

      • Henry

        In this case, Ron is a millionaire, if he can’t retired early yet, I think most of us can’t retire early due to 5% of us would be a millionaire, does it mean so?

        In other words, to retire early is a dream? Just like dreaming to become a millionaire?

        Anyhow, congratz Ron to become top 5% of the people in the world.

    • simon

      how can a person earn 7k per month become a millionaire in 40?
      RM6500/month (78,000 per annum)

      – House (own stay) – Market value of RM800K
      – Share holding of RM840k in Bursa Malaysia
      – Second house of RM300k
      – EPF RM460k

      let say he work at early age 20. So he only has 20 years of working life now.
      20 x 78,000 = 1,560,000

      the living expanses would took for a minimum of 30% which is 560k
      balance 1,000,000

      but how come the calculation become he has 2,000,000 worth of money? did he earn a jackpot previously?

      • headhunter

        I reckon Ron must have made his money in stock market or had bought the houses at very low prices or having some inheritances somewhere. But may be he is very highly paid as well i.e. not the 7k on monthly cost of living. If he takes home say RM1/2 million a year, it will only take him a few good years to add on to 800k cash! By the way there are many people who are paid RM1/2 million or more a year…don’t ask me how, I also don’t understand.

      • Netmask

        Greetings & G’Day,
        By putting your huge $ investments in KLSE Market will slow returns in long term run. However, it’s stable & not much fluctuate in KLSE. My MAIN point is :- You Invest in RM and Sell / Gain in RM later.

        If you are putting your money in Dow Jones/Nasdaq or Hang Seng Markets, you’ll make huge gain or loss with differents currency exchange rate. Rule of Thumb:- To make profit, hold your stocks in long term( 6 – 8 years) in one economy cycle. If you are a believer / follower of feng shui trend for 40-50 years cycle(per history), stock markets will uptrends slowly to the peak until Chinese Lunar Year of “Fire” (which going to be Year 2016 and 2017 from now) .. and will drop drastically for the next 2 years. Conclusion :- In Year 2017, prepare to offload all your stakes and putting it into more safer investments like bonds, Fixed Deposit ..etc

        1 cycle = ~ 10 years,
        8 years = very slowly & stable uptrend mode
        2 years = drastically downtrends like aeroplane crashes

        Put your $ in Dow Jones in LONG TERM and you’ll surprise, huge Profits in term of currency exchange rate when you sell your stocks. Ratio Stock 1 ; 450 (after currency convert).

        Have a great day.

    • The 8th Voyager

      Although my employer provides sufficient insurance for me, I still have my own insurance.

      Having own insurance will greatly reduce our dependency on company’s insurance scheme, and we are still covered even after leaving the company (change employer, retirement, retrenchment, etc.)

      If we are not covered by insurance, our retirement plan might be severely affected if certain amount of money need to be deducted from our savings/investment due to emergency case.

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