Why Most People are Not Saving Enough for Retirement

To retire or not to retire? I believe that is really not an option for most people. Retiring is only the privileged few, like, the 5% of the population who can really retire financially independent.

The energetic financial planning trainer, Adrian Ho shared with us some retirement planning tips. Watch the video below:

The majority of the people not only do not have the option to retire with financial independence, but they do not even have the option to retire at all. So, why is that the case?

We have to take a look at the problem in this equation. Let me illustrate. This is our lifeline. Assuming you start working at 25 – I believe most of us may start slightly earlier – and assuming you would retire from work at 55.

According to our Malaysian latest mortality rate, meaning how long Malaysians live, it has been said that we live to about 75 years old. We are not talking about now, so let’s take it further, about 20 to 30 years later although Malaysians will certainly live longer. Let’s say we retire from life at 85.

We can separate our life phases in to these two distinct phases called:

• Accumulation phase – This is from when you are 25-55, or your working years.
• Consumption phase, which is from 55-85 years old.

Do you see the problem? We have thirty years of working and thirty years of not working, meaning we will be consuming our savings. It simply means that each year of our working life, we will be actually saving for each year of our retirement years. At this point you cannot afford not to miss a years of savings because for each year of saving that you miss, you may not have enough for your retirement.

There’s another problem: How much do we save while we are working? Assuming all of you here are employees and you have EPF unlike me because I am self-employed, so I don’t have EPF. If you have EPF you put aside 11% while your employer tops up another 12%. So, you get 23% going in to your EPF every month.

However, when you retire, you would need, I believe, a minimum of 50% of your last drawn salary. However your last drawn salary may be your highest income, assuming RM10,000. So, you would need about 50% of that, which would be RM5,000. Imagine why this is a problem. You need 50% but you are only putting 23% while you are working. That means there is a shortfall of 27% or more than a quarter.

Do you know the statistics from EPF?  I’ve got this booklet here with me that say 50% of retirees spend their entire EPF savings within 5 years. This is EPF statistics 2011. This is the problem. It is scary, yeah. Later, I will give you more statistics charts that are even scarier.

P.S. – Adrian Ho has an online course on how you can manage your money wisely at Ringgit Sense.

For Premium Webinar Members, you can watch the full replay session here: