This article is contributed by Jacquelyn Sarah Wong, the co-author of The Secrets to Writing an eBook in Three Easy Steps, and also the founder of WParent.com (Wise Parenting Guide)

How much money would it take for me to retire now? This is a question I have repeatedly asked myself time and again for the past several years. The numbers do change especially when there is a new addition to the family.

Retirement can happen suddenly due to unforeseen circumstances like being retrenched or laid-off. It can happen slowly as planned upon reaching the designated or mandatory retirement age.

My current retirement needs

Personally, I would like it to happen sooner than later. Hence, the frequent thoughts on the subject matter. First and foremost, I needed to figure out how much money or assets are required that is enough to generate monthly passive income.

However, first I have to determine how much monthly passive income I would need. I have been tracking my monthly household expenditures for several years now using simple pen on paper method. After going through the past yearly records and expenses data. I estimated my expenses or personal contribution to be about RM3500 per month. The rest of my monthly salary then went towards savings.

My monthly contributions take care of things like the utility bills, groceries, personal insurance, personal expenses and children’s expenses (school fees, tuition fees, books, milk powder, etc.).

If I decided to retire now, I needed to generate a passive income of about RM3500 per month. In order for me to calculate the numbers easily, I decided that the income would purely come from the interest returns of cash investments like from Unit Trust funds.

Simple retirement calculation

I want to calculate how much capital lump sum I would need now that when invested with a modest 7% return would generate RM3500 monthly or RM42,000 annually. I use MSN Money retirement planner to do the calculation as there is no need for a special software here. I use my current age now to retire, my life expectancy to be 85 years old and the annual returns at 7%. For the column on ‘Your retirement savings today’, I put down various figures that will match my goal.

The result shows that having RM900,000 capital investment now is sufficient to generate RM3500 per month or RM42,000 yearly to sustain me until the savings run out at the age of 88 years old. This is the amount needed that enables me to cover my part of the contribution towards the monthly household expenditures. This assumes that the amount (RM3500) remains constant throughout my entire life until old age. This also assumes that the return on investment of 7% per annum remains fixed and never fluctuates.

To get a safer figure, I raised the required monthly passive income to RM5000 per month or RM60,000 annually. Using MSN Money retirement planner again, the required capital turns out to be ~RM1,300,000 in order to generate returns until 90 years of age.

My conclusion

The numbers derived above enables me to figure out where I stand currently. For example, assuming I have RM500,000 in hand invested in various funds giving an average return of 7% per annum, I know that I need to come up with a balance of RM800,000 to realize my retirement dream (RM500,000 + RM800,000 = RM1,300,000).

This whole exercise serves two purposes. First, is to help me see where I stand financially. Second, is to help me in planning my finances as to how I can achieve my financial goals or to make my retirement dream comes true.

Each and every one of us has our own retirement dreams or plans. Some may love their jobs so much and continue to work until they reach retirement age and then decide to stay longer in the work force. Others retire because they are forced to do so that may be due to personal reasons (e.g. health problems) or due to unexpected circumstances (e.g. VSS or retrenchment).

There is no doubt that planning for retirement is very important and done the earlier the better. No matter at what age you are currently, it is very important to give some thoughts to it. You may thank yourself later at old age for having started early to ensure a comfortable life during your retirement period. If you do not know where to begin, consult your personal financial planner for advice. Therefore, start now and maintain your records to view your progress from time to time.


    3 replies to "Dreaming of Retirement"

    • FK

      I have tried the calculator, what i would like to know more is about the product, I have read through the products available and from my understanding, all of them are almost the same with the ILP policy that i am currently holding. Any insights?

    • KCLau

      Whatsyournumber is a great tool.
      I wrote about it here:
      https://kclau.com/retirement/retirement-calculator/

    • FK

      what do say about whatsyournumber from prudential?

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