How much would it cost Malaysians to retire comfortably in 2030?

By Terence Teoh on 11th January 2017 in Blog Posts, News
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Financial FreedomFor most of us, the idea of going into retirement is comforting and much to be anticipated. However, retirement can be nerve-wrecking seeing that we can no longer hold on to the security of having a fixed monthly salary or if we have not found an alternate income source that can sustain us. Most, would have to rely heavily on our savings.

So before you think about retiring in 2030, ask yourself, what is your retirement plan and do you know what would be a reasonable ballpark figure for you to retire comfortably?

Some may think a million Ringgit may be enough. Sure, it does seem like a big amount, but would it be sufficient to last you throughout your lifetime? If you are looking at retiring at 60 and have a life expectancy of 75, your monthly expenditures may come up to RM10,000. We’ll leave out interest on your capital, just for argument’s sake.

Add in inflation for the next 14 years and other contributing factors, that amount can easily go up to at least RM20,000 per month. In other words, a million Ringgit will not be sufficient! All of us need a well-thought out retirement plan.

Here are a few pointers on how you can come up with a conservative estimate:

Your Retirement fund

The first step is building your retirement fund. One of it is by ensuring you have a 2/3 replacement income ratio of your last drawn salary. Another is by investing your EPF (Employee Provident Fund) in approved unit trust funds.

At the same time, learn to be financial literate by exploring other investment options that can further strengthen your financial footprint. Learn to also be prudent in your expenditures and cut down on unnecessary and avoidable spending. Where it is possible, boost your financial security by working on a contingency fund for rainy days.  

Inflation rate

Now we come to one of the major wealth eroding factors that can affect the standard and quality of your retirement life. Inflation. Are you aware of the average inflation rate? And do you know of any tangible and proven ways to protect your retirement fund against it?

Currently, the “official” inflation rate in Malaysia is at 1.8 percent. The rate is expected to trend around 3.50 percent in 2020. By 2030, the rate would certainly be much higher, and the higher the rate, the lesser purchasing power you are expected to have over time.

(Source: http://www.tradingeconomics.com/malaysia/inflation-cpi/forecast)

If your current living expenditures cost you about RM4000 per month, in 10 to 15 years from now, it can escalate up to RM8000 per month if you still wish to maintain your current lifestyle.

Having substantial knowledge about the inflation rate and the ways to work through it certainly helps to protect your retirement fund. Look for investment instruments in the market that offer a higher return against the average inflation rate.

Financial obligations

The next step is to estimate your retirement cost base on your current expenses. Do your expenses include large expenditures such as your children’s education, debts, loans or mortgages? If you are looking to retire comfortably, strive to retire debt-free. Pay off as much as possible and avoid new and bad debts.

Another aspect you may want to think through is, how do you intend to spend your retirement years? Are you looking at having a lavish or simple lifestyle? Would you like to leave part of your wealth to your next generations?

Your lifestyle choice plays a key role in how far you can stretch your retirement fund. For example, if you are currently residing in a landed property that is located in a prestigious area, opting to downsize to a condominium or relocating to a lesser prestigious area could be healthier for your retirement fund in the long run. You must also be prepared to set aside a part of you wealth for your family should you have the intention to do so.

Living conditions

The choice of living conditions is another contributing factor. If you are able to stay fit as a fiddle as you age, you can probably continue staying independently or semi-independently with minimal assistance. At most, you may engage a part-time helper or a live-in maid to help you with your daily living needs.

However, for those who have pre-existing or are at high risk of contracting serious health complications, you may need some assistance in the form of taking care of your own self. At this point, living on your own or semi-independently may no longer be an option. You may have to consider assisted living arrangements such as nursing homes or retirement homes.

While the price of assisted living arrangements vary according to the services offered and the needs of its residents, it is safe to say that extended period of stay can certainly put a huge dent into your retirement fund.

Health conditions

Never neglect your health. If you can age healthily, your expenses will lean more towards maintaining your health and physical fitness. On the other hand, if you have pre-existing health conditions, you would have to set aside a part of your retirement fund for your medical expenses, which include medical appointments, medicine or treatments.

There is no denying that your medical expenses can potentially reduce your retirement fund to nothing. As a countermeasure, make it a point to invest in a reputable and comprehensive medical insurance. Yearly medical checks and an active lifestyle might also help mitigate the effects of ageing.

When it comes to ensuring you have enough for your retirement, the general rule of the thumb is to start saving as early and as much as possible.

Because the later you start, the more you have to put aside every month in order to achieve your retirement goals. The amount that will be sufficient for you also varies according to your retirement plans. Strive to have an amount that is able to outlast you in this lifetime…and leave something for your future generations.