Ensuring A Solid Retirement Fund
finance and productivity | Wednesday, 02 Aug 2017
We often have an idea of what our goals are in the next one, five or ten years. We might aspire to advance in our careers, build a family, pick up a new skill or even travel the world. However, when asked about retirement, many of us don’t usually know what to think of it. Because it’s too far ahead in the future, the idea of retirement often seems far-fetched to many of us.
Thinking about retirement can be stressful to many. Though, the key to retirement planning is not about knowing exactly what will happen in the future, but coming up with an educated estimation of how much you will need and how to achieve it before your last day in the workforce.
If your question is “When should I start saving?”, our answer is a simple “Now”. It is never too early to start saving for your retirement. In fact, the earlier you begin— say in your 20s or 30s— the less likely you’ll be weighed down by soaring expenses and unforeseen circumstances in the future.
Here’s a comprehensive guide on how much you should save for your retirement, and how you can do so effectively.
How much should I save?
There are two ways to go about thinking about your retirement goals. First, is to plan out the lifestyle you aim to maintain in the future. If you could break down your needs, wants and their individual expenses, then from there, you can work your way back towards a rough sum of how much you would need before turning 60.
Here’s a rough guide from us, assuming that at retirement age, your expenditure would be trimmed as you scale down on certain aspects of your life.
Once you’ve figured out your annual retirement expenses, this second step would be crucial to ensuring that you build a solid retirement fund. Instead of asking “how much do I need to save?” a more important question you should ask yourself is, “what income will I need to support my retirement?
According to Datuk Steve Ong, CEO of Private Pension Administrator, a general rule of thumb is to replace 80% of the last drawn income (your latest monthly net salary in your final working place) in retirement. For instance, if your last drawn income before retirement is RM6,000 a month, you should have a monthly retirement income of RM4,800, for at least 15 to 20 years. Sum that up, and you’re looking at a retirement fund of at least RM 1 million.
* Assumes average salary increment of 5% per annum.
^ Assumes average rate of returns of 6% per annum.
How to save up for your retirement
While your EPF contribution would give you a head start, it certainly isn’t enough if you’re looking to save up at least RM 1 million for the future. In fact, the new minimum EPF savings of RM 228,000 is a mere 20 per cent of your intended goal.
Therefore, it is important to look for alternative ways to stretch your savings further, making your money work a little harder for you.
As you work your way towards growing your capital and savings, you would need a comprehensive budget sheet to monitor and allocate your assets, liabilities, savings and expenditure.
A budget sheet helps you to live within your means and is a simple roadmap to reaching your goals. At different phases of your life, coupled with changing spending and earning power as well as risk appetite and health, you would want to shift around your budget allocation accordingly.
While you look into growing your assets, it is also equally as important to safeguard them. Insurance is a great way to buffer against financial and more importantly, medical and health risks that may incur unexpected costs as you grow older.
Allianz Powerlink is a comprehensive premium investment-linked insurance plan. It offers investment opportunities and a comprehensive range of coverages against critical illnesses, hospitalisations, accidents and other unforeseen circumstances that may eat into your savings. The plan is customisable, thus giving you the freedom and flexibility to choose the perfect solution for you and your family.
No matter your age, remember that the best time to start planning for your retirement is now. While retirement planning is a long-term commitment, it can go a long way in helping you live the life you envisioned for yourself. It can be tricky at first, but we are with you at every step of the way. With that in mind, let’s get your retirement plan rolling.
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