Most Malaysians are not well-prepared for retirement, with
2.8 million people only, or 38 per cent of active Employees Provident Fund
(EPF) members, having met the basic savings amount of RM196,800.
This was stated in the EPF Annual Report last year.
This year, the latest survey found that only 958,100 out of
13 million contributors, or 7.37 per cent, have more than RM150,000 by age 55.
Shockingly, 90 per cent of rural households and 86 per cent of those in urban
areas have zero savings.
Syariah financial planner Dr Niki Shuhada Shukor said this
was a worrisome trend as retirees would be unable to sustain their lives after
they stopped working.
Niki, a consultant with more than 20 years experience, said
retirees had to accumulate a lot of savings to ensure a strong principal sum so
they could reap good dividends and bonuses.
She said the savings and asset gathering phase fell within
the accumulation period, which was prior to retirement.
After that is the
consumption period, which will deplete the savings.
“People need to estimate their monthly expenses based on the
expected salary before retirement.
“They also have to prepare for major life events that need
huge expenses, like the time when their children pursue tertiary studies or get
married. “They have to start saving early in their work life so they will not
have to pay so much a month.
“Only by doing this that they will have a lifetime stream of
income to support their living based on the compounding interest.”
Niki said those new to financial planning could start off
with buying insurance, takaful and unit trust, or join a private retirement
scheme because the younger they were, the smaller the amount they would need to
pay. She said to select a savings plan for retirement, the expected returns per
annum needed to be bigger than the inflation rate.
“Some retirement and insurance products can offer rates that
are higher than inflation, thus individuals can seek certified planners for
advice, attend seminars or do their own reading to get more information.”
Niki said Malaysians should not depend on EPF alone, and
must look for other products like private retirement schemes or invest in
Amanah Saham Bumiputera. According to her, 50 per cent of a person’s monthly
income should be allocated for expanding wealth (savings, asset accumulation)
and protection (insurance).
“The retirees need to ensure that they have peace of mind
after retirement. They have to cover all expenses that enable them to enjoy a
lifestyle they have before. They also have to settle their outstanding loans.
“Apart from planning for their medical needs, they need to provide for social
engagements like going out with friends, eating out and leisure activities like
travelling and golfing.”
She said there was a
growing trend among retirees to use their savings to travel the world too
often, thus finishing their money very quickly without managing it well.
Therefore, she said, even those who were old, and had decided to stop working
and enjoy life, must be made aware of financial planning to optimise their nest
eggs.
Wealth management consultant Rohani Mohd Shahir said the
increasing life expectancy and high lifestyle preferences required individuals
to have reliable strategies in managing finances.
Rohani said having dependencies, including children and
parents, might result in a setback to one’s savings when family emergencies
occur. However, for Muslims, it was an obligation for children to take care of
their aged parents.
“In the event their children are unable to support them
financially, they may have to find other sources of income like doing business,
providing services or disposing their assets.”
She suggested the concept of
allocating 20 per cent of the monthly income to meet retirement goals.
From the 20 per cent allocation, an individual should allocate 10 per cent for protection, five per
cent for savings and another five per cent for unit trust.
She said people could
diversify their income by choosing different categories of unit trusts and other investment instruments.
Besides that, in order to ensure financial discipline, deductions should be
made through auto debit so that the monthly allocations would not be missed.
“The less money one has in his account, the lesser the
amount that he is going to spend on.”
She said lifestyle changes were required as one aged and
children needed to be taught how to be prudent at a young age. For married
couples, Rohani said they could set up a joint-account for emergencies.
“An individual needs to have at least six months’ salary for
emergency money. For families who often eat out, try to cut down to once or twice a month.
Home-cooked food is easier on the pocket and the money saved can be used for
other things.”
For medical needs, insurance could help retirees cover their
treatments and avoid them from becoming a liability to their caretakers. The
insurance protection will cover hospitalisation, critical illnesses, permanent
disability, and death, among others.
She said EPF had established Retirement Advisory Services
(RAS) Centres to help people plan for their retirement needs. RAS was meant to
help EPF contributors achieve a sustainable retirement plan, including those
who were going to retire or those who had just retired.
RAS also conducts awareness and education programmes on
basic financial and retirement planning. The service is available at the
centres in Kuala Lumpur, Petaling Jaya, Johor Baru, Penang, Kota Kinabalu, Ipoh
and Kuantan.
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