Retirement will come, and how comfortable it will be depends entirely upon you

Retirement is no joke!

By this point in our series on Your Personal Journey to Financial Security we have already covered topics that can offer you tools to help you build your wealth. We’ve given you ideas on how to invest your money wisely, how to find the right experts to advise you, and even asked you to consider investing in Unit Trusts and Private Retirement Schemes.

This time, however, we would like to remind you about the ultimate reason for doing so: so that you are able to retire comfortably, and with peace of mind.

When you are young, saving for your retirement might seem like something that can wait for later, especially if you have other commitments that may seem more urgent. However, we want to emphasise the hard truth: Retirement Is No Joke!

Let us imagine two young people: John and Jane. Both of them begin working at around the same time, and earn similar salaries. Both of them purchase the same type of car, get married and start families, even purchase a home at the same time. Both of them also make sure that they live within their means, without any unnecessary splurges.

The only difference between them are the plans they have made for their retirement. John is planning on living off his retirement savings in his Employees Provident Fund (EPF), while Jane has been setting aside a certain amount of money every month for investments and additional retirement savings, which she is planning on drawing from to supplement her EPF savings in her old age.

Now, which of them do you think would be in a better position financially should they suddenly fall ill during their golden years?

If you have prepared yourself financially – you can have peace of mind and enjoy your retirement without having to worry too much about money. If you have not – you may have just enough money to get by, and if a major crisis happens, you may find yourself stretched too thin at that point in life when you need your savings the most.

Why is it important?

We Malaysians are expected to live until we reach 75 years old. However, we retire at 60 years old. That means, we can expect to live at least 15 more years without drawing a regular monthly income.

Some of us may be fortunate enough to receive monthly pensions, or be able to tap into our EPF savings. Nonetheless, research have shown that merely having pensions or EPF savings may not be enough to live through retirement.

Some of us may have children who are working and receiving salaries. Yes, they can provide for us, but do we really want to burden them, especially if they have children of their own whom they need to care for? It would be better if we are financially independent and not be a burden to others.

As such, to be able to fully enjoy our golden years, we need to start saving and growing our money in time for our retirement.

Growing your retirement savings

We don’t just want to save our money. We actually want it to grow. The way to do that is by investing our savings and an option would be to invest in Unit Trust Schemes (UTS) or Private Retirement Schemes (PRS).

Investing in UTS and PRS is one of the simplest forms of investing. It doesn’t require large amounts of money, time, or expertise.

All you need to do is approach a UTS/PRS Consultant and transfer a portion of your savings into a UTS/PRS product that is suitable for you. The monies in the UTS/PRS, including yours, will be invested by a licensed professional fund manager.

Saving for retirement

A Long-Term Activity

Remember that life is a marathon, not a sprint. If your retirement is still some time away, it will give you a lot more time to prepare for it. This means that you can save a lot simply by putting aside some money consistently over a long period of time.

To maximise your savings, the key is to start early. Just like in a marathon, every now and then, you should take stock of your progress and ‘refresh’ yourself. As your salary increases, revisit your periodic contributions and adjust accordingly. As pay increases, your lifestyle gets upgraded.

After retirement, you do not have any more fixed salary, but the expenses of your upgraded lifestyle remain. As such, your target savings should be one which can sustain your desired future lifestyle.

But how much should you save?

You can refer to a retirement calculator. The Private Pension Administrator (PPA) has one, which you can utilise here. After you key in the requested details, the retirement calculator will inform you of the amount of savings you will need, as well as the projected savings you will have based on your current savings amount.

From there, you can calculate the shortfall and determine how much you should be saving on a monthly basis.

Consistency is Key

Remember to pay yourself first! Most of the time, once people receive their salary, they would save whatever remains after paying their bills, taxes, loans, groceries and such. However, this practice can lead to inconsistent savings. It would best if you can allocate a fixed amount for your retirement savings first, before seeing to your other commitments.

Likewise, do NOT take ‘savings holidays’ or defer your savings contributions. You must be consistent!

It would be ideal if you can consider signing up for a regular savings plan when investing in a UTS/PRS. This plan will, on a regular basis, automatically deduct money from your bank account and purchase units in UTS/PRS. Hence, you can ensure that you will be consistent in your savings.

$!Setting up your nominee in just four easy steps.

Name a Nominee

Essentially, a nominee is the person who will inherit your savings in the event something happens to you. Hence, it is very important that when you make your investments, you elect a nominee.

Even if you don’t name a nominee, your next-of-kin can still receive your monies. However, the process is a lot more difficult and expensive because he/she may need to procure and submit multiple documents (including court documents) to prove his/her entitlement. By naming a nominee, the process is a lot easier and more cost effective.

If you have not yet named a nominee, you can contact your authorised UTS/PRS Consultant and he/she will help you with the process.

How to make a nomination

When you invest in PRS, you are automatically enrolled as a lifetime member of PPA. As a member, you can make a nomination for the purpose of easy disbursement of your PRS balance in the event of your demise. You can nominate up to six (6) persons and allocate a specified percentage of the PRS balance to be paid to the nominee(s).

The final word

Retirement is no joke! We want to be able to enjoy our retirement comfortably and without any financial worries. As such, we must start saving for retirement early and doing so in a safe and disciplined way.

Getting an early start on saving for your future gives you a huge advantage. The younger you start saving and investing, the less you have to work today to have a financially secure future, because you can let the compounded interest to do the heavy lifting.

To find out what other steps you can take to reach financial freedom, look out for the next article in our series on Your Personal Journey to Financial Security, only in theSun, brought to you by the Federation of Investment Managers Malaysia (FIMM).