Among millions of working Malaysians, only a fraction is actively planning for retirement. Most Malaysians are passive retirement savers through mandatory contribution schemes such as the Employees Provident Fund (EPF) or the public services pension fund KWAP. These government-mandated retirement schemes have proven to be a boon to many but may have had the unintended effect of being the reason why many people are not active retirement savers. Many believe that their EPF savings or pension payment will be sufficient to sustain them through their golden years.
However, supplementing these schemes with additional retirement planning may be a key factor that determines the quality of your retirement years. There are several things to consider before you can ascertain what actively preparing for retirement will look like for you.
Visualise what your retirement will look like
The first thing to do when planning your retirement strategy is to determine what retiring means for you. Life for most retirees tends to mean stepping back, to be more modest and prudent with fewer lavish expenses and lower overall consumption. Of course, this is not the case for every retiree, some continue living the same lifestyle or an even more lavish one. However, this would be very hard to sustain on a typical retirement nest egg.
Different people view retirement differently. Some will want to do things that they could not when they were busy working. This may include indulging in social work, learning, or starting a small enterprise. Some will want to explore the world and travel more while others will want to live a more leisurely life at home and socialise with family and friends. And some may even want to continue working on a part-time or consulting basis.
Estimate the cost of living during retirement
With a clear vision of the lifestyle you have in mind, the next step is to create a budget that fits this lifestyle. Keep in mind that this budget is for a future where you have hopefully paid off the mortgage on your home and your children are older and more independent. When creating this budget, try to be as granular and as accurate as possible. Remember, that for most people, it might be unrealistic to maintain your current lifestyle.
Retirement budgets have to be prudent and modest to reduce the burden on the size of the retirement nest egg required. The overarching guidance on retirement budgets ties it back to the visualisation of what retirement will look like for you. For example, if travel is important, then the annual budget must include allocations for travel. And if see yourself socialising more when you are retired, then the budget should reflect the ability to eat out more and host friends at home.
Get started on building that nest egg now
Now that you know how much money is needed to sustain your retirement every year, you can use various online calculators to estimate the size of your retirement nest egg. The ideal size of your nest egg will be where it can generate an annual income that corresponds to your annual expenses budget.
To maximise the size of your nest egg when you retire, it is vital to start investing as early as possible to take advantage of the power of compounding returns. There are many avenues in Malaysia to actively save and invest for retirement. In 2012, the Government launched the Private Retirement Schemes (PRS), a voluntary long-term savings and investment scheme designed to help you save more for your retirement. There are also a wide array of other investment options like mutual funds, unit trusts, roboadvisors, Bursa Malaysia, and venture capital firms, that can provide diversification as you build up your nest egg.
Change your mind set about retirement
Most people don’t like to talk about retirement because it involves thinking about getting old. One of the most important parts of preparing for retirement is to change the mindset about retirement. Ageing gracefully and then retiring can be a very rewarding experience, and retirees can continue to be useful, productive, and influential members of society. What is crucial however is ensuring that you are financially stable in your golden years and preparing for that starts now.
