"The best time to think about
retirement is before your boss does.."
What Does Retirement Planning Mean To You?
Retirement means different things to different people. In my fatherís generation, it meant spending time with the grandchildren, pottering around the house, engageing in church activities, and a modest annual overseas holiday. Others may have a EPF balance of about RM500,000, depending on how much was sunk into their homes.(most middle class families have a home fully paid for, a small car and other personal assets.)
To maintain a lifestyle comparable to the standard enjoyed just prior to retirement, a couple aged 55 would be looking at a monthly budget of about RM3000 per month.
Given this scenario, this couple would require about RM500,000 today, which if invested at a 5% pa, would completely depleted in 30 years.
In other words, a home fully paid for plus RM500,000 in cash or EPF can see a middle class couple retire comfortable, without depending on their children, and with enough left over to distribute as part of their legacy to loved one.
Retirement Strategies For
Most people may not fit conveniently within the parameters outlined above. Many may have their home fully paid for but have very little cash. What are the options?
An annuity over a guaranteed period of 15 years is appropriate for individuals facing the prospect of outliving their liquid resources. About $M300,000 paid to an Insurance company, for example will ensure a monthly annuity of RM2000 for 15 years or until death.
Income shortfall can be met by optional retirement employment or a reverse mortgage on the home. Top that off with a hospitalisation Plan and the retired couple should be able to fulfill their goals without depending on their children.
Middle Aged Professionals
For a middle aged professional couple in their early 40s who can look towards 20 more years of employment, what does retirement planning mean for them?
If they are content with a monthly household budget of RM5000 in todayís purchasing power, this translates to about RM13000 a month in 2020. This couple will need to find about RM2million to fund their baby boomer lifestyle at retirement.
Assuming that all they have in assets currently is a private apartment, the couple will need to hoard RM4000 every month in a fund that earns 7% pa for the next 20 years. This is not easy to achieve even if their combined monthly income today is RM15000.
Saving 20% of their take home pay after meeting home and car loan obligations is a challedge, espeacially when the childrenís education expenses are looming ahead.
The Young And The Restless
Finally, we look at a newly married couple in their early 30s. Wanting a retirement lifestyle similar to the middle aged baby boomers, this couple will need to accumulate RM3.5 million by the time they retire.
To accomplish their capital growth plan, a monthly contribution of RM2000 to a fund generating 10% pa over 30 years is required.
Again we are looking at 30% savings of a combined monthly income of RM6000. The only way this level of savings is possible is by deferring some of the highend ticket items such as a fancy new car, luxury home appliances and exotic annual vacations.
In Summary chances are that most people(even intelligent ones) put off planning for the future. Procrastination and ignorance are a dealy combination.
Example: A 25 years old adult will be able to receive around RM120,000 at the age of 55 by starting saving in our Insurance Plan of RM300 a month for 12 years,and getting a protection of RM150,000,
Whereas someone starting the Plan at the age of 40 and start saving for the next 14 years will be getting around RM55000 at age 55 and a protection of only RM100,000. See the Different and start early..
Compute your own Retirement Plan at Retirement fund calculator