The issue of retirement is haunting everyone, especially now with the rise of inflation and interest rates. It is happening not only in Malaysia, but the rest of the world. This makes retirement planning harder and it makes us wonder, what does it take to retire comfortably?
According to Husaini Hussin, chief executive officer of Private Pension Administrator Malaysia (PPA), the reason why most Malaysians are not able to save is because they are poor with financial planning.
“We don’t normally live within our means and do not have a plan for the long term, such as building up our retirement funds,” said Husaini.
To overcome this, we must set aside one third of our monthly salary to have two thirds of our last drawn salary as income replacement in order to have adequate funds upon retirement. This fund will then need to last us throughout our golden years. With Malaysians living on average up to 77 years of age, it is definitely a challenge to have sufficient funds to retire comfortably. Therefore, it is always good to start planning for retirement as soon as possible.
For those who contributed to the Employee Provident Funds (EPF), at least there is something for your retirement. But according to statistics, 6.1 million EPF members have less than RM10,000 in their savings. This amount is not enough to sustain even for a year.
Husaini suggested that all of us start saving for our retirement as early as possible.
“Start with a small amount, then gradually increase the saving once our salary increases. By building a regular saving habit and with the help of compounding growth, it helps to build up our retirement funds,” Husaini remarked.
What About Those with No EPF?
The younger generation these days prefer to have freedom and flexibility, which has given rise to a new generation of freelancers, small-time business owners or e-hailing drivers, with all of them not contributing to EPF, hence there is no retirement fund for them.
So how can they start planning for their retirement?
“It has to start with the right awareness, that they need to begin planning for their retirement as soon as possible,” mentioned Husaini.
It is important to start a saving habit and set aside some money each month and make contributions to a bona-fide scheme such as PRS which is a voluntary long-term saving and investment scheme to help people save for their retirement.
On the issue of scams, Husaini mentions that this is due to greed, negligence, carelessness and naivety. Even though there are a lot of legitimate investments out there, people still fall for scammers, which is now to the tune of billions of Ringgits. Based on Bank Negara Malaysia’s Financial Capability and Inclusion Demand Side Survey 2018 (FCI Survey 2018), most Malaysians are lacking in financial literacy with one out of three Malaysians rate themselves to be low in financial knowledge.
We can avoid scams by educating ourselves and getting credible information by visiting the official websites, such as the Securities Commission Malaysia (SC), Federation of Investment Managers Malaysia (FIMM), Financial Planning Association Malaysia (FPAM) and the likes, before making any investment. Also, we can seek investment advice from a licensed financial planner instead of online gurus with no evidence of qualification.
Malaysians from all walks of life are invited to visit PRS LIVE website, which is a one-stop learning centre on retirement and PRS. There are insights, articles, news and videos available for visitors to read and have a better understanding on retirement planning.
“At PPA, we advocate Private Retirement Schemes (PRS). It was launched by the government in 2012 as a voluntary long-term saving and investment scheme to help Malaysians save more for their retirement. With the regulatory framework developed by the SC, PRS forms the third pillar of Malaysia’s multi pillar pension framework,” added Husaini.
How Do We Cope with the Rising Inflation and Interest Rates?
We can do this by reassessing our spending habits and to clearly define our “needs” and “wants”. If inflation is making it difficult to stay within budget, take a moment to reassess your cash flow.
With the rise in interest rates, this will cause our spending to reduce and hopefully it can help us to save. But there is so much that we can do to reduce our expenditure, perhaps it is time that we earn additional income by getting a second job.
Other than saving regularly towards our retirement funds, we should also set aside some sum towards an emergency fund. We can then dip into when we need access to cash during a crunch period. Studies have shown that people having access to an emergency fund would not touch their retirement savings.
In order to achieve a happy retirement, we need to have the mindset of ‘saving before spending’. Allocate a certain amount of savings before deducting your expenses for the month.
“This ensures we will always set aside a sum for our retirement savings, rather than to wait until the end of the month to see if we have anything left to save after all expenses,” Husaini mentioned.
Because chances are, we might not have anything left to save if we did not allocate ahead. Another consideration is to save now and indulge later.
Start saving for the life you want with as low as RM100 to enrol in PRS via PPA’s PRS Online service today and stand to enjoy more PRS treats during the #ISaveinPRS Treats Contest period until 20 December 2022. For more information, visit https://www.ppa.my/isaveinprstreatscontest/