No one said retiring was easy. The Employees Provident Fund (EPF) revealed that more than 60% of its members do not have sufficient savings to call it quits and that 1 in 3 Malaysians do not have a savings account.
That does not mean the future is bleak. With some simple financial manoeuvres, you can save enough to live through retirement.
But while you are at it, you might want to consider these 5 risks that can run your retirement:
In Malaysia, the medical inflation rate, which is the increase of medical costs, is between 10% and 15% every year.
The problem with health matters is that they do not discriminate between age and gender, meaning those with an active lifestyle could also suffer from an unexpected, life-threatening disease.
Top 2 killer diseases in Malaysia*
Est. current charges (RM):
Est. cost in 20 years (RM):
35,000 - 75,000
235,000 - 505,000
10,000 - 30,000
67,000 - 202,000
*Source: World Health Organization, The Star
Worse, post-treatment care is not cheap either. For example, if someone survives a stroke, he or she will need some form of long-term assistance.
Rehabilitation or palliative care inclusive of private room, nurses and in-houses doctors
Cost per year (conservative estimate)
RM5,000 x 12 = RM60,000
Overall cost with an estimated life expectancy of 5 years + 10% inflation p.a.
Medical treatment for stroke + 5-year care
To avoid depleting your retirement fund, your best bet is getting adequate medical insurance coverage early. Include the increasing cost of medical insurance in your financial and retirement planning, as the older you get, the costlier the premium will be.
Scenario: John turned 60 in 2011 and decided to invest in the RHB Equity Fund, a high-risk unit trust. But today, after five years, he wants to sell it.
RM10,000 or 14,457
RM10,000 or 26,560
As John invested in a volatile fund, he lost RM4,557 in just 5 years and this doesn’t include the various investment charges incurred.
Balance in Account 2:
*Price on November 18, 2011. *Price on November 16, 2016.
Your best bet is a low-cost, appropriately risked retirement asset allocation that includes a basket of investments. An example of a moderately conservative portfolio would be something like this:
The most important part of asset allocation is regular tweaking according to your changing risk tolerance. The older we get, the lesser risk we can withhold. This should always be reflected in your investment portfolio.
Asian Institute of Finance (AIF), in a study of 1,000 professionals aged between 20 and 33, found many of them live beyond their means. Majority of its respondents live on credit, with 38% taking personal loans and 47% living on high-interest-rate credit cards. Only 28% claim to know how to manage their finances.
The study went on to find that 75% of respondents have at least one source of long-term debt such as car loan, education loan or mortgage, while 70% own credit cards and tend to pay the minimum monthly payment with 45% failing to pay off debts on time.
Say, John Doe has a credit card debt of RM10,000 and let’s assume the interest rate is 15% per annum, that means his debt costs RM3,158 in interest over 6 years and 11 months, if he only pays the minimum payment every month.
While this sum may seem like nothing if you are young and still pulling a steady pay cheque, but those nearing retirement should consider whether they will be able to make such a debt payment on just their retirement fund.
Without a pay cheque, it’ll get much harder to make lump sum payments to reduce debts so it’s essential that you reduce your interest fees as much as possible before you hit retirement.
Retirees may need to change from living on their own to other forms of housing, such as assisted living, which combines care with housing, and independent living.
Even if a retiree is fit health-wise, it is advised to have the savings for at least one year’s stay at a nursing home. These fees are rarely covered under a medical insurance plan so you’ll need to budget for them on your own.
RM2,500 x 12
RM300 x 12
Medical check-up at a private hospital
Medication & supplements
RM150 x 12 months
Annual premium for medical insurance
Doling out that much for one year is a lot. A conservative estimate for five years, excluding medical expenses and such, would set you back RM202,000.
Children’s tertiary education
For the average middle-income middle-aged parent, this is a ubiquitous problem: just as you are catching your stride in your career and begin to make up lost ground funding your retirement, you get walloped by college costs.