3 min read I Date: 3 February 2022
Although everyone wants to retire early, it’s even more important to retire comfortably. In this article, we will help you to figure out the best time to retire comfortably. In Malaysia, the majority of Malaysians tend to retire around the age of 60, which is the official retirement age in Malaysia for the public sector.
This figure is relatively early compared to more developed countries which could be attributed to the longer average life expectancy in developed nations. Malaysia’s average life expectancy is 75 years, according to the Statistic Department. (Source: www.theedgemarkets.com) Though no one will know how long they will live, what is certain is that you’ll need to think of how to fend for yourself after retirement.
The first step to improving your finances is to understand where you currently stand. That means taking stock of these areas:
- Employees Provident Fund (EPF) statistics show that 70% of its contributors who withdraw funds at 55 often use up their savings less than 10 years after retiring. (Source: NewStraitsTimes)
- How More than 50% of Malaysians may not be financially ready for retirement, according to the Credit Counselling and Debt Management Agency (AKPK). (Source: malaysiakini.com)
- Furthermore, EPF states that only 80% of the total 13.5 million labour force in Malaysia have some form of retirement savings or government pension, although government pensions are not contributory.
On top of this, multiple reports have shown that a person’s EPF funds alone won't be enough to cover a majority of their expenses in retirement. This is why most people need additional retirement savings and investments, to supplement their EPF fund too.
Though many people ask the question “when can I retire,” the more accurate question is to ask “when do I want to retire, and how can I get there,” which also requires you to understand the amount of money you need to save to retire comfortably.
Related: 4 steps to creating your retirement plan
How much do you need to retire comfortably?
This question will help you determine the amount of money you’ll need to retire in peace and the investment strategy you should take to help you supplement your retirement savings. Whether it’s RM200,000 or RM500,000, there’s no set number. The truth is, it varies according to the needs of the person and the financial strategies that they take. A famous rule that can be used to help us figure this out is the replacement ratio.
A simple way to think of this is the proportion of a person’s income needed in their working life that they need in order to maintain the same level of living standards during retirement. The replacement ratio is also a common measurement used by some to measure the effectiveness of the pension system. The EPF is a compulsory retirement savings and contributions scheme for all Malaysian citizens and permanent residents who are working in Malaysia. According to this scheme, account holders may partially withdraw their money at 50 and make a full withdrawal at 55-60. To start diversifying your EPF savings, you could also consider investing with Principal through EPF’s i-Invest.
Related: Will you have enough income for the retirement of your dreams?
If your income is sufficient, continue adding more to your savings and investment funds. But if it’s not, take action now. If you don’t already have the Private Retirement Schemes (PRS), invest in Principal PRS. If you have and it’s not sufficient, it’s time to top it up.
What to do next?
Not sure how to supplement your retirement savings? Consider reaching out to a financial consultant. (We can help you find one.) They can help you discover your goals and advice you based on your risk tolerance.
In the meantime, you can read on how to supplement your retirement savings with Private Retirement Scheme (PRS).