Q&A: Retiring Withdrawals 4%

2016-12-27T17:04:07+08:00By |Q&A, Retirement|

We recently received a query on the 4% retirement withdrawal rule is applicable to us today especially in Malaysia?

retirement sunset

Link to the article
http://www.marketwatch.com/story/should-retirees-still-rely-on-the-4-rule-2015-04-21

Key Points

  • 4% rule refers to the amount retirees can withdraw from their investments every year for living expenses
  • New school of thought: 2% (due to poor market conditions)
  • Ken (MarketWatch writer’s) thoughts: 4% is ok if your investment portfolio is well planned out. Or if you’re above 60, you can afford to withdraw an even higher % annually

A Suggestion

I personally recommend ~2.5%. And that is on your retirement balanced portfolio which is already safely geared towards increasingly secure investments (as opposed to high-risk investments) as you get older.

A more accurate projection would be to do full a PF (Personal Finances) review whereby you would be able to see the effects of income/investments/capital withdrawals VS expected cost of living & inflation. Also another factor would be how much would you be planning to leave as a legacy/estate gift towards your beneficiaries.

Why 2-2.5%?

The viewpoint is that 2 – 2.5% will last you (according to simple arithmetic) 40 – 50years. This will ensure your funds don’t run out as the last thing you want to be is old & holding only pennies. At the same time, your investments (although scaled back as you get older) would still be generating investment returns.

Retirement Planning Key Facts
The average minimum amount needed to retire in Malaysia at age 55: RM1.5-2 million

Retirement Planning Guidelines

  1. Know your retirement age & retirement number (aka retirement goal).
    Suggested excluding your primary residence property.
  2. What is your estimated expenses?
    Most folks actually spend around 80% of what they spent when working.
  3. Factor in inflation
    We are at about 3% n Malaysia
  4. How many years do you need to support yourself for?
    Malaysian average lifespan Male 72, Female 77. Best to target at least age 80-90.
  5. Consider other factors such as medical costs, legacy/estate gifts, etc
    If you do not have medical insurance, purchase medical insurance gives you much better value as long as you are still eligible to purchase.
    Else set aside at least 100k (max 500k) for medical expenses.

Work backwards on legacy planning on how much you want to leave for your beneficiaries.
If you are planning to leave at least 500,000 to your loved ones, legacy planning is wise to ensure fast disbursement exactly according to your wishes & at the same time allows you to spend without hoarding wealth.

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