With the average Malaysian life expectancy going up, saving for retirement has become increasingly important. You are never too young or too old to begin saving. However, there are those times when the negative people in our lives throw half-truths our way that discourage us. Together, let’s explore some common misconceptions about retirement to get these doubts out of the way.
Planning for our retirement is one of the greatest financial pressures in life. Why? Because the amount is substantial considering we Malaysians want to live 30 more years after retirement, and therefore requiring long-term effort. To make things worse, there always seems to be some other more pressing issue that requires the money we have put aside for retirement.
Time and time again, we have heard that Malaysians are insufficiently prepared for retirement. Yet when we want to do it, we frequently get bombarded by friends and family with familiar cliches that discourage us!
However, do not give up. Let us review 7 common misconceptions about saving for retirement and uncover the truth behind them. The truth will set you free to pursue your retirement plans.
“Time is on my side. I am only 24 and just started working!”
When asked about what the best financial advice they have ever received, 63% of existing retirees quoted “Start saving at an early age!” (Source: For HSBC report)
As a young person, retirement appears to be a far distance away. Perhaps you think or have been ill-advised by friends to “play first” and plan later. Sounds good, right? But, it is not.
Like the story of the grasshopper who played all summer while the ants gathered food for the winter, you have a great advantage right now. Choose to be the ants and not the grasshopper. With the power of compounding interest, your retirement fund will grow even more if you start now. The sooner your money goes towards pension, the more cash you get at the end. Now that sounds good!
The day you received your first paycheck is the perfect time to start your retirement savings. It’s okay if you have missed the boat because starting today is still better than starting tomorrow. Just remember to take action and do it now.
“I’m too old, why would anyone my age want to even try“
Ah, this is the opposite of Misconception 1. Suddenly, time has passed, children are older, you are older, and retirement has crept up faster than you expected. You think it is too late to start, but let us tell you right now that it is never too late as long as you do start!
It’s never too late to do anything of value and importance, and saving for your retirement must certainly be marked as both. Yes, you may have to invest more money to make up for the shortfall, but remember the more you saved, the more you can spend in your golden years.
Even if you have got only 5 more years to retirement, use that 5 years to improve your savings game. Take it seriously because this is your last chance so don’t waste it. Get a financial plan for yourself – one which shows a need for a large drop in buying things and a jump in earnings.
“I already secure my retirement funds in bank savings accounts and FD.”
Yes, your money is safe in a bank. But, one important concept was missing. Inflation.
The value of the money in your bank account will purchase less stuff as your buying power dwindles when inflation increases as it does with time. Though a bank account is not subject to volatility that comes with distinct assets, the decreased buying power creates a serious threat to your pension funds.
Instead of putting every ringgit into savings accounts, allocate funds to invest in shares, gold, real estate, or other investment vehicles that have a better rise in value to combat inflation.
(Editor remembers the price of one well-stuffed, medium-sized currypuff in 1990 was 10 sen in Penang. 29 years later, how much is a curry puff today? Think about this when you factor in inflation in your retirement planning.)
“I’ve got EPF. It will take care of my retirement needs.”
Sorry to burst your bubble but based on historical data, the money in EPF is unlikely to be enough to fully support the contributor throughout their golden years.
Can RM210,000 last you 20 years in retirement? That (RM210,000) is the average savings amount for contributors aged 54 (EPF 2018 Annual Report). This amount will not last the distance. Let’s look at a simple calculation:
- Assuming your household’s monthly post-retirement expenses = RM4,000
- Not including unexpected financial emergencies
- So, per year you need, RM4,000 *12 = RM48,000
- Split the EPF savings down into years expenses, RM210,000/RM48,000 = 4.375. It won’t even last you 5 years!
Do you still think you can sustain for the next 20 years with RM210,000 money from EPF?
If you think your EPF money will be sufficient to take care of your retirement needs, then good for you. Otherwise, take remedial actions now. Examples, develop a financial plan, cut back on expenses, and work on budgeting. Seek a professional financial advisor if you need to.
“I worked hard to earn my money. I want to enjoy my money, now”
Whether young or old, this is a common misconwception thrown around among friends and family. But, we’re not saying it’s wrong to splurge!
Saving money for retirement and spending money on life’s little pleasures can co-exist instead of living an ultimatum life of either-or. You can use the “50/20/30” budgeting rule popularized by the book “All Your Worth: The Ultimate Lifetime Money Plan”. The rule is to allocate your take-home salary to:
- 50% to your Needs (must-have expenses such as food, utilities, car and housing loan)
- 20% to your Savings/Investments (such as emergency fund, mutual fund)
- 30% to your Wants (non-essential expenses such as movies, dining out, that new branded shoes)
Set your budget per your financial plan and have the self-control to stick to them. You will be rewarded at the end of the day when you have sufficient funds in your old age to enjoy. if you have planned for it.
“Settling my child education fund takes priority over my retirement fund”
Nobody wants to be a bad parent. Nobody wants to be the one who “steals” their children’s future. Have no fear, let us explain how you are being a good parent.
Contention over funds is not an issue if your earnings can comfortably cover both the education and retirement funds. It becomes complicated if you have debt problems. The question of priority can stir emotions.
When push comes to shove, and you need to make a choice, then give priority to your retirement over education fund. Why?
- The only source of income to pay for your retirement basic needs is your retirement savings.
- Though saving for education fund is important, it’s become a luxury when money is limited. Your child can get funding from other sources. Can you get a bank loan to fund your retirement?
- Take care of your retirement fund first. Then work your way up financially to save for your kid education.
Don’t blame yourself or feel guilty. Your kid will be okay with or without your help. No one is going to condemn you for child abuse. Instead, you would be praised for wise parenting. Never forget: college is a luxury when money is short; your basic needs during retirement is a necessity.
“I need to study the ins and outs of investing first”
We understand. Money is hard-earned and a foolish gamble could lose it all. But, do take a step back and listen to our reasoning.
You need not become an investment guru to invest. What is best way to learn investing? Just do it. Start small by saving early and consistently. Speak to a financial advisor who can assist you in finding the right investment mix based on your current financial capabilities, life goals, and risk appetite. Conduct regular monitoring and review of your investment whether it require changes perhaps because of life events.
By starting early and investing at small amounts consistently, your chances of meeting your retirement goals are much higher.
Saving for retirement is one of your money’s most important tasks. Avoid the above seven misconceptions or any other lies, excuses or reasons for not saving for your golden years. Nobody else is going to take that responsibility, not even your children. It’s you, just you.
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Do you know how much you have saved for your retirement so far? Will it be sufficient? If you’re not sure perhaps you may want to speak to a financial advisor.