Is it getting harder and harder to retire? Find out the reasons why you might be finding retirement financially harder and why you should start preparing now.
The topic of retirement comes to us as we get older, as we know we neither want to nor can work forever. We look forward to retirement as it means taking it easy and enjoying life in our later years.
However, many people are finding that planning for retirement uncovers increasingly more uncertainties and doubts – Do you have enough money? Does the lifestyle that you want fit with your retirement plan? When do you, can you, should you actually retire?
These uncertainties about the unknown future are normal especially as we want to give ourselves security and comfort to avoid helplessness in our vulnerable old age. However, don’t let fear and doubt make you put off retirement planning as the best time to do it as as soon as possible.
To allay your concerns and help you feel more confident in tackling your retirement planning, here are 5 reasons to understand about why retirement is getting financially harder, and what you can do to address this.
Contents
Reason #1: We are getting healthier … and older
Worldwide, life expectancy is increasing in line with the advancement of medical healthcare and technology helping people get the healthcare they need and the latest medical treatment to treat life-threatening diseases.
Malaysians are living much longer too. This is due to Malaysia having one of the best healthcare systems in the world. Malaysia was ranked first in the Best Healthcare in the World category of the 2019 International Living Annual Global Retirement Index.
According to the Department of Statistics Malaysia (DOSM), an ordinary Malaysian was expected to live for 72.2 years back in 2000. Fast forward to 2019, we are now expected to live for 74.5 years. In the future, the United Nations expect Malaysians to live much longer – as long as 79 years by 2040.
This piece of good news unfortunately comes with some bad news. For the longer we live, the more years we have to account for during retirement, and so we would need more money to spend on basic necessities like food, water, and housing. Hence, retirement is getting harder as we of today would need more money for retirement than current retirees.
Reason #2: Cost of living is high now and uncertain in the future
Let’s face it. Most of us struggle to pay the bills. We need to pay for housing, food, electricity, clothes, internet, mobile, water, and the list goes on and on.
When we are already struggling to pay our bills now, it is hard to think about retirement when it is further down the line. Even if we do, it is depressing because the task is so daunting because we don’t have much to save and we are not sure how much do we need for retirement.
According to the Department of Statistics Malaysia (DOSM), a typical family in 2019 earns RM5,873 per month, while spending RM3,654 per month. With an income of RM5,873 per month, according to payroll.my about RM844 is put aside for income tax, EPF, and SOCSO. There are two considerations we can take away from this data.
- It would be tough to squeeze out leftover money for savings or investments.
- A person in such circumstances can consider at least RM3,654 to spend per month as a projection to budget for till the end of your days, not counting inflation.
Why would we need to further save or invest for our retirement? Some Malaysians just trust that whatever money they have been automatically deducting for their EPF savings will suffice to last their retirement. However, the Employee’s Provident Fund (EPF) said that 7 in 10 of its members aged 54 will have to live with RM210 per month until they reach 75 years old or worse, finish their savings in less than 2 years.
Now, compare RM3,654 per month versus RM210 per month. Yikes.
Even the EPF themselves have said that 68% of its active members do not have enough basic savings for retirement. In essence, need to find ways to save and invest for our retirement since we cannot just rely on EPF savings for our retirement considering the rising cost of living.
Reason #3: Income is not growing as fast anymore
Getting a hold on our spending is an important step to retirement but we also need to pay attention to how our income is growing. It is important to consider that while we can cut back on our spending, we can also strive to earn more income in the future to enable ourselves to retire.
We are always saying our income is too low for the job we are working on but how low is it actually? Has our income also been growing?
According to the Household Income and Expenditure Survey published by the Department of Statistics Malaysia (DOSM) from 2009 to 2019, our income has indeed been growing slower.
From 2009 to 2014, the median income of a family grew by 10.0% every year from RM2,841 per month to RM4,585 per month. In comparison, from 2014 to 2019, the income of a family grew much slower by 5.1% every year from RM4,585 per month to RM5,873 per month.
While income grows slower, it certainly makes it financially harder for the current workforce to prepare for retirement compared to current retirees.
Reason #4: More financial commitments
As our life expectancy increases, so do our plans for how we want to enjoy our retirement. Many look forward to changing homes or changing cars. These newly incurred debts add up to your retirement spending.
Meanwhile, as the cost of living grows higher and higher, parents are ever increasingly feeling obligated to actively contribute financially to their children’s welfare, for both young and grown children.
Among some of the money reasons frequently worrying parents about their children are:
- Housing is increasingly unaffordable for the newer generation.
- Education is expensive.
- It is important to insure our children.
With all these commitments, it is no wonder then we are heavily in debt. Bank Negara Malaysia thinks we definitely are, with expensive housing loans the main culprit in this.
This reasons threatens both our ability to commit to contributing sufficiently to our own retirement fund and also would affect us during our retirement should we need to maintain these expenses even during our golden years.
Reason #5: Less people contributing to retirement
If there is one thing we need to understand about EPF or private retirement schemes, it is that it needs people who are working to continue contributing to them and it needs a lot of them. They take in our money and invest in all sorts of investments such as equities, bonds, and others. At the age when you want to retire, you can withdraw your money from it, with the promised returns.
However, we are actually having less children, and more old Malaysians.
- Data from Department of Statistics Malaysia (DOSM) showed that the Malaysian population is growing slower these days with growth of only 1.6% yearly from 2010 to 2018, compared to 2.4% yearly from 1970 to 2010.
- The percentage of Malaysians aged above 60 years old is estimated to increase from 10.3% in 2018 to 19.8% by 2040.
Basically, a retired person’s benefits for retirement are supported by regular contributions from people currently working. With potentially less Malaysians contributing in the long term, it will be hard to retire if the retirement funds have to make even more profits to cope with the increasing number of retirees.
What You Can Do About It
Retirement is indeed getting financially harder these days for most of us. On the one hand, it is costing more to sustain ourselves during retirement so we need a larger retirement fund. On the other hand, many aren’t able to commit to contributing to their own retirement fund so that fund ends up as either non-existent or severely insufficient.
Take the bull by the horns and address these concerns by doing the following.
- Start your retirement planning by calculating how much you think you may need in your retirement fund.
- Take into consideration risks that could derail your retirement plans and common misconceptions.
- Openly hold retirement planning conversations with yourself, your spouse, your family as soon as you can.
- If you are already nearing retirement, don’t give up. You can still take action to prepare for your retirement.
- Start improving your current personal cashflow in order to contribute more to your retirement fund. Save and invest (wisely) more!
- Re-consider your lifestyle and spending habits to prepare for your retirement or semi-retirement.
- Teach your children about money and plan for their higher education.
If you find yourself unable to carry out any of the above actions well, you may want to consider getting help. By engaging a licensed financial planner, you can better understand how much you require to meet your retirement goals, what steps can you take now to put you on the right path, what financial decisions to prioritize and what to deprioritize to best reap benefits, and how far your retirement goal is from where you are now.
Just because it is getting financially harder to retire does not mean it is impossible. Kick-start your retirement preparations by taking action today!
Signup for a MyPF membership and get connected to a licensed financial planner.
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Have you thought about all these things for retirement? Let us know in the comments below!
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