5 steps for Malaysians ages 40 and under to take in order to get started with their retirement planning. 

With increased living costs and higher life expectancies, millennials (Pew Research deems millennials as  anyone born between 1981 and 1996) may find themselves working far into their retirement years. Some find themselves questioning the very concept of retirement, while others feel that it’s an unattainable goal due to personal circumstances. It’s a complicated labyrinth of behavioral traits and changing times.

Everyone’s definition of retirement is different, so the first step in the early retirement process is to figure out what you want. No judgment here if your goal is to lounge for the next 50 or 60 years, but you’ll need more cash, considerably more if you plan to travel the world.

You might, on the other hand, be looking for something a little more subtle. Perhaps you want to work but only on your terms, or you want to travel but plan to work at each stop. You could be able to retire on less in such a situation because you’ll have a steady stream of income.

If you’re a Malaysian millennial trying to figure financing and money management for the sake of your future, continue reading!

Step 1: Define Your Magic Numbers

When it comes to retirement planning as part and parcel of general personal finance in Malaysia, it’s all about making sure you have enough money to support your expenses as well as those of your loved ones. Whether you are 22 or 42, you need to conduct the following exercise to better understand what your goals are.

Begin by calculating:

  • How much do you think you would spend every month in retirement?
  • How many more years you are still able to work for?
  • How many more years will you likely live for?

With these numbers, you can have a clearer idea of the reality of what you are working with.

Step 2: Start Saving Now

It’s a good idea to put as much money as you can into a retirement account regularly. It would also be beneficial if you used auto-debit services to automatically move funds to your retirement account.

While you may think “I’m too young to think about retirement”, this is untrue. If you start saving for retirement when you’re 25, you’ll be earning about 40 years’ worth of ‘compounded interest’ on top of your funds. The sooner you begin saving, the more money you can accumulate.

On top of that, it must be said that retirement creeps up on you stealthily. When you are distracted with your career and family in your 30s and 40s, in a blink of an eye you may find yourself realizing a little too late that retirement is just around the corner. That said, the best time to start planning and saving for your retirement is right now, regardless how young or old you are.

Step 3: Revisit Your Spending

Compounding interest is both your best friend and your worst enemy depending how you wield it.

As mentioned before, the sooner you start saving the sooner you can earn from compounding interest. At the same time, you must realize that the more debt you owe (i.e. not fully paid off) the more the debt increases (snowballs) due to compounding interest as well.

Here are several articles that may help you better manage your spending.

Step 4: Protect Yourself and Your Loved Ones

An emergency fund serves as a safety net for you and your family, and it should be prioritized. You must have an emergency corpus in place in case of unforeseen circumstances or accidental situations that necessitate rapid money. In general, you should have at least 6 months’ worth of spending invested in liquid assets.

Furthermore, medical costs are rising at an alarming rate, necessitating the purchase of comprehensive health insurance. Young people should purchase insurance since the better their profile, the lesser the cost they will have to pay.

Keep in mind that when you are young and healthy, your insurance prices are usually the lowest. On top of health insurance, it would be worthwhile to assess other types of insurance you should start getting. Insurance is a useful tool to protect yourself and your loved ones from financial hardship in the face of unforeseen circumstances.

Step 5: Build an Investment Portfolio

After you’ve figured out your savings and insurance needs, you may put the rest of your money into investments. Keep in mind that tiny amounts add up over time.

One should not put all of one’s eggs in one basket. Diversify assets among debt and equity investing channels based on one’s risk appetite. Instill a tight routine of investing some money in assets that create money as they increase, such as stocks, gold, mutual funds, or bank deposits. The ideal investment goal is to build wealth for retirement. As a result, long-term investment plans should be considered.

Conclusion

By changing your mindset, building a solid financial plan for your future, and using opportunities for saving, investing and adjusting personal finances, young Malaysians stand a good chance at a fulfilling retirement.

 

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