Secrets to Retire Comfortably

Many often underestimate the importance of preparing for retirement, thinking, 'It's still a long way to go before I retire.' This is especially true with young people who want to enjoy life, pursue their career, and build a family.   

We should have realized that retirement requires more money than we ever imagined, as when the time comes, we are old and fragile and might not have any energy to work endlessly. It is fortunate if we are still healthy, but what if we are not?  

Recent statistics from the Employees Provident Fund (EPF) show that 51.5 percent of EPF members under 55 have savings of less than RM10,000. This means those retiring with less than RM10,000 and an estimated lifespan of around 75 years will only have an average of RM42 a month to spend from their retirement fund.    

Will that be sufficient? This is highly unlikely because in today's economic environment, realistically, we will need more than that to sustain our lives. The most concerning issue is that the cost of living in the future may be higher than it is now due to inflation.   

Some exhaust their EPF retirement fund within 5 to 7 years after retirement as it is insufficient to support their lives and those they still need to care for.  

Some finish it for other purposes such as renovating a house, children's wedding ceremony, holidays, and so many different purposes that it is not intended for.  

For many, the failure to have enough retirement funds, let alone to maintain it longevity, has led to dependency on their children. For those who are not fortunate enough, they have to start working again.   

Start Early 

As such, we must start preparing for our retirement as early as possible.  Personal money advisor would advise that we have more than one retirement fund, which means that besides EPF, we must build another retirement fund by investing our money in low-risk investment instruments such as fixed deposit and fixed-price unit trust.  

So, how do we ensure that we have sufficient savings not only for a comfortable retirement but also for us to enjoy our current lives?  The answer is to start investing consistently from the first salary, manage your finances wisely, buy affordable assets, especially a house, and manage your retirement fund properly after retirement.   

During Employment    

Invest from the first paycheck.   

Retirement requires a long-term investment in low or moderate-risk instruments. It is crucial to invest consistently every month according to your ability. If you can only afford to invest RM50 monthly, then invest that much.   

Investing early gives you the added advantage of benefiting from compounding interest. Among the best options for long-term investments are fixed-price unit trusts and fixed deposits.  

Steer clear from high-risk investment to avoid unnecessary loss as retirement fund need to be solid and keep growing in value. 

 It is crucial to have self-discipline as it will be the key to guiding you to build a solid retirement nest for you to retire comfortably.   

Take risk protection (insurance) 

Take insurance or Takaful to protect yourself from unexpected events. If something happens, for example, you fall ill or become disabled, the insurance or Takaful will cover your medical needs, and in certain situations, some protection plans may even provide compensation.    

By protecting your back, you will never need to use your retirement savings for such situations, which otherwise will drain your funds, especially if it is related to health issues.  

As such, take insurance/Takaful for you, your spouse, and your children as early as possible to keep your account balance and continue building your wealth without being distracted by unfortunate events.    

Employer contributions  

Besides salary, focus on medical benefits and employer contributions to EPF when choosing an employer. The percentage of EPF contributions, even a one percent difference compared to other employers, will significantly affect the amount of EPF contributions you can accumulate when you retire.  

Building a retirement fund is a long process, as such a slight difference will be significant, especially when considering the compounding factor.  

An excellent medical benefit will give you more cash to invest, so a more enormous retirement nest can be built.  

 Settle all loans   

Home loans, credit card debt, or any other loans should ideally be settled before you retire. This will reduce the money you must spend each month to service those loans.   

Pay extra attention to loans with high interest, such as credit cards and personal loans. Such loans can cause a massive dent in your retirement savings if you still have to pay off those loans when you have retired.    

After Retirement      

Reinvest EPF funds  

When you have retired, you can access your retirement fund in EPF. The money from your retirement fund should be reinvested to ensure it can generate continuous passive income.   

Among the suitable investment destination is a low-risk unit trust, for example, ASB. At the golden age, you should take on less risky investments. Most importantly, income from investments in ASNB is exempted from income tax.   

For example, you can invest a portion of your retirement fund into a low-risk investment such as ASB upon retirement. This way, your money will continue to "work" for you and generate income. Suppose you put RM50,000 in an investment instrument with an average annual return of 5 percent. After a year, you can generate an additional RM2,500 by investing your money there, which gives you an approximate additional RM208 monthly.  

It is better to put your money in a low-risk investment than to leave it in a savings account with a low-interest rate. Worse yet, in many cases, the money you have sitting in your savings account will reduce its value because of inflation. Putting your money in ASB provides flexibility, which means you can still have access to your money if you need to use it, but at the same time, you get a competitive annual dividend.    

Avoid unnecessary spending  

It is advisable to avoid using the money from your EPF funds to renovate your house, finance your children's weddings, or venture into business. These are among the main reasons why retirees quickly deplete their funds. Some retirees lose all their EPF funds because they engage in business without the necessary experience and skills.   

Additional income   

Soft skills in writing, translation, arts, and so on can be a source of additional income. Perhaps you didn't have the opportunity to develop or use your talents while working. During your retirement, you have the freedom and flexibility to use those skills, which can generate more income.  

Getting started with investing is now easier with myASNB. For more details, visit https://www.myasnb.com.my/.