OCBC Life Goals

Aim, plan and realize your retirement goals.
By The editors from The Edge
The key to enjoying a good retirement is to first secure financial freedom. Although the thought may seem a little far-fetched to some today, building a solid base of funds and assets will certainly help to make your retirement goals attainable. With better planning and by taking the proper financial steps, you can be assured that you will be on the right track to achieving those retirement goals that you have been working on. In the past, paying off a key investment such as a mortgage and relying on one’s EPF used to be key to living through the retirement years. However, that may no longer be sufficient to support your lifestyle expectations. Closer evaluation reveals that we actually need more than that.

EPF savings form just one aspect of a successful retirement plan. If we look at the minimum savings target of RM228,000 set by the EPF, by the time retirees reach the age of 55 - the average life expectancy of a Malaysian currently stands at 75 – most will have to make do with RM950 monthly.

Adding to that, one also can’t rely solely on a fixed asset investment such as land and property as key investments as the real estate market is subject to market cycles. Just recently, it was reported that Malaysia’s nationwide house price index rose by only 0.73% (after adjusting for inflation) in Q3 2017 last year, which is the lowest since Q3 2009.

This, accordingly, accounts for a challenging sub sale or rental market. In many cases it will produce low rental yield and, to some extent, rentals that may not be sufficient to cover the monthly mortgage repayment. Overall, although the EPF and a paid off mortgage are vital components, they only form part of the foundation of a solid retirement plan.

Upon evaluating one’s goals, inflation as well as cost of living expenses and healthcare, what we think we have saved up today may well be insufficient for our retirement years ahead. To put things in perspective, the Department of Statistics Malaysia (DOSM) shows that in 2016, the mean monthly household consumption expenditure registered was RM4,033 compared to RM3,578 in 2014. The mean monthly household consumption expenditure was RM1,161 in 1994, rising to RM2,190 in 2009. In total, this shows the growth rate was almost 200% in 20 years.

Planning your retirement now and deciding on your retirement goals is the first big step. Whether it is enjoying an even better lifestyle than your currentone, pursuing a project you are passionate about or a business venture which has taken a back seat due to various commitments or continuing a postgraduate or research programme, these goals allow you to create the blueprint for an action plan for your retirement fund.

One would then need to start working out the calculation to determine how much money they would need to maintain for their current lifestyle, and then make a projection and scale that figure for the years ahead. Saving towards these goals is essential and, as a rule of thumb, it is wise to allocate at least 10-20% of one’s salary each month, in addition to the 11% contribution towards the EPF.

However, to truly achieve a solid foundation for retirement, one has to evolve from just relying on this rooted and conventional savings approach. Financial literacy plays an important role in this as it assures one of making a sound decision based on knowing the financial consequences involved.

A good way to start is to have a balanced investment strategy and a healthy and diversified investment portfolio which will yield passive earnings in the form of interest returns and rental or lease. Always look to continue re-investing the earnings, and not leave cash idling in the accounts either.

Re-evaluate your savings and investments on an annual basis and identify new avenues and opportunities for investment. One should utilise compounded interest earnings to invest in new investment opportunities such as new funds that provide attractive interest earnings or the acquisition of additional fixed assets.

One would also need to consider the weightage of their portfolio between high-risk and conservative investments. To do that, you would need to take into account factors such as your risk tolerance level and your financial requirements across the different life-stages. The other factors would be tactical adjustments made to your investments based on market movements especially during volatile periods. To ensure one is on the right track, seek advice from professional bodies such as financial institutions. The solutions presented will undoubtedly make it a lot easier to help prepare and make changes in tandem with the changing financial needs as they are better informed to re-evaluate whether their current state meets the goals that have been set out.

No doubt that building a workable and successful retirement plan is more complex compared to how it was done in the past. But this is essential as people begin to embrace new ideologies and aspirations that they want to realise in their golden days. By making smart and savvy financial decisions, one can create an effective retirement plan that will help to fuel their dreams in their later years and most importantly provide them the luxury of retiring free of worry.