OCBC Life Goals

The right strategy towards realising your retirement goals
By The editors from The Edge
Preparing for retirement is never easy, involving several moving parts such as the need to implement a savings programme, create a diversified investment portfolio and estimate one’s expenditure for the future. According to a recent survey by the Credit Counselling and Debt Management Agency (AKPK), more than 50% of Malaysians may not be financially ready for retirement.

In order to fully understand what it takes to create a sound retirement plan, Michael Lai, Vice President of Wealth Management Research of OCBC Bank (Malaysia) Berhad shares the top 3 best practices that one can adopt and the top 3 common mistakes to watch out for in order to achieve a comfortable retirement.

Retirement: Building the foundation of success
1. Get a head start on your retirement
Generally, everyone should start preparing for retirement as early as possible in order to maximise on the benefits of compounding. There should be a savings goal from the start and this can be easily implemented since the minimum investment amount required at this point is only a few hundred Ringgit compared to thousands previously.

Historical data shows that the consumer price index and household income expenditure continue to be on the rise, which means the later you start on a plan the less you will have in provision you’re your income to allocate for savings or investments. Starting early allows you to spread your risks over a longer period and provides for a greater means to maximise investment returns, which in turn lowers the effect during market cycles.

2. Identifying how much you need for retirement
There is no set figure for how much you should set aside as the figure is dependent on the particular life goals of the individual concerned and the planned maturity of those goals. The amount, however, should high enough to prevent any person from accumulating unnecessary debts from unplanned expenditures.

As a rough guide, the figure could range from RM50 per month (RM600 per annum) to RM300 (RM3,600). According to the EPF, a good guideline to follow is to allocate 30% of the income for savings, which is linked to the goal of being comfortably retired. The EPF’s definition of a comfortable retirement comprises financial security, good health and a happy meaningful life.

3. Creating a diversified savings and investment portfolio
Diversification is an important step in preparation for retirement. Investing in property and different types of financial asset classes like equities and fixed income is a good step to ensure multiple sources of growth and protection for your retirement fund.

With additional earnings or savings from existing investments, these funds should be channelled to additional forms of investment opportunities that offer attractive interest earnings. You would also need to have a good balance between conservative investments such as unit trusts and fixed deposit, and high-risk investments like stock market trading.

Other products like annuities are useful to limit the freedom on the use of funds. These prevent large withdrawals of retirement funds for purposes that may not be related to retirement such as unnecessary purchases. Annuity payments coverage in the market stops at age 88, well beyond the normal benchmark of mortality and beneficial for those blessed with healthy and long lives.

Retirement mistakes and how to avoid them
1. Failing to review the retirement plan
Each individual’s retirement plan should be reviewed on a regular basis and take into account the performance of retirement assets or revisited based on particular life stages to incorporate changes and new parameters. Regular reviews on an annual basis (and every five years in consideration of the various life stages) would be ideal. By regularly tracking the progress of your investments, reviewing your assets, and factoring in any changes in your life, you will gain a set of data points to base your future investments on or shift and update them for better returns.

Meanwhile, those who have started late in their retirement planning should have their portfolio lean towards lower risk investments in order to avoid untimely market movements that will have a negative impact upon the retirement fund at the time when it is called into use. Identifying how the retirement plan works out in the end reduces the incidents of need to re-work and re-calibrate them due to unforeseen changes in investment parameters and preferences.

2. Underestimating the cost of healthcare and wellness
Insurance products should not be overlooked during retirement, as they help provide financial security and mitigate health risks, if and when they arise. An insurance plan not only serves to offer protection, but also lowers the possibility of having your savings depleted due to critical illnesses or emergencies.

An extended medical plan should be considered as it works to protect your saved assets by negating the situation where you need to dip into the retirement fund for medical related expenses, if and when that occurs. While regular healthcare cost are of utmost importance, with the aspiration to stay in shape both mentally and physically, you should remember to also allocate funds for the upkeep of wellness programmes.

3. Understand investment challenges and consider the financial implications
One must be prudent when it comes to investing their hard-earned money as some investments may bring with them certain challenges in the long run. Investing in additional properties, for instance, can help generate passive income or future capital gains but they require long-term financing, which will likely reduce the contribution to the retirement fund and should therefore be kept at bay as far as practicable.

Many also fail to take into account inflationary pressures as well as the issues that arise from economic downturns and recessions, which will affect the financial markets. The impact of these factors will not only raise costs and the standard of living but also potentially shrink the value of your savings and assets. By monitoring the changes in the market forces, one will be better informed and equipped to adapt to these financial challenges in order to safeguard their investment interests.

By following these basic principles and using the insight to avoid certain pitfalls, you can approach your retirement years with confidence. With a clear vision of how you want your retirement to be, and by utilising the right measures today, you can confidently work towards achieving the retirement of your dreams.