Thursday, December 10, 2015

How to Save for A Comfortable Retirement



THE habit of saving for one’s retirement seems to be slowly becoming a thing of the past for the younger generation. These days, the Gen Y in Malaysia have an endless wish-list of items that they rather spend their money on, encouraging the culture of accumulating debt, and living beyond one’s means.

The recent study done by the Asian Institute of Finance (AIF) highlighted that Gen Y in Malaysia are experiencing significant financial stress early in their life with many trapped in the habit of emotional spending.

The study, entitled Finance Matters: Understanding Gen Y – Bridging the Knowledge Gap of Malaysia’s Millennials, showed that Gen Y were accumulating debt at a young age, with 70% of respondents who owned credit cards reporting that they tended to pay only the minimum monthly payment while 45% did not pay debt on time at some point. 

This fact, combined with the unpredictable performance of our ringgit along with the rising cost of living (what with the recent drastic toll hike), presents an alarming outlook for our future in a financial setting. Can we afford retirement, let alone sending our children overseas for education? 

Many of us live with the motto ‘Spend now, save later’, believing we should enjoy our hard-earned money while we can and that YOLO (you only live once).

However, the fact of the matter is, if you don’t start cultivating the habit of saving now, you will likely not ever develop it. After all, the longer you’ve gotten used to a certain lifestyle, the harder it is to downgrade to a more prudent way of living. 

Why is our savings so important? 

Savings play an important role in building a financially secure lifestyle. Besides acting as a cash reserve for emergencies, your accumulated savings does something of further importance – it helps you grow your money by way of investment, allowing you to achieve your desired life goals such as purchasing a property or retire at ease.

The earlier you start saving and investing, the more years your money will have to accumulate interest, which gets compounded over time (Read - The Beauty of Compounding). In the case of retirement savings, the earlier you start saving, the less you will have to worry about enjoying a comfortable retirement. 

A HSBC report entitled The Future of Retirement, A Balancing Act released earlier this year, which reveals key findings of a global study, shows that on a global scale, retirement is not the main savings priority for 85% of working age people. 

Furthermore, 65% of retirees who did not prepare adequately for a comfortable retirement did not realise this until they had retired.

Relying on our EPF savings alone is not a good idea either. The EPF 2014 annual report released this February highlighted that by age 54, the majority of members (68%) had accumulated savings of only RM50,000 and below, due to the many qualified withdrawals they had made beforehand. This amount is hardly enough to live on comfortably beyond two years.

So, how does one ensure a good build-up of retirement funds?

Save first, then spend

Cultivate the habit of saving from now itself. When you receive your salary every month, pay off your bills and put aside about 20% to 30% of your income into a savings account which you should not touch unless an emergency arises. Continue this habit as long as you’re earning.

Grow your money

Savings alone is not enough. Keeping your money stagnant in your bank account is actually causing your savings to depreciate due to the rising rate of inflation.

Once you’ve built up a substantial cash reserve for yourself, invest a portion of your savings into things like unit trust funds, which will grow your money exponentially over time. Whatever the case, make sure your returns on your investments are above the fixed deposit rate of 4%.

Private retirement schemes (PRS) are also gaining in popularity due to government endorsement and incentives.

PRS works similarly to EPF, except that the contribution is completely on a voluntary and on an as-and-when basis. Your investments are able to be withdrawn once you hit the age of 55 years old, and in the meantime, you have the option of switching to other fund managers if you wish.

Up to RM3,000 of PRS contributions are tax deductible each year, and for those below 30 years of age, the Government will sponsor a one-off payment of RM500 for those who contribute a total of RM1,000 to your PRS funds within a year. These incentives were put in place to encourage both the young and old to take charge of their retirement planning from early on. 

How to begin investing your money?

You may think that investing takes up too much time and effort. However, one company has come up with an Internet-based investment platform which is increasingly attracting the attention of many investors.

Headquartered in Singapore, Fundsupermart.com is a financial products distribution platform which reaches out directly to investors in a B2C business model, as well as independent financial advisories and financial planners in a B2B business model. 

Mainly dealing in unit trusts, the platform makes investment easy by allowing do-it-yourself investors to buy into unit trusts, savings plans, and contribute to PRS, all through one online platform, Fundsupermart.my.

Take charge of your financial health and retirement planning before it is too late. Start your saving and investment efforts now to ensure that you have a worry-free and comfortable retirement. - The Star


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