In my previous Retirement Series articles, we spoke about retiring with RM2mil cash and RM3mil net worth. While those are the magic numbers where it will help thousands of Malaysian to retire but it will remain delusional or a dream. To make things easier to understand and achievable, we are going to look at ways that you can plan your retirement successfully.
Golden Rules to a Successful Retirement Planning
1. Start Retirement Planning the day you start your first job
The biggest mistake and misconception that everyone have is "I just started working and I am not going to retire in 40 years' time". I started to think about retirement when I was younger, way before I work. Of course none of us will know what kind of life you would want to live 40 years later but what you can easily do is to set aside a sum of money for retirement and 'rainy days'. What makes you think the government via EPF forced everyone to contribute at least 23% (11%+12% or for those earning below RM5,000 - 24%) of their income for retirement purposes? It's a form of forced savings that will help many in their older days.
2. Any sum contributed towards Retirement Fund is welcomed
When you started out working, none of us will withdraw a big paycheck. Some fortunate ones will earn double to triple those working basic jobs. However, as the saying goes: "it doesn't matter how much you earn, what matters is how much you saved", it really is how much you save up. Just imagine is, a young man who spend his way out of a salary of RM4,000 with zero savings is worse off than a person who earns RM2,500 wages and save RM200/month.
3. Try not to utilize the sum that you have saved up for retirement until Retirement happens
A lot of people saved money and they put all in a basket. When something turns up, they look into their "kitty" and say "hey I have got the money, let's buy a new fridge for Christmas" or "well, we have saved enough to buy a new car". Yes, it thrills us to spend the hard "saved" earnings but again, you will have to be clear like "money in retirement fund should not be touched" not unless you lost your job and have no where else to look for money to keep you going.
4. Hold on to "lifestyle" upgrades and continue living a frugal lifestyle as long as possible
It is easy for us when we have an pay increment every year and we actually "upgrade" our lifestyle and spend all of the increment. This normally involves the "want" category like I "want" Starbucks coffee because it's nice, I "want" to dine at a fancy restaurant thrice a month as "I can afford it". Yes you can afford them and not indebted. However, by holding back your "want", you are indirectly increasing your savings. That will tie-in well with Item 5 below.
5. Invest Retirement Savings as early as possible
Time is on your side if you start early and you can also invest a smaller amount. Below is a scenario for you to consider. If you're looking to have RM1mil at retirement (assume 60 years old), this is what you have to save monthly (assuming 6% return p.a.).
a. at 25 years old - RM 728/month
b. at 35 years old - RM1,478/month
c. at 45 years old - RM 3,485/month
d. at 50 years old - RM 6,154/month
e. at 55 years old - RM14,391/month
You can see that from the simulation above, it pays to save early and let "compounding gains effect" to help you. Don't get discourage with the numbers above as it also involves savings in EPF as well. Refer also to another article posted in the Ant On the Street Retirement Series blog.
Investing your money means that you don't keep your money in Banks only. Fixed Deposit is not really considered as "investments". Investments would mean vehicles like Unit Trusts, Mutual Funds, ETFs, Stocks etc.
6. Learn Financial Management and Investment early in your career life or even life!
Learning is lifelong as they say. Too bad we weren't taught financial management earlier in our formal education. We were taught finance, economics and other important subjects like science and math. Financial Management is one of the most important aspect in one's life. You see that a lot of people committed suicide, families torn apart or even those who went bankrupt due to illnesses or couldn't afford to have a proper roof over their heads at old age. It's very very sad to be in those situations but from studies done, majority of them is not due to poor luck in life but simply due to poor financial management. It involves a strong will, discipline and constant fight between "want" and "need".
7. Be bold and look for a better paying job.
Be bold and take the risk - a lot of us will prefer to stay in the existing comfort zone because we are familiar with the work. Grab that promotion, grab that pay increment even if it means heavier responsibilities and tougher work. Work hard for it as hard work is the only consistent answer to success. No doubt hard work does not always yield good outcome but it's the most 'consistent' way. And remember, when you get that promotion or pay increment, first thing is to save the extra money you get, not to go into a new car, new bigger house, new hobbies.
With the above Golden Rules discussed, we hope that our readers will not only enjoy reading them but will benefit from it by practicing those rules in your daily life. Take charge of your financials today, a baby step forward is what you need. Remember, one step at a time, not a big leap.
Retirement Series:
#1: Can you retire with RM3mil Net Worth?
#2: How can you retire with RM2mil cash?
#3: What is your spending power with RM6,000/month
#4: Is it possible to build a Retirement Portfolio averaging 6% return per year without EPF?
#5: Golden Rules to a Successful Retirement Planning
