How to save for retirement in Malaysia | Retirement Planning

How much money will you need to retire? If you’re like the majority of Malaysians, you don’t know the answer. But experts use a basic rule of thumb to evaluate how much you can spend. They advise a safe withdrawal level each year is around 4 percent of your savings, meaning you’ll need roughly 25 times your yearly expenditure when you achieve retirement age.

A 2021 poll finds that more over half of Americans are behind in saving for retirement. Another 16 percent aren’t sure if they’re on track or not.

I believe this number is not very different from Malaysians.

It’s no wonder therefore that roughly half of working families are at danger of not being able to maintain their quality of living when they retire, according to the National Retirement Risk Index (NRRI) created by Boston College’s Center for Retirement Research.

There are techniques to make sure you remain on track, however. Below you’ll discover recommendations for what you can do to enhance your capacity to save and what you should be doing now, no matter your age or financial circumstances.

How much money will you need to retire?

When customers ask Dan Tobias, CEO and certified financial planner at Passport Wealth Management in the Charlotte, North Carolina region, how much they’ll need to retire, he’s quick to divert the conversation by asking what retirement looks like for them.

“Are they seeking to drive a Lamborghini, or are they looking to relocate to a 55-plus type apartment in Florida?” Tobias asks.

After Tobias learns the person’s retirement vision, he may use some rules of thumb.

One is seeing what 4 or 5 percent of your retirement savings is – using the old 4 percent rule – and what your lifestyle would be living off that amount.

If that sum isn’t on goal, you’ll have to either boost your contributions or live more frugally throughout retirement.

To assess whether you’re saving enough, Fidelity Investments advises specific thresholds of retirement savings as you age.

For instance, by age 30 you should have at least your yearly wage saved.

By the time you become 40 years old, you should have saved three times your wage.

At age 50, you should have six times what you earn yearly saved for retirement.

By the time you approach age 60, the aim is to have eight times your income saved — and it should reach 10 times your salary by age 67.

Some consultants have different estimates: Bank of America predicted middle-income individuals would need to save 8.2 times their wage by the time they’re in their early 60s in order to safely replace their income.

The most essential thing is to be realistic about your ambitions — and don’t overlook the increasing expenditures of growing elderly, particularly healthcare bills.

How to optimise savings on a budget

Even with limited resources, you have techniques to optimise your savings so you don’t find yourself submerged later on. Here are some of the most helpful methods:

Set up automatic donations. If you don’t ever see the money flowing into your savings, you won’t have the chance to miss it.

Whether your work provides direct deposit to various accounts or you configure your own account to automatically move income into designated savings, automatic contributions may be a simple and quick approach to incorporate savings into your budget.

Cut down on spending. Cut back and then you may put those additional dollars into your savings account until you begin to accomplish your objectives.

Focus on the significant expenditure. Forget the scrimping on the odd coffee: the greatest area to discover savings are your major expenses: housing, automobiles, eating out, vacation or anything you spend substantial money on.

Find a side employment. If you don’t see any cost-cutting possibilities, you may instead look into a side business. Whether you opt for freelance work, a part-time employment or passive income, a few more hours each week may result in a healthy deposit straight into your funds.

It’s vital to implement saving into your budget immediately. Americans’ greatest financial regret is not saving for retirement sooner, according to a Bankrate poll. You want to have your money working for you — compounding your earnings – as soon as feasible.

How to save in your 20s

The irony of retirement savings is that you need to start young. To properly appreciate the power of compound interest you need to maximise the years you allow yourself to save. By the end of your 20s, strive to have as much in your retirement funds as you make in a year.

Build your emergency reserve

Start small. Financial advisers suggest you have six months’ worth of basic expenditures tucked away in a high-yield savings account. That’s a very tough endeavour for someone just starting out in their profession.

You don’t have to get there all at once. Aim for one month’s worth and grow from there.

If you’re ever in need of cash, an emergency fund will avoid you from tapping into retirement funds, which would limit your potential to compound earnings.

Use a secure savings account to make sure your money is there when you need it and earn the maximum interest rates by shopping around.

Start saving for retirement

Start saving early

Let’s imagine you start saving $6,000 yearly at age 22 and continue to save that amount until you are 67. Assuming a yearly return of 6 percent, you’ll finish up with $1.45 million by the time you reach full retirement age.

Compare that with someone who begins saving a decade later and has just 35 years till retirement. That individual will have to save roughly twice as much money each year to end up with the same amount by 67.

A financial calculator can reveal whether you’re on pace to accomplish your retirement savings objectives.

Consider boosting your allocation to stocks

Play it aggressively by placing a large proportion of your portfolio in equities.

When you’re in your 20s, you have a lengthy investing horizon.

That means you can weather the ups and downs of the stock market, and perhaps take advantage of its historically strong returns, over 10 percent annually over extended periods.

This asset allocation calculator shows you how to design a balanced portfolio of assets that meets your time horizon and risk tolerance.

Instead of buying individual companies, many experts suggest that you go to mutual funds, exchange-traded funds or target-date funds to diversify your investing portfolio, lower your risk and yet generate acceptable results.

How to save in your 30s

By age 35, attempt to have two times your income saved in your retirement accounts, on the road to three times that number by age 40.

You’ll want to maintain all the healthy behaviours you established in your 20s, or shift into high gear if you’re behind.

Ramp up your emergency savings

Your 30s are when you truly start to grow up financially. It’s when individuals often purchase a house, too. The typical age of first-time home purchasers in the U.S. was 33 in 2022, according to the National Association of Realtors.

Maturation, however, implies you have more to lose.

A late mortgage payment is an entirely different matter from skipping rent. You don’t want to lose your home, which may progressively become full with children.

Now is the moment to expand your one- to three-month emergency reserve to something closer to six months.

Ramp up your retirement funds

This is the point in your life when you start earning real money, making it even more crucial to prepare for retirement.

If you’ve fallen behind on your 10 percent savings target, make it up immediately and don’t be afraid to go even higher.

Now is also the time to take advantage of automatic increases in your retirement savings.

You may set up a direct payment into your retirement fund to rise by a certain percentage each year.

Since the additional percentage flows into your account automatically, you won’t have the opportunity to miss it.

You may also begin to put more of your wage boosts into savings, rather than spending them.

Get on the same page with your spouse

Many Malaysians are getting married during this phase of their life. This involves attaching oneself to someone, both romantically and financially. The two have a way of impacting one other.

Many spouses believed that financial adultery is worse than physical cheating. Successfully meeting your retirement objectives will rely on open communication with your spouse on all things financial: from the budget to how much to save, and preparing for what you want to do in retirement.

How to save in your 40s

Aim for four times your wages saved by age 45, and six times by age 50. As your income climbs up in this decade, so may your savings rates.

And with two decades or more till retirement, you may still take advantage of the power of compounding.

Pay off debt

A lot of households may be carrying a credit card debt in their 40s. Eradicating that burden may go a long way to freeing up more money to spend toward retirement.

Sign up for a no-fee balance transfer credit card with a long 0 percent interest term so that you allow yourself time to pay off the debt.

Someone with a $7,000 amount might clear their debt with 15 monthly payments of $467 before interest kicked in.

Once the debt has been paid off and you’re sufficiently adjusted to live without that money, boost your retirement payments by a corresponding amount.

Don’t go too conservative

At 40, you’re still a long way from retirement, so don’t play it too safe with your assets, advises Ellen Rinaldi, former executive director of investment planning and research at mutual fund giant Vanguard.

Rinaldi advocates pulling down equities to 80 percent of your portfolio and placing the remainder in safe securities like bonds.

Maintain a wide picture of all of your holdings when you reallocate assets. It’s not simply enough to concentrate on the EPF account. Take all of your investments into account. Don’t overlook retirement savings or perks from past employment either.

Put college or education savings in perspective

Hopefully you’ve been saving for their higher education since your kids were in diapers. If so, you’ll be able to keep chipping away without draining enormous quantities of cash from your retirement funds.

Many parents compromise their own retirement plans to take care of their kids — even those who have already graduated from college. A 2019 Bankrate poll revealed that half of Americans have endangered their retirement funds to pay for their adult children’s expenses – and it may be a major mistake.

“When forced to make a decision, individuals support their own children first. They’ll put themselves last,” says Merl Baker, principal of the financial consulting company Brightwork Partners. “They’re adjusted to working longer than they intended or expected to. Or they accept a worse quality of life. It’s really powerful.”

If you’re committed to aid your kid and money will be tight, look for concessions that may have less of a negative effect on retirement savings, such as sending your child to a nearby, in-state school instead of an expensive private institution.

Remember: your kid can take out a loan for college, but you can’t take one out for retirement.

How to save in your 50s

Aim to have savings of seven times your wages by age 55, and eight by age 60.

Take advantage of catch-up donations

Those in their 50s, meanwhile, are often too young to play it too conservatively.

“This is not the period when you resort to cash, according to some analysts. “You may maintain 50-50 in stocks and bonds. But you’re going to need growth in your portfolio.”

Figure out your retirement budget

How much is enough? That depends on your lifestyle and spending, prospective medical costs and the sort of assistance you’ll have from.. But when you examine your savings objectives, be cautious not to set the bar too low, assuming you’ll spend less in retirement.

“People normally don’t downsize,” says Harold Evensky, certified financial planner professional and founder of Evensky & Katz/Foldes Financial in Coral Gables, Florida. “It’s not unusual for them to spend more in retirement than less.”

Fill out a detailed retirement costs worksheet to get a feel of where your money is going when a paycheck is no longer coming in.

To acquire a more tailored account, contact a fee-only certified financial planner, and make sure they put your needs before their own.

Plan for medical expenditures

Safeguard your savings against unexpected medical bills.

Some expensive medical expenditures may easily eat up a lifetime of savings.

Then there’s the soaring expense of prolonged care at nursing homes.

The rate o nursing home in Klang Valley ranges between RM2000 to RM3500 in 2022, depending on the quality of facilities provided.

With that in mind, retirement planning must include some consideration of future medical costs. One option is long-term health insurance, which pays for extended medical care, including such things as nursing and assisted living — but it can be expensive.

“It needs to be readily affordable not only for today but for the full premium period,” says Marilee Driscoll, creator of Long-Term Care Planning Month, a public-awareness drive that takes place throughout the month of October.

How to save after you approach retirement age

Once you’ve reached retirement age and it’s time to dip into your savings, there are still ways to save and make the most of your lifetime earnings, stretching them out to cover your whole life.

Plan your retirement withdrawals strategically

When you begin spending the money you’ve saved for retirement, decide the optimal time to access the funds in each account or plan.

Happy Investing! 😉