Despite a troubling year, people must remember that saving for retirement is a lifelong task and they must strive for continuous contributions.
Malaysia’s MCO pushed unemployment rates to its highest this year according to an article titled Malaysia’s jobless shot up to 826,100 in MCO-era in May, most unemployment in 2020 yet published on a local online news portal. It also impacted retirement savings, and derailed many investors’ retirement schedules.
Though the relaxed Employees Provident Fund (EPF) and Private Retirement Scheme (PRS) withdrawal policies were initially a welcomed relief, it led to many exhausting their EPF savings within months. According to EPF, by early June, 4.1 million applications were made with RM1.94bil withdrawn while approximately 0.5% of PRS members applied to exercise this option.
By now, many are wearily wondering, “Is the worst of 2020 over?” Alas, I must inform you of the incredibly dull yet extremely relevant fact; saving for retirement is a lifelong task and if possible, we must persevere despite a troubling year.
Review and evaluate
In times of panic we easily stumble in our rush to avoid losses. Though it is hard to be objective when surrounded by a herd mentality, it is absolutely necessary. Retirement savings are often referred to as nests, but I liken it more to a ship.
By objectively reviewing your portfolio, you can ensure that your retirement ship is well-fuelled, travelling on course, with leaks sealed, and its growing cargo protected. Even if strong winds emerge, you can adjust your sails to your advantage.
This step also prevents you from using your savings immediately to supplement everyday expenses. It forces you to determine your cash position and look for ways to budget. If you must access your savings, calculate how much you can take without affecting your long-term goal.
When you can, return the amount withdrawn. Evaluate your current allocation and your risk tolerance before making a move. A diversified portfolio limits your exposure to a single type of investment, reducing volatility over time.
Reduce debt
Avoid additional debt even if you seem to be in a safe position. Recent events have shown that one should expect nothing and anticipate everything. Look at existing loans and prioritise repayments systematically.
Often, debt impedes saving as interest can accumulate rapidly, limiting your ability to devote income to savings or investments. If you are still in your 30s or 40s, focus on paring down your debt while leaving saving on the backburner. Once that is done, make saving a priority again.
Health is wealth
A person’s ability to dock at their retirement harbour also depends on whether they have access to healthcare later on. Ensure that your needs are protected against rising healthcare costs with sufficient medical coverage.
Presently, though you may be covered by your employer’s insurance, it will cease once you are unemployed. Therefore, purchasing your own medical plan offers an additional layer of security.
As we enter the third quarter of the year, economic data is showing signs of recovery thanks to local fiscal support and liquidity programmes. However, the threat of new infections remains, which may mean persisting volatility.
The immediate focus for investors is to ensure their cash flow and savings remain intact. At this juncture, they need to remain fixed on these goals to survive these waves of turmoil.
Ismitz Matthew De Alwis is the executive director and chief executive officer of Kenanga Investors Berhad.
Kenanga Investors Berhad is one of Malaysia’s leading asset management firms. Matthew is the current president of the Financial Planning Association of Malaysia. He is a Certified Financial Planner and Islamic Financial Planner. He holds a Capital Market Services Representative’s Licence from the Securities Commission for fund management and investment advice. He is a staunch believer that financial literacy will empower Malaysians to invest wisely in the financial markets.
