Starting early with planning and investment gives individuals more time to grow and accumulate their retirement savings, particularly when they begin at a younger age.
PLANNING for retirement is crucial, whether it is approaching soon or is decades away.
Given Malaysia's average life expectancy of 74.8 years (Department of Statistics Malaysia 2023 data), individuals might need to manage at least 15 years without a regular income.
The Employee Provident Fund’s (EPF) Belanjawanku 2022/2023 guide indicates that a senior couple in Klang Valley requires at least RM3,210 a month to live sustainably, though actual needs may be higher based on lifestyle choices.
Relying solely on EPF savings may be problematic, as many retirees exhaust these funds within three to five years.
Pre-retirement withdrawals for housing, healthcare or education, and those during the Covid-19 pandemic, can further exacerbate this issue.
With all this in mind, how much should one have as retirement savings to ensure a sufficient nest egg for their golden years?
As a general rule of thumb, it is advised to have at least two-thirds (67%) of the last-drawn income saved to maintain current living standards in retirement.
For instance, if the last-drawn income was RM7,500 a month, RM5,000 a month would be needed in retirement – otherwise, downsizing the lifestyle would be necessary.
Retirement calculators can help determine how much should be set aside monthly to achieve the total retirement fund needed to cover monthly expenses.
The following examples, based on estimated monthly expenses during retirement, are built on several assumptions:
i. 30 years to retirement
ii. Retirement period of 20 years
iii. Rate of return is constant at 8% per annum and inflation is 3% per annum
iv. Retirement expenses are withdrawn annually at the beginning of the year
Meanwhile, the Private Pension Administrator (PPA) recommends individuals saving a minimum of a third (33%) of their monthly salary to achieve the two-thirds benchmark.
For private sector employees, 23% of the amount is already covered by their 11% salary contribution to the EPF and their employer covering the remaining 12%.
Therefore, only an additional 10% needs to be saved and invested.
Contributing this 10% to the Private Retirement Scheme (PRS) can diversify retirement savings.
The PRS is a voluntary long-term contribution scheme complementing mandatory EPF contributions, offering flexibility to choose funds that match risk tolerance and financial goals.
Employers can enhance employee retention by providing additional benefits through the Private Retirement Scheme (PRS) Vesting Programme.
Some companies also adopt the Corporate PRS programme to boost their employees’ retirement funds.
Should an employer offer any Corporate PRS programmes, take advantage of the salary deduction option to automate PRS contributions and enjoy personal tax relief of up to RM3,000 annually (including tax relief for deferred annuity).
Public Mutual recently recognised corporations committed to enhancing employee well-being through the Corporate PRS Programme at its ESG Social Impact Recognition Awards 2024.
Aside from having an additional retirement nest egg, it is advisable to have the following insurance coverage for a worry-free retirement – term life, hospitalisation and surgical, critical illness and personal accident.
This is to ensure that any medical emergencies do not eat into your retirement savings and derail the retirement plan.
With the right retirement plan, individuals can sit back and relax during their golden years. So start planning and investing early, as the younger one is, the more time there is to grow and accumulate retirement savings.
This article is contributed by Public Mutual and is prepared solely for educational and awareness purposes and should not be construed as an offer or a solicitation of an offer to purchase or subscribe to products offered by Public Mutual. No representation or warranty is made by Public Mutual, nor is there acceptance of any responsibility or liability as to the accuracy, completeness or correctness of the information contained herein.
