Retirement Planning

Retirement means not working and not working means not earning any income. Without an income, how can one survive? Some might respond with – what a stupid question, we have our EPF savings, don’t we? Yes we do and civil servants have their pensions. The next not so stupid question is – is it enough? The life expectancy in Malaysia is about 72-73 years and private sector retirement age is currently still at 55 which means a person has to spend almost 20 years totally dependant on his EPF savings. I guess it would not be a problem if you retire a senior general manager with an EPF saving of 2-3 million ringgit but what if you retire in middle management and after withdrawing your savings to fully settle your housing loan and pay for your children’s tuition fees’, you are left with only a couple of hundred thousand to live on?

Another factor that influences the inadequacy of retirement savings among EPF members is the spending habit of retirees. EPF CEO Azlan Zainol said that in a survey commissioned in 2003, it was found that 14% of its members finished their retirement savings within three years of retiring, 50% within five years and 70% within 10 years.

Let’s admit one fact – we need money to live, regardless of how we want to live. Everything costs money. We cannot live without electricity and water, both cost money. We have to eat and not everything can be grown in the backyard, if we have one. Food cost money. To get food we need to go to the market and unless we live next to the market, transportation to the market costs money. No one can be sure of perfect health, we do fall sick every now and then. A visit to the doctor costs money. Some of us may have medical insurance but medical insurance too costs money. Reading is a good habit but to read we need money to buy reading materials. Life without entertainment is no life so we may want to indulge in a pirated DVD once in a while but cheap they may be, those DVDs still costs money. Our clothes won’t last forever and so are our shoes, money is required to replace them. The bad news doesn’t end – there is this thing called inflation, our RM1 will be worth less in the future, the cost of living will continue to rise and we will need more money just to survive.

I don’t mean to sound materialistic or ‘mata duitan’ (Malay for having dollar signs in one’s eyes) but the fact is we need money to live. PM Najib tells us to change our lifestyle but for those already at the bottom of the social ladder, they cannot go any lower. At the very least, a couple will need RM1,200 per month to survive. Why? Because we need to pay for the following basic needs;

(1) Food – chicken is between RM6-7 per kilo and ikan kembong is RM12 per kilo. Kangkung is RM2 per kilo and a bag of 5kg rice is RM13. Sugar is RM2.30 per kilo and cooking oil is RM2.50 per kilo (not the bottle type but the type sold in plastic bags). The list goes on and I’d say two people would need at least RM400 a month for food, the raw materials.

(2) Utilities – electricity and water = RM100 per month, that is if no aircon or washing machine.

(3) Transport – at least RM200 for petrol and toll, not including long distance travel.

(4) Telephone – can we live without a phone? Basic package is RM38

(5) Personal items; tooth paste, shampoo etc. = RM50

(6) Entertainment – pirated DVD = 3 for RM20

(7) Reading materials – The Star is RM1.20 weekdays, RM1.50 weekends = RM38. If you want to read the other newspapers, try reading for free at the newsagents.

(8) Savings – for medical expenses unexpected events or as replacement funds to replace old electrical equipment, house repairs, clothes, car repairs, road tax etc. = RM250

Total = RM1,200 for a basic life without ASTRO or internet, no holidays, no eating out, no movie outings, no books (have to go to the library but even that costs money for petrol); a life of zero luxury. Also, the RM1,200 is if the house and car is owned and fully paid for and the children are all grown up and earning their own money. It is enough for healthy couples but if one is asthmatic and the other diabetic, they will be a couple of hundred short.  

So how can one retire?

My list of what is needed to retire is as follows:

(1) To be debt free – we should only be in debt if it is really necessary but that is not the case today is it? 25 year mortgages, 9 year car loans, personal loans, credit cards, easy payment schemes (not so easy to pay back), study loans and even loans for investment are very common. So, in order to retire we must first retire the loans.

(2) To have at least one house and one good new car that can last at least 25 years, both fully paid for and are in good condition.

(3) Liquid assets in the form of (fiat) money or gold. Not stocks or bonds. Not unit trust. Cold hard cash or gold. How much? If one expects to live a decently comfortable life without earning any income for 25 years and requires RM2,500 per month, he will need at least 750,000 ringgit today. That is if he is willing to spend the rest of his life without holidays, satellite TV, golf, eating out, movie dates, etc. Maybe RM1 million would be a nicer figure.

On the other hand, if one wishes to maintain some semblance of his present lavish lifestyle, a million may only last a couple of years…

Note: This is not an advice or recommendation. Some people may be able to live very comfortably with RM700 per month and if you are that person, please teach me how.