10 Things Malaysians Must Do To Prepare For Retirement
You’ve worked your whole life saving for retirement. Maybe you have millions of ideas of what it will be like when it finally comes to when you step out of the 9-5 rut. However, with a few more years to go. finally arrives, it is time to take some serious action and put things in order for your golden years to come.
Most of us would like to achieve financial freedom by then and not have to worry about money anymore. To make sure everything is in order when your last conventional paycheck arrives, here are ten things you need to do:
1. Decide on your goal
A lot of times when we plan for retirement, we don’t have a clear idea of how we really want to retire. Do we want to retire to a small, quiet village, outside of town, or maybe stay in a small condominium (ish) in town, where everything is within walking distance?
By then, a few years away from your retirement, you should really have a clear idea whether you want to increase or decrease your post-employment lifestyle.
The first question you need to ask yourself is what do you want after you retire? Travel the world and possibly retire to one of the Caribbean islands? Whatever your goal, you need to align your retirement plan to achieve it.
2. List your obligations
Before embarking on your post-retirement adventure, you should consider any financial obligations you may have that could hurt your finances after employment.
Do you still have dependents (parents or children) that you need to support even after you retire? Will your child (ren) still be in college, with high tuition coming up every few months?
What about your lifestyle? If you’ve planned your retirement optimally, you shouldn’t have to cut back on your lifestyle too much. The key word here is sustainability. You need to have a clear idea of what you need each month during your retirement and how long your retirement fund will last.
3. Write off your debt
Ideally, you should have all your debts settled before you retire. By offsetting your debts, you improve your net worth and your credit rating, which could come in handy if you were to take out another loan in the future.
Consider paying off high-interest loans like credit card debt, personal loans, and car loans first.
Next, think about your home loan. There has been an ongoing debate as to whether home loans should be cleared earlier than necessary to have peace of mind in being debt free. If you think paying off your home loan last is a better idea, you may want to consider refinancing your mortgage.
Currently, Malaysia’s base rate ranges from 1.75% to 3.22%. That’s less than in previous years, thanks to four overnight key rate cuts last year. This is good news for those taking out loans because it means lower interest rates. If you are able to refinance your home loan at lower interest rates, you may also qualify for lower interest payments.
4. Preserve your assets
When we are still earning income, our main focus is on building assets. However, when retirement hits you, you need to focus more on preserving your existing assets.
A person may own multiple properties and be worth millions of ringgit, but they can’t even afford lunch! In finance, two conditions arise: solvency is the ability to meet long-term financial obligations (more than two years), and liquidity is the ability to honor short-term obligations (less than two years) by converting quickly liquid assets.
In other words, how we preserve our assets depends on our ability to provide for our short-term needs (daily expenses and outflows) without having to liquidate (force sell) our assets. Consolidating your assets by consulting wealth management and financial planning advice can be a good idea to gain a clearer view of your current financial health and gain more control over the monitoring and preservation of your assets.
5. Create or update your will
To keep your family from exploding in these infamous family feuds portrayed in Hong Kong soap operas, it’s essential to update your will (or create one if you don’t have one yet). Jokes aside, it’s important to have estate planning to make sure your family is being looked after according to your preferences.
Having a will not only ensures that your hard-earned assets are distributed correctly and legitimately, as you wish – it also helps your family go through the process faster and easier. Remember, avoid the hassle by having different wills for assets in different countries and jurisdictions.
6. Review your investment portfolio
When you retire, you would need a consistent and substantial income stream to replace your previous conventional income that supports your daily expenses and other obligations.
As a result, your ability or power to retain your investment is limited. It might be a good idea to curb your investment appetite, switching from aggressive growth stocks to more conservative, passive dividend-paying funds such as bonds or government securities. Reviewing your tolerance for risk is essential to maintaining good cash flow and preserving your assets.
Here are some financial mistakes to avoid before you retire.
7. Build passive income
If the retirement you envision for yourself is one where you stop working altogether, it becomes even more crucial for you to establish at least one passive income stream, which will be your new primary source of income. This could mean investing in low risk assets that provide a steady stream of income, such as bonds or trust funds from money market units.
As an alternative to your investments, you can also create another stream of income by working part time or taking freelance jobs. For those with years of professional experience, they may opt for an advisory or advisory role with other companies or institutions – this may not be exactly ‘passive’, but if it is something you love to do, that won’t be a job for sure!
The unfortunate thing about health care is that it gets more expensive as we get older. Most people give up their medical cards because of the exorbitant price they have to pay – especially because of the decline in income after retirement.
Therefore, it is important for someone to have a clear idea of your health and fitness level before they reach their golden years. It is certainly better to be safe than sorry.
Find out if you have any medical conditions that could require substantial funding, especially when medical inflation in Malaysia is expected to be 14% in 2021. Keep your medical card, review the policy to make sure it is adequate, then put set up a budget for rainy days, so that you can cover medical emergencies.
9. Withdraw your EPF
Do you have to withdraw everything or do you have to withdraw a fixed amount regularly? Premature withdrawal and depletion of your Employee Provident Fund (EPF) savings, even if you can, can have negative effects on your pension fund. Unless you have a good reason or a sound financial plan to invest elsewhere that could potentially provide better returns, your EPF savings should remain intact and used as a last resort as it will be your retirement fund for the next 20 years.
If you feel that your EPF savings are not sufficient to survive your retirement years, you may consider withdrawing some of the money for selected investments.
10. Keep working
According to a survey conducted by the Social Security Research Center (SSRC) at the University of Malaysia, almost all participants said they would like to live to be 80, but they are not convinced they can live financially comfortably. In addition, 70% of them plan to continue working beyond retirement, as long as they are physically and mentally able to do so.
Review your retirement savings before you retire to understand where you stand financially after employment. Will you be able to live comfortably off these savings or do you have to keep working to generate income for your golden years?
For some, the idea of doing nothing for the next two decades may not be possible at all! However, it is about planning for your retirement, so that semi-retirement is an option and not a way to survive.
We need to start planning for retirement as early as possible in order to have a comfortable retirement in the years to come. However, planning for retirement is not just about saving religiously, but also about making the right decisions at the right time to increase your savings.
This article was first published in 2014 and has been updated for its freshness, accuracy and completeness.
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