Poverty after RETIREMENT ?

When I first joined the life insurance industry 5 years ago, one clear fact that was mentioned repeatedly during the ‘retirement planning’ class was how the majority of an average Malaysian would exhaust their entire retirement savings in the Employees Provident Fund (EPF) in just 3 years after retirement.

The fact that the EPF allows partial withdrawal at age 50 is also alarming since this too would see an employees life savings ‘die’ before they do. Thus, they would then need to depend on children, relatives & social welfare to eke out a living during retirement.

Where finances are concerned, very few people are ready for retirement. Why is this so? Well… lifestyle is of course a major factor. Imagine, all your working life, things like golf, family vacations, quality dining & fancy clothing has always been a must. Do you think that maybe during retirement that you would at least ‘need’ or want to have some of these things in your life to fill up all the additional free time?

Or am I just overrating the average retiree? Lets say that we take the average working guy with a wife and 3 kids. Assuming that he retires properly would mean that by age 55 or 56, he would have paid for the house mortgage, the car(s), the children’s education & of course the cost of his family’s medical insurance. Lets also assume that the children are independent and living on their own, so.. this guy only needs to support himself & his wife.

Living in KL these days with a moderate lifestyle & all the major necessities  paid for except the daily expenses, might cost roughly RM30 – RM50 per day (this figure would surely exclude golf and any other luxury in the category!). This comes to a handsome figure of RM 900 – RM 1,500 per month.

Thus, if a guy retires with say.. RM 150,000 in the EPF, it could last him 100 months (150,000/1,500) or 8.33 years. If a huge portion of the money was parked in an FD, it would generate 4% per annum and maybe this guy could stretch the expenses up to 10 or 15 years. Not bad huh?

But then again… how many people really plan for retirement? & how many retire without debt? AND.. how many can really close an eye & ignore that RM 150,000 or MORE just sitting there in their bank account without even a tiny urge to SPEND it?

Thus, if you are still young and reading this… lets just force ourselves to save an additional 5 or 10% of our income for this purpose. Income refers to our monthly income + any bonuses + any other type of income which we will receive during our working days.

All the best !

Here is an article from today’s copy of The Star :

Facing poverty after retirement

KUALA LUMPUR: The average Employees Provident Fund contributor would have exhausted 70% of his retirement savings benefits from the fund in just 10 years, according to an EPF survey.

If nothing is done to address this in the near future, many Malaysians may face poverty in their old age.

A contributor can withdraw all his EPF savings when he is 55 years old.

The recent EPF survey of retirees found that at 65 years, many had exhausted all their funds and depend on their children for support for the rest of their remaining years.

EPF deputy chief executive officer Rusma Ibrahim said that the lower income group was the most affected group.

“Most of them spend all their savings within five to 10 years after they withdraw their money at 55,” she said.

With premature withdrawals at 50 years of age often depleting the final withdrawal amount at 55, EPF is now studying ways to help a retired member sustain his finances for the future.

“Because of the demographic changes taking place in Malaysia, there is a need for EPF to review its role,” she added.

With the decline in the extended family support system and increasing life expectancy, concerns are being raised about the implications of old age security.

“Values are slowly eroding as some children choose not to take care of their parents although they can afford to do so,” Rusma added.

EPF conducted the survey to determine the pattern of expenditure on basic needs.

“The findings revealed that the amount needed to cover the retirees’ expenditure on basic needs, excluding medical care for catastrophic illnesses, could range from RM510 to RM1,000 a month.

“Therefore, a retired member today would need to have at least RM120,000 in savings upon retirement to finance his basic needs for the next 20 years,” she said.

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