5% of Malaysians are saving for retirement

Another article concerning the dreaded retirement issue in the local scenario. I strongly believe that among others, the subject of personal finance MUST be taught in school because if it is not nurtured from a young age, chances are high that it might cause financial disaster in the long run.

The Star : Monday August 13, 2007

Spectre of retirement

IT IS a fact that only 5% of Malaysians are saving enough for their retirement. I have to illustrate below to show why it is difficult for the 95% of Malaysians to have enough for retirement:

Current Age – 30 years old

Retirement Age – 55 years old

Retirement years – 25 years

Inflation rate – 4%

Rate of return – 8%

Expected monthly expenses

– RM2,500

Yearly expenses – RM2,500 x 12

months = RM30,000

For 25 retirement years

– RM30,000 x 25 = RM750,000

Inclusive of 4% inflation rate

– RM750,000 x 2.6658

= RM1,999,350 or about RM2mil

To invest a lump sum now in an investment that gives an 8% return yearly, we would need around RM300,000.

To invest monthly in an investment that gives an 8% return yearly, we would need to have about RM2,100.

Let’s say, A now at 30 years old earns about RM5,000 per month. Take-home pay after subtracting EPF contribution, Socso and monthly tax deduction would be around RM4,300.

Minus the investment for retirement of RM2,100, A is left with only RM2,200.

Let’s say A has to pay for monthly instalment for a car and house, food, some basic medical and hospitalisation insurance, petrol, grocery and utilities. A also needs to set aside for the festive seasons, car insurance, house insurance, road tax, assessment, quit rent, maintenance of car and house.

How much do you think A is left with every month? What if A has children?

If A’s spouse is working, it would ease the situation a bit but it depends on how much the spouse is earning too.

Then the next thing to think about will be what if A needs to save for the children education? Tertiary education in Malaysia is not free.

How much then A would need to set aside monthly? What if A has old parents to look after and they do not have any medical and hospital insurance card?

Hence, the average Malaysians are not having much cushion for emergency needs. As published before, inflation for medical is about 15%.

Fixed deposits are only giving interest at 3-4% per annum and EPF at about 5%. And earning an income of RM5,000, A is taxed at about RM150 per month.

Rising inflation and eroding purchasing power represent big hurdles for an ordinary Malaysian.

Children should be made aware of the importance of personal finance so that they will learn to save money for their future, to fund major purchases and retirement.

The public, and especially villagers, should be educated so that they can take charge of their lives and their financial future.

ALINA SIM WEI LING,

Kuala Lumpur.

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