Retirement for Sandwich Generation

Are you a member of Sandwich Generation?

Wikipedia:
Sandwich Generation = A generation of people who care for their aging parents while supporting their own children.

If you are, don't worry, you are not alone as there are millions upon millions of us caught in the middle.

Solutions:
1. Teaching your children money skills
2. Teaching your children how to budget and how to save and live within means
3. Medical plan for your parents
4. Keep yourself financially savvy and healthy so your children won't be in the Sandwich Generation again.

Post Retirement - Maintain or Downgrade Lifestyle?

Let's assume 80/20 Rule.

80% of the working adult will have insufficient retirement fund.
20% of them, will have sufficient retirement fund.

Click here for the report on the chances that you will run short of money in retirement.

What does it mean insufficient retirement fund?
- High chances you'll exhaust your retirement funds within 10 or 20 years.
- You live longer than you have expected.
- You have to lower down your cost of living/living standard.
- You have to work longer (i.e. continue to work after 65)
- You should have save more when you are young.

Downgrading living standard / lifestyle isn't easy, it can be painful. Try it now if you don't believe.

Solution?
Earn more, save even more, keep living standard low NOW so you don't have to Downgrade it later.

Retirement Risk

Some says Risk is Opportunity, true only if one knows what the risks are and how they might be managed.

What are the TWO (2) biggest "Retirement Risk"?

1. Inflation

No doubt. Inflation is a big risk for would-be retiree and current retirees.
Official inflation rate might be 2%~3% but the actual inflation rate can goes up to double digit as health care expenses in going up up up while one's health status might going down down down.

How to manage?
- To ensure rate of return is good and most important, don't lose money in investment and get-rich-quick-scam.
- Earn as much as possible, save as much as possible, investment return as good as possible.
- Pool of risk (medical insurance)
- Eating right, exercising on a regular basis and using preventive care.


2. Outliving one's assets

How come longevity is a risk?
Most people (don't have enough saving) will run out of money first, before they run out of life.
No money (or with too little saving), how to survive with comfortable lifestyle? How to survive with dignity?

How to manage?
- To ensure rate of return is good and most important, don't lose money in investment and get-rich-quick-scam.
- Earn as much as possible, save as much as possible, investment return as good as possible.
- Create passive income
- Doing something you enjoy to keep mentally active and earning income to supplement your retirement fund.
- Keep hobby a low cost hobby.

The Power of Compounding

Hypothetically,

Mr. Young, age 18, start invest RM2,000 per year over a period of 8 years, then stops.

Ms. Late, age 26, start invest RM2,000 per year over the next forty years.

Even Ms. Late contributes RM64,000 more than Mr. Young [(40 years - 8 years) * RM2,000 per year], she can never catch up ; at age 65, Mr. Young 's fund will be worth RM1,035,160 while Ms. Late's will be only RM885,185.

* Assumption: 10% annual return for both, no transaction costs or taxes.

TIME, is one of the most important advantages for retirement planning. Procrastinating can be very costly. As the saying goes, time is money!!

Click here for the table of illustration.

Malaysia Mortality Rate

Source: http://www.indexmundi.com/malaysia/death_rate.html

Death rate: 5.02 deaths/1,000 population (July 2009 est.)

Year	Death rate	Rank	Percent Change	Date of Information
2003	5.12	193		2003 est.
2004	5.06	192	-1.17 %	2004 est.
2005	5.06	192	0.00 %	2005 est.
2006	5.05	192	-0.20 %	2006 est.
2007	5.05	189	0.00 %	2007 est.
2008	5.02	188	-0.59 %	2008 est.
2009	5.02	188	0.00 %	July 2009 est.
2010	5.02	185	0.00 %	July 2009 est.

Definition: This entry gives the average annual number of deaths during a year per 1,000 population at midyear; also known as crude death rate. The death rate, while only a rough indicator of the mortality situation in a country, accurately indicates the current mortality impact on population growth. This indicator is significantly affected by age distribution, and most countries will eventually show a rise in the overall death rate, in spite of continued decline in mortality at all ages, as declining fertility results in an aging population.

Source: CIA World Factbook - Unless otherwise noted, information in this page is accurate as of February 19, 2010

Well, 5.02/1,000 is less than 0.5%. However, 0.5% includes those die of old age. I can't find data on Mortality Rate for people die during their working life..... we can safely assume it is less than 0.5%, right?

So, the problem of "die too young" (probably define as pre-mature death during working life) is safely said to be less than 1% and the problem of "lack of money for retirement" should be a problem of 99% of us.

99 vs 1

A working person faces the following risks:

a) premature death

b) serious illness and disability

c) unemployment

d) insufficient income during retirement

The chance of (a) and (b) occurring during the working life is quite low, perhaps less than 1%.
By getting bad advice from insurance agents, they spend too much of their savings to insure against these risk.

Most people (i.e. 99%) are likely to face the risk of (c) and (d). This risk can be best managed through personal savings.

The savings should be invested to earn a good rate of return and can be withdrawn without penalty, e.g. through a low cost investment fund. The personal savings can be used to cover cash flow needs during a temporary period of unemployment, without the need to depend on borrowings which incur a high interest burden. If the savings are invested prudently, they will provide an adequate amount for retirement.

As an alternative, they can also buy a personal accident insurance for $100,000 at a premium of about $175 a year. Most of the risk of premature death is caused by accident, right?

Summary:
The key priority is to have adequate savings (say 15% to 20% of your earnings, in addition to EPF) and keep it for an adequate rate of return (low risk fund). Spend not more than 5% of your savings on term or personal accident insurance.

KWSP Dividend

Interesting.... You may get more information from KWSP's official website.

Example of some FAQs related to Dividends:

1. How did the EPF manage to offer a dividend of 8% in the 80s?

In the 80s, EPF’s investments were concentrated on interest-based investments, such as Malaysian Government Securities (MGS). It should be noted that the interest rate regime during those years were high, with the average base lending rates (BLR) hitting a peak of 12.25 per cent in 1984, compared to the significantly lower current BLR. For instance, Maybank’s 12-month fixed deposit rate as of March 2009 is only 2.50 per cent.

Consequently, investments in MGS during that era were able to produce very high returns for the EPF, making it possible for the Fund to declare its highest dividend rates. However, the high interest rate regime also meant that cost of housing loans and hire purchase were considerably higher at that time than they are now.

2.	Why are other savings funds in Malaysia able to offer better dividends than the EPF?

The simplest explanation is that other funds have different investments objectives. The EPF maintains an asset allocation structure that does not expose our investments to high risk in line with our role as a retirement fund.

Other funds are also much smaller in size compared to the EPF which stands at RM340 billion today. Smaller funds are easier to manage and more maneuverable in terms of reshuffling asset allocation and selling off shares.

Therefore, it is consistent with the "Interest And You" posted earlier this month.

If you hope the EPF dividend will be higher... then you are also expecting to pay MORE interest for house loan, car loan or business loan.

KWSP Nomination

There are two things can not be WILL away
1. KWSP Nomination
2. Insurance Policy (with Cash Value)

Have you received an email from friend on EPF Rules as follows?
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Subject: EPF Rules- A MUST READ
If ONE (1) of your Nominees in the EPF Nominees list dies, automatically the whole arrangement (EPF Nominees list) is VOID .. Meaning if, you only put in One (1) name & unfortunately he/she dies before you - automatically EPF will channel your EPF money to trustee of AMANAH RAYA upon your death.
Even though if you have few names in the EPF Nominees list, - the whole arrangement is VOID & none of the individual names left in the EPF Nominees list will get their portion & automatically EPF will channel your EPF money to trustee of AMANAH RAYA upon your death.
Piece of advice - if any of the your Nominees in the EPF Nominees list dies, please do immediately approach the nearest EPF counter & present the Death Certificate of the individual & register your NEW / LATEST Nominee in the EPF Nominees list + NEW / LATEST percentage .
If, you & the other party (maybe spouse) involved in the same misfortune (accident / illness) that caused death to both yourself / spouse please, please, please alert your siblings / relatives / parents to immediately approach the nearest EPF counter & share the information within 3 days to AVOID all EPF money to be surrendered to trustee of AMANAH RAYA .
Upon surrender to trustee of AMANAH RAYA, your children will have to battle the money thru 3 channels;
Majlis Agama
Pejabat Tanah
Mahkamah
The normal period via above 3 channels usually takes 2-3 years (except if you have inside/tip top connection) at Amanah Raya.

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Ok, now, let see what i got...

1. You don't have to present the Death Certificate to update Nomination. Just submit a new form, the old one will be void automatically.

2. If a member has more than one nominee and one of the nominees dies during the member’s lifetime, only the portion that was bequeathed to the deceased nominee will be invalid. So, not the whole nomination will be void.

Ok, don't just trust everything from email from unknown source.

Source: unknown.... ha ha (Please visit www.kwsp.gov.my)


Some of the FAQs from www.kwsp.gov.my (Genuine and realiable source) -

1. I have made a nomination and at the same time I have also made a will. What is the status of the nomination and will?

• The status of nomination supersedes the will. Payment will be made to the nominee/nominees that you have elected.

2. I did not nominate the beneficiary of my savings, but I have a will on my savings. What is the status of this will?

• The will cannot be used to determine the beneficiary of your savings. Your next-of-kin needs to produce the Letter of Administration/Grant of Probate/Distribution Order to claim your EPF savings.

3. If a member did not nominate an heir or next of kin, but nominate other people, can the heir or next of kin make a claim on the savings?

• If the nominee is not an heir, the heir or next of kin are not eligible to make any claims on the savings unless the nominee dies before the member whereby the nomination will be revoked and payments can be made to the heir or next of kin.

Source: http://www.kwsp.gov.my/index.php?ch=p2faqmembers&pg=en_p2faqmembers_nominate

KWSP 2009 Statistic & Annual Report

The EPF's Annual Report 2009 was tabled in Parliament on 13.7.2010 and it is good to know that the information is available for public to access.

• The statistic 2009 (12 pages) is available here.
• The full financial statement (72 pages) is available here.
• The Nanyang newspaper cutting is available here.

I did some analysis myself, interesting facts:

1. Only 1% (of total member of 5.7 million) has saving above RM400,000
2. Of this 1% (56,085 members) , 77.7% was Male.
3. 88.3% (5,111,772) members have RM100,000 and lesser in their saving.
4. Withdrawal application increased by 237% since year 2005. A lots more people drawing money. (1.95 million in Year 2009 vs. 0.58 million in Year 2005)
5. Withdrawal for housing related increased by 1,576% since Year 2005. Wow!!! Mainly from the Housing Loan Monthly Installment Scheme.

Why?? The following may be part of the answer, if not all:

1. Saving (or rather earnings) is not enough, if salary only RM2,000 per month, one needs almost 15 years plus to achieve RM100,000 saving, assuming he/she didn't apply for any withdrawal - That is why we need to aim for high income nation with high standard of living.

2. Too many withdrawal schemes. Over 1.9 million applications received for various withdrawal scheme during year 2009, 73.1% is housing related and 16.8% is age-related.

3. People don't trust EPF investment and its return, so they are not willing to keep their saving with the EPF for golden year, and try to withdraw any much as possible for whatsoever reason and manage by themselves.

It may not really that people don't know how to manage finance and thus having low deposit with EPF, right? Anyhow, I tend to believe most people have not save enough for their golden years (at least the those born in the '70 and '80).

If YOU can and able to save more for golden years, why not doing it now, why wait?

Women And Retirement

Extract from the website, The Women Summit 2009, some salient points:-

• In 2006, Malaysian women accounted for 49.1% (13.08 million) of the total population, of this
• 63.3% (8.28 million) were between 15 to 64 year age group .Female labour force makes up 45.8% with 3.8 million in the labour market, which is 36% of the total labour force.
• A recent survey (not sure how recent lah...) by the EPF revealed that 72% of EPF Contributors spend their entire EPF saving within THREE (3) years of retirement.
• The year 2007 data from EPF on the saving capacity of women age 54 (just before retirement, leaving the workforce at age 55) showed there were 15,944 women registered with the EPF with a total saving of RM1,354,532,480. That is.... an average of RM84,955.62 per person. Enough for retirement? (Average also implies that most of the 15,944 women have much less than RM84,955)

Some inportant steps for women to take control of their finances:

• Take stock of your financial health today. Review your financial strengths and weaknesses. Understand your challenges and obstacles - is it last minute shopping or lack of discipline in sticking to your savings plan?
• Set clear goals. Think how you can make your money work for you. Make 2008 the year when you will succeed in achieving your financial goals!
• Prepare for emergencies. Build a large enough nest egg to deal with emergencies. No matter how much you earn, you must put some aside for savings.
• Develop a budget and stick to it. Identify how you spend your cash. This is the best way to minimise expenditure on items you don’t need. Use any extra funds to pay off debts or save it.
• Try to improve your Fin-Q. Equip yourself with the necessary information - read books, attend investment seminars, visit websites etc. Be proactive, take control and learn more about options to improve your financial health. By doing so, you will be in a better position to choose the right plan for yourself. Armed with information and confidence, you will have a better understanding of the equity markets, investments, property investments and other avenues.
• Understand the fundamentals of developing a proper investment portfolio. Do not be afraid of technical information and jargon. When in doubt, engage a professional financial advisor to provide advice and assistance.
• Start your retirement planning today. Younger women should start by learning as much as they can to ensure they have enough savings to sustain themselves during retirement.

It is never too late to start!

Seeing a financial advisor is also critical. Starting early, developing effective habits, then taking ongoing steps for retirement is the best way to have a smooth transition from working life to retirement and ensuring you can maintain your current lifestyle.

Source: www.thewomenssummit.org

Financial Products And You

We work hard to generate income.

We keep as much income as possible to become our asset.

We grow our asset to become our wealth.

We preserve our wealth for a comfortable post-retirement life.

There are many vehicles out there, to help us along the way to meet needs at different stage of life.

Click here for some products offer by HLA, feel free to add comments for sharing.

Key reasons for using financial product

1. To protect what we already have.
2. To protect what we going to have.
3. To preserve what we have.
4. To accumulate our income.
5. To grow our wealth.

Many people try to grow the wealth the "fast way" by investing somewhere.... the golden rule is

Rule No 1: Don't ever make losses, If you have, Cut losses.

Rule No 2: Don't forget Rule No 1.

Remember the old adage,

No one fail to plan, they just plan to fail.

"Secure Your Future" by proper planning.

Interest Rate And You

Found this website, interesting to know major central banks' next meeting and their interest rate ..... http://www.fxstreet.com/fundamental/interest-rates-table/

Today's paper (7th July 2010), finance specialists predict BNM will up OPR to another 0.25% by tomorrow's meeting and will keep it for the rest of the year due to uncertainty of the economy.

If it happened, OPR will be 2.75% by 8th July 2010, 3rd increase during last 4 months. What will happen thereafter?

1. BLR will up by same quantum of 0.25% to 6.30%
- most Malaysian whom has a house loan will be paying more interest than principal (assuming bank keep the installment amount)

2. Fixed deposit rate will be up but likely to be less than 0.25%, say 0.15% to 3.00%.
- small percentage of Malaysian population will be very happy as they depends on fixed income like FD to sustain their life-style (especially retiree)

So what? How to link "interest rate" to you?

Are you a lender or a borrower?

Lets learn a bit about interest rate from economic point of view.

• Interest rates control the flow of money in the economy.
• High interest rates curb inflation, but also slow down the economy.
• Low interest rates encourage spending and make it easier for business to borrow to invest.
• Interest rates also affect the value of Ringgit versus that of other country.
• All other things held constant, when real interest rate (inflation-adjusted) are higher (e.g. Malaysia's interest rate is higher than Singapore, Thailand, Taiwan, Japan, Hong Kong, USA, UK, Canada, European), then foreigners want to invest their fund here in Malaysia in order to earn a higher return. Therefore, demand for Ringgit will push up the value of the Ringgit.
• When Ringgit become more expensive, good for imported good (cheaper now) but bad for exporting business because our goods are more expensive. (Malaysia's economy is heavy on export).
• So, when interest rates are too high, Malaysia economy will slow down from two sides, internally domestic spending and external demand for our goods.
• So, as a conclusion, Malaysia's OPR or FD Rate are highly likely capped for the time being until..... who knows, can be a decade or more.

Glossary:
BNM = Bank Negara Malaysia
OPR = Overnight Policy Rate
BLR = Based Lending Rate
FD = Fixed Deposit

Lower return from EPF for 2010??

News on 21 June 2010:
EPF Posts RM5.55 Billion Investment Income In Q1 2010
More than 70% Increase Compared to Same Quarter Last Year

As at 31 March 2010, the EPF’s total accumulated fund stood at RM402.22 billion.

Simple math:
RM5.55 b x 4 quarters = RM22.2b / year

RM22.2b / year divided by fund size RM402.22 b = 5.5% p.a only (don't forget that the main contributor to 2010Q1 RM5.55 b income is from equity market (RM2.79b out of RM5.55b) where Q1 is a bull market).

So, do we expect a lower return from EPF for year 2010?

Read more here from KWSP official website.