How much MORE I need to save for retirement?

How do you fund your retirement? Common ways:-

1. EPF
2. Share Investment
3. Mutual Fund
4. Life policy
5. Property (rental income or sell the property)
6. Allowance from children
   

Use this simple calculator to estimate the shortfall (gap to reach your goal) for your ideal retirement. Just 1-2-3 steps. Save MORE for a better retirement.

Remember, when you are retired, the two most important thing are

1. Safety of principal
2. Cash flow
   

Comments on the "asset" to fund retirement:-

1. EPF - Common to all it is NOT enough. Return is average due to huge fund size. Related to many government-linked company like Sime Darby which incurred heavy loss in 2010.
2. Share investment - High return, high risk. High liquidity. Should have more high dividend stock during post-retirement for stream of cash flow.
3. Mutual fund - mostly linked to share investment or bond. High return, high risk+high expenses. To switch to low risk profile during post-retirement.
4. Life policy - Cash value in life insurance policy. Life fund managed by life insurance company according to Insurance Act 1996, therefore the allocation of fund is restricted. Pros - safe and steady return. Cons - Can not give high return. Highly suitable for retirement planning as the outcome as highly certain.
5. Property - Low liquidity. Need tenant management if aim for rental income to support retirement.
6. Allowance from children. - This is special. Take how much you give your parent now and divide by 2 or 3.... probably that is how much you can expect. So, better don't expect any.
   

Ideal mixture of asset for retirement

1. EPF 20%~35%
2. Share Investment 10%-30%
3. Mutual Fund 10%-20%
4. Life policy 20%~30%
5. Property 5% ~20%
6. Allowance from children - don't expect any. If you have, take it as bonus.
   

You will never know which "asset" will depreciate in value (esp. Share and Mutual Fund) in 10 to 30 years later when you need to cash it.

• If EPF, Share Investment and Mutual Fund give you good return, life policy is a bonus.
• If Share investment and mutual fund doesn't perform well, life policy helps to minimize the impact.
  

Property - An Asset or Expense?

In accounting/bookkeeping language, both Asset and Expense are Debit Balance item.

If you owned a property worth RM500,000 - do you really own an asset or an expense?

Actually, both are right since both are Debit Balance. Sound confusing....

Suppose, the ideal ROI for you is 5% (using EPF last 10 years as benchmark), the cost of using the property (as if you are renting it) is RM500,000 x 5% = RM25,000 per year or RM2,083 per month. On top of that, you still need to pay insurance, quit rent and assessment as well as the maintenance.

Can we expect another round of big appreciation like what happened is the past 10-20 years in next 10 to 20 years? Hard to predict.

Malaysia is well known of having slowing population growth especially amongst the Chinese. Can you predict the future supply and demand?

More residential properties will be purchased for investment purposes rather than primary place of shelter. Look at China, supply in certain cities is more than demand for next decade or more.

So, it is not surprising that many old folks with empty nest (no more children staying together with them) will opt to sell the big house and move to lower cost of living places or smaller house. Keep the money for retirement as the "cost of owning an expensive house" is high as per above illustration.

Lastly, property is still an ideal investment but not the perfect and sure-make-money investment. I will still buy another but with careful planning to avoid property-rich-cash-poor trap.

Buy Term Life, Invest The Difference

Many research indicates to “Buy term and invest the difference” which is what I plan on doing. But I’m still curious, if the wiser choice is to buy term, then:

Who actually buys whole life? Why?


Reply from someone, very interesting.

A rule of thumb:

When you select TERM insurance, you are RENTING the coverage.

When select a whole life policy, your are BUYING the coverage.

You have to decide what type of coverage is right for you.

Keep in mind that TERM rates increase annually or in increments (5 year, 10 year, 20 year, 30 year) and at some point, the rates will be higher than you will want to pay…so, you go without it.

Most folks get the idea of “I’ll buy term and invest the difference” yet they fail to “invest the difference” and as they get older, with the increase in the term insurance, they have LESS to invest.

With whole life insurance, the payments will stay the same for the entire period. Not a bad deal for youth as it keeps the cost of life insurance low, and protects their “insurability” in the future.

Good luck and I hope this helps.

Click here for a case study using my own age and expectation, comparing Term and Investment-Link Product.

There is no one fixed rule for everyone, else all financial advisors and consultant will be redundant.

Retirement killers

So, you have prepared for it since age 25.

Beware of the retirement killers, even if you are well prepared, if you have not prepare for it, do it now.

Killer # 1 - Cracking your nest egg before retirement.
Killer # 2 - Spending your retirement money way too early.
Killer # 3 - Having no clue about how much to save.
Killer # 4 - Spending your retirement savings too fast.
Killer # 5 - Wrong asset allocation.
Killer # 6 - Health problem / medical cost
..... and the list goes on....

Should I save for retirement?

Do you really need five reasons to save for retirement? Probably not, but in case you did here are five very good reasons why you should start saving, even if it’s not for retirement, right this second.

1. Time Is Your Friend
Time will smooth out the ups and downs of the stock market and it will, when combined with the power of compounding, means greater and greater returns down the road. At 10% a year, $100 today will become $110 next year, $121 the year after, and $672 in 20 years. The longer you have, the more it will grow.

2. Old Habits Die Hard, So Start An Old Habit Today
Still bite your nails huh? Yeah, me too, that’s why they say old habits die hard so why not start an old habit today by saving for your retirement? In five years it’ll be old hat and in ten you won’t know what to do if you didn’t save a percentage of your pay into a retirement account.

3. Save Now Or You Might Not Be Able To Later
Habit...
Build a habit of saving or build a habit of spending...
If you don't save now, what are the chances you will be saving later???

4. Don’t Put Off Until Tomorrow What You Can Do Today
Just a call, many financial advisor will be ready to serve you, either fee-based or product-based.

5. You Will Regret It If You Don’t
Let guilt be your guide in this one… you know you should be saving, it’s just a matter of overcoming those obstacles you’ve put ahead of yourself. Let guilt be the bulldozer that knocks them all down because it’s very powerful and it only speaks the truth. You don’t want to be 30 and wondering why you didn’t save the last five years, or 40 and wondering why you didn’t save the last fifteen years, and you surely don’t want to be 60 with little in retirement savings wondering when you can actually call it quits. It’s never too early, it’s never too late, because you’ll only get older and you want to retire someday right?