Monday, September 6, 2010

Retirement issues ---- Part 1

While I have not reached my retirement age yet but I don't know why I would like to comment about retirement and aging topic.

TheStar“Our population age structure has changed. There’s now more visibility of older people, and we have never faced this before,” says Assoc Prof Tengku Aizan Hamid, the director of Universiti Putra Malaysia’s Institute of Gerontology.

Such pronounced changes in the population profile are bound to have a significant impact. “This social phenomenon of an ageing society carries significant implications for all involved,” says Financial Planning Association of Malaysia (FPAM) deputy president Tan Beng Wah. The association has teamed up with the Employees Provident Fund (EPF) to organise a conference and exhibition in October called Everyone Can Retire Well.

This will be at least the fourth event in Malaysia in a span of four months this year that focuses on ageing or retirement. It is apparent that many people have realised the need for more thought and discussions on how to respond to the fact that the population is getting older. And about time too.

Assoc Prof Tengku Aizan Hamid ... ‘People think of ageing as a negative thing. But it’s not.’

When a country ages, so does its workforce. With that comes the worry that the number of people retiring will eventually become a problem. However, experts say the urgency of this aspect has yet to be broadly recognised.

“The key point we’re missing is that we have this large pool of knowledgable people with vast experience in many fields, and it would be a shame if we let this go to waste,” points out National Economic Advisory Council (NEAC) member Datuk Dr Zainal Aznam Yusof, who is the pro-tem chairman of the newly founded Foundation for Sustainable Retirement.

At the crux of this is the fact that Malaysians retire well ahead of their life expectancy. Civil servants retire at 58, while in the public sector, most employers set 55 as the retirement age. Most people are exiting the labour market when they still have a lot left in the tank.

The common question is: what is the right age to retire?

To be able to retire, the first criteria is: am I got enough money to live till my last breath? If you are getting married between 30 - 35, most likely you will have child/children between 20-25 when they are about coming out to work. We all should be thankful if they are not coming back and asking money from papa and mama. So forget about them to support you.

How much money do you need to retire? I think the minimum amount even for the average "frugal" person will be about RM 2,400/month. My imagination of the future spending will be something like this:

To be able to live until I die without touching my retirement fund based on 3.5% return per year, I would need $ 822,857 ( 822,857 * 3.5% = 28,800 per year or $ 2,400).

Assuming I don't have any investment income, $ 822,857 will last me 28 years. If I retire at the age of 55, I will run out of money at the age of 83.

The next tricky question is how do I get $ 822,857 ? Then I will need to make some assumptions:-

1. Monthly saving = RM 1,500
2. Monthly salary = RM 5,000
3. Annual investment return = 5%

It will take me 24 years to reach $ 822,857.

This is to assume that I'm earning roughly RM 5,000/month at 30 years old. Wow, that means I can only retire at the age of 54.

So, logically an average earning professional should retire around 55 years old.

What about a guy/gal earning $ 3,000/month. He will have to cut his monthly expense to $1,300/month.

With $ 3,000/month, 20% saving =7,200/year. At 5% CAGR, it will take him/her 28 years to reach $ 445,714 to last him about 28 years.

Those want to go around the world, playing golf everyday, spending time going out all the time will have to earn a lot more during their productive age. A guy with RM 10,000/month salary will have roughly about RM 1.5 million with monthly saving of 2,500 with CAGR return of 5%. He/she can afford $4,464/month to last for 28 years.

So from financial hard numbers, the right age to accummulate enough to retire will be around 55 - 58 years old.

Soooooooooo? Still got to continue to work-lah!

1 comment:

Raffi Rahim said...

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2) Life insurance malaysia

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