Busting the myths
TO most people, retirement planning may seem a long way off. Many also believe their current retirement savings are sufficient for them to retire comfortably.
CIMB-Principal Asset Management Berhad’s chief executive officer Munirah Khairuddin, however, opines that most people underestimate how much they need for a comfortable retirement.
“Retirement is seldom a popular subject, even more so among the younger generation. It is a weakness in human nature to put off matters that do not demand our immediate attention such as retirement.
“For many, it is only when they reach the age of 35 and above, get married and have kids that they see the need to re-evaluate their future financial standing,” says Munirah.
It is therefore not surprising that so many Malaysians end up with insufficient or, worse still, no savings or pension to rely on upon retirement.
While the United States’ Social Security Administration recommends individuals to have a 70% income replacement ratio during their retirement, most Malaysians only have about 30%, according to a World Bank report.
Income replacement ratio refers to a person’s gross income after retirement, divided by one’s gross income before retirement. Therefore, if a person earns RM10,000 for his last salary withdrawal, he would require RM7,000 to sustain the same lifestyle after retirement.
As the country’s workforce is predominantly young, there’s still time on their side to save for their retirement through private retirement schemes (PRS) and other forms of investment.
However, young Malaysians still lack investment literacy and awareness of retirement planning.
Munirah explains, “Investment literacy among Malaysians must be improved and digital platforms are the fastest and best way to increase awareness, more so among millennials who are digitally savvy and make most of their decisions on digital platforms.
“At CIMB-Principal, we regularly create awareness on the importance of early retirement planning through various platforms, in collaboration with authorities and other corporate partners.
“Awareness programmes include addressing the myths surrounding retirement, one of which is that one would spend less upon retirement, which may not be true particularly if a medical condition requires expensive treatment.
“Additionally, some people expect their children to fund their retirement, which is neither fair nor fail-safe as their children could themselves be struggling financially with escalating living costs.”
Contrary to popular belief, retirement planning is not complicated. The concept of saving for one’s retirement is actually very simple – it is about having the discipline to set aside some money every month.
“Just start small and put RM100 to RM250 into your PRS account every month. In 20 years, depending on the compounded annual returns, you could potentially have up to RM150,000,” she adds.
“Once you have chosen a professional fund manager to manage your retirement fund, all you need to do is monitor your investments once every six months. What’s important is to have a long-term view, so you really do not need to worry too much about markets’ short-term volatility.
“Focus on setting aside regular monthly savings and invest more whenever you have extra cash to build your nest egg.
“Over time, through the concept of dollar-cost averaging – that is, getting more units when prices are lower and fewer units when prices are higher – over many years, the net price per unit tends to be moderated and the investor will tend to gain from the compounding effect of his funds.”
Munirah stresses, “The other important aspect is for people to constantly evaluate their financial position based on the concept of net worth – which is simply calculating all their assets minus liabilities.
“Not many people have a positive net worth, and they need to realise the importance of regularly evaluating their financial position.
“Savings, unit trust and PRS savings are assets that can be easily liquidated. You have to make your cash work harder for you and that’s where investments and savings can play a role in multiplying your wealth. The younger you start, the better.”
She cautions against another commonly made mistake, which is putting money in a general purpose fund for all future needs, from family vacations to children’s education.
It is crucial to have separate funds for individual goals, especially for retirement. One can start saving for one’s retirement by opening a PRS account. It is an additional way to boost retirement savings and complements one’s current retirement savings.
With Securities Commission Malaysia governing the licences and management of PRS providers, individuals can rest assured that their savings are in good hands.
Munirah reiterates, “People tend to worry more about what the investment returns are going to be rather than how much money they would have when they retire. They should instead focus on enhancing their net worth and always compare their current financial standing against where they aim to be in future.”
For more information, call 03-7718 3100 or visit www.cimbprincipal.com.my