Don’t Let These 5 Bad Money ‘Tips’ Drain Your Retirement
Every festive season, we gather with our families and friends, exchanging stories, anecdotes and sometimes even advice and tips. Although we should always take the good intent tips with a pinch of salt — we have to admit, we can almost publish a book with the amount bad advice we hear over the holiday.
Let’s compare notes and see if you’ve heard any of these terrible retirement tips:
1. Just save and don’t take the risk of investing
With the rising inflation and cost of living, merely saving your money is not enough. You’ve heard it, and you’ve probably have read it somewhere: Have a steady income, stick to your budget and save your hard-earned money in the bank.
We have been told by our parents to save money since we were barely out of our diapers. Saving money at a young age will guarantee a financially stable retirement in the future.
This statement may no longer be true. In today’s choppy economic climate, you need to fortify your long-term savings with high yield investments (or if you’re so risk averse, at least higher yield than inflation) to weather inflation, economy downtown and also to fast track your savings.
With the right investment, your funds will have the potential to double or even triple the initial capital value over time. These long-term investments will provide you with additional retirement income in your golden years.
2. Stop working, and #YOLO
As the retiring age approaches, one may choose to slow his/her pace to enjoy his/her leisure time with family or even to travel the world. That’s fine, we all deserve a break, and what better way to have a long break in your retirement?
However, if you are not financially prepared for the next 20 years, you should not stop your income completely. You may be quitting your nine-to-five job, but that doesn’t mean you should not pick up a hobby, or pursue another career you have always wanted to explore especially when it can bring in the cash for you.
A small source of income as back-up does not hurt. The quote ‘to retire is to expire’, made famous by outgoing US president Donald Trump and former ‘The Apprentice’ TV showman, is indeed true. He told SmartMoney.com, “(That was what) my father, who worked until he passed away at 93, used to always say. And I feel the same way. I love what I’m doing – and when you love what you’re doing, you don’t retire.”
3. Don’t worry, you have EPF
EPF statistics show that two out of three EPF members aged 54 have retirement savings of less than RM50,000, while more than half of EPF members above the age of 55 exhaust their savings in five years.
If someone told you to just depend on your EPF savings in your golden years, he/she is sadly mistaken. It’s a very dangerous mistake to make.
Though your EPF savings will be able to help fund your retirement substantially — if you manage it wisely — it is not enough if you are looking to live the same standard of living before retirement.
You need to save one-third of your income from as early as possible, to have two-thirds of your last drawn income post-employment.
4. Your kids will take care of you
You’ve worked hard and brought them up. Finally, now they are earning a living, it’s time for them to show some filial piety by supporting you financially.
This is a typical Asian retirement plan. However, with the rising cost of living and the economic uncertainties ahead, your children are not having an easy time financially. This is especially true for those who living in the urban cities, starting a family and struggling to afford a mortgage.
Having a set of aging parents who depend on them financially will make it impossible for them to escape the sandwich generation. It’s best to have your own back-up plan when it comes to retirement to avoid burdening the younger generation.
5. Withdraw all EPF/pension funds as soon as you can
In Malaysia, members of the Employees Provident Fund (EPF) who are above 55 years old are able to withdraw their EPF funds or government pension. They have the option to withdraw all their money at once.
However, this is extremely dangerous as we are left with no back-up for the rest of our retirement years. For some retirees, they would blow their EPF savings on holidays, without a care about stretching their retirement fund to outlive them.
Unless you have a clear idea of what to do with your EPF savings, which involves better investment yield than leaving it in EPF, it is really not recommended for retirees to withdraw their full EPF savings in one go.
Even under the best of circumstances, our retirement plan may hit a few bumps. However, by sticking to your retirement goals and having a clear idea of your target, you will be prepared for any obstacles.
Don’t be swayed by hearsays and retirement tips from your friends, aunties, or neighbours. Get your retirement budget in place. The next time you hear any retirement planning advice that doesn’t include figuring out exactly how much your individual spending will be, here’s a retirement advice that is legit: Ignore it.
This article was first published on March 5, 2015 and has been updated for freshness, accuracy and comprehensiveness.