How To Be Financially Prepared For Retirement

Prepare finances for retirement

Retirement should be a celebration, the moment where your life’s work delivers just rewards.

However, for a lot of people, retirement also brings about a heavy dose of anxiety, all because of one simple reason – they do not have enough money to support their livelihood once they’ve retired.

So how can you change your coming retirement from a ball of anxiety back to a feeling of celebration? Simple, by planning ahead.

As the saying goes, ‘failing to plan is planning to fail’. Planning for retirement should be on everyone’s to-do list but if you are near to retirement, you will need to take certain concrete steps in the near future so you can enjoy a more comfortable life post-retirement.

Here’s a guide on how to draw up your to-do checklist when you are near to retirement.

Early steps you can take near retirement

Planning for your retirement might sound like a daunting task, but if you take it step by step and cross off each item on your list, it makes the task simpler and more manageable.

The minimum retirement age in Malaysia is 60 years old, and if you do plan to retire by that age, the early preparation stage should ideally be several years ahead. 

This is to allow you enough time to take care of personal responsibilities that you should be prepared to manage differently when you retire, like:

  • Paying down debt

The first step we need to take in preparing for our retirement is to have a plan in clearing our debts. Ideally, you should start by clearing high-interest debt or avoid taking on new high-interest debt as you near retirement. This is to ensure you don’t use up your retirement savings to clear debt when you stop earning a regular income.

  • Update your estate beneficiaries

This includes naming your estate beneficiaries by writing your will, planning property ownership transfer, updating your EPF beneficiaries, and arranging for your family to have access to your bank account and any other important legal documents in the future. Sorting this out ensures your family’s well-being even if  you are not there anymore.

  • Arrange for your medical needs

Identifying and going over your medical and long-term care plan is important to avoid draining your retirement fund as your healthcare needs will likely increase with aging.  With   medical inflation in Malaysia at 14%, healthcare costs could increase faster than your income, especially in retirement. 

If you have medical insurance, you’d do well to ensure the policy has coverage post-retirement as many insurance products only cover you until 70 years old or arrange for long-term care coverage separately.

  • Plan your post-retirement lifestyle

You should start planning now what you want to do post-retirement, and how much it will cost you to ensure you don’t run out of money trying to fulfil your bucket list for retirement. If your post-retirement plans include traveling the world or other hobbies that will require a sizeable financial commitment, then you should start setting aside funds now to afford them.

Checklist to get financially ready for retirement

What most people worry the most about retirement is the funds needed to retire comfortably. So, let’s get to the steps you need to take to be financially ready for this life stage.

  • Review your retirement savings

For many Malaysians, their only retirement savings may be their Employees Provident Fund (EPF). According to EPF,  the minimum amount that you should have in your EPF account when you reach retirement age is RM240,000. Divided over 20 years of post-retirement living, that means that you only have RM1000 per month. 

In order to supplement your EPF funds to ensure a financial buffer beyond your EPF savings, you can also: 

The EPF i-Invest platform allows you to invest part of your EPF savings in approved unit trust funds to potentially provide greater returns than your EPF savings and allows you to diversify your savings into overseas investments. You can start your EPF i-Invest journey with Principal Asset Management here.

Other things you may need to consider when reviewing your retirement savings are:

  • Cost of living
  • Medical expenses
  • To fight inflation
  • Emergencies
  • Your retirement bucket list

Your retirement savings plan needs to cover all these, to make sure that you have enough money to live comfortably post-retirement.

  • Rebalance your investment portfolios

If you have existing investments, the next step for you is to rebalance your investment portfolio.

Rebalancing your investment portfolio is even more important when you’re approaching retirement. It ensures that you have the right asset allocation (i.e., how your portfolio is divided into equity, fixed income, or other investments) that matches your risk level.

So how should we rebalance our portfolio? Generally, rebalancing your portfolio is simple. Here are two main ways  in which you can rebalance your portfolios.

  1. Sell your high-performing investments and use that money to buy lower-performing ones. With this method, you won’t have to put in any additional funds into your investment portfolio.
  2. Allocating new funds. This method of rebalancing your portfolio requires you to put in additional funds in a strategic manner. Here’s an example; if you see that one of your investments is overweighted, then you should invest your new deposit into other investments until your portfolio is balanced again.

When rebalancing your portfolio, you can estimate your risk level and ideal asset allocation by taking Principal’s short quiz here.
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Plan your retirement income

Apart from what you have saved up for retirement, you can also look for ways to increase your retirement income. One way to continue supplementing your income after retirement is to find a hobby that you can monetise. If you like cooking, maybe you can start a simple lunchbox business. The most important part of monetising your hobbies is, keep the risks low. Remember, you’re doing this to help supplement your retirement funds. 

The second one is to maintain a passive income after retirement. This can be done in a myriad of ways, such as:

  • Property ownership with potential for rental returns
  • Existing investments that provide returns (EPF, PRS, unit trust)
  • Part-time work that leverages on your professional experience

How Principal can help you grow your retirement savings

A lot of us fail to plan properly for our retirement, which can lead to financial pressures in the future. With proper planning and execution, your retirement can be just as fulfilling as any stage of your life. Instead of worrying about your retirement, take steps to start preparing as soon as possible. 

You can start your retirement journey here with Principal Asset Management. 

Investing with Principal also allows you to diversify your retirement savings with EPF i-Invest and PRS or you can get in touch with their consultants to guide you on your investment choices.

You are advised to read and understand the Prospectus, Information Memorandum and/or Disclosure Document including any supplemental thereof and the Product Highlight Sheet (if any) before investment. A copy of the said documents have been registered with the Securities Commission Malaysia (SC) and may be obtained at our offices, distributors or our website at []. The registration of these documents does not amount to nor indicate that the SC has recommended or endorsed this product or service. The issuance of any units to which the said documents relates will only be made on receipt of an application referred to in and accompanying a copy of the relevant Prospectus, Information Memorandum and/or Disclosure Document. Investing involves risk and cost. You should understand the risks involved, compare and consider the fees, charges and costs involved, make your own risk assessment and seek professional advice, where necessary.

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