Common Myths That Could Affect Your Retirement
When you think of retirement, you will likely want to kick-back, relax, and finally enjoy all the savings you have worked so hard to accumulate throughout your life. And yet, many of us still enter retirement without proper planning.
Today, over 3.5 million senior citizens need government aid and the number is increasing. One likely reason for this is the myths and misconceptions that we might have about retirement.
In order to ensure that we have enough time to prepare for retirement, we must dispel these myths and start planning as soon as possible.
Here are some of the most common retirement myths that are holding Malaysians back.
Myth 1: I only need to start planning for retirement once I am earning enough money
One of the most important things about retirement planning is the timing. Yes, it would be much easier to save money later in our jobs and careers than it is now since we will likely be earning much more then. However, this could lead to starting too late or not at all.
Remember that compounding earnings are key to ensure the growth of monies saved.
Just putting aside RM200 each month to start investing at the age of 25 can possibly turn into over RM200,000 in 30 years with compounding at the average rate of 6% a year. Here’s how:
|Start investing for retirement at age||25|
|Contribution period (age 25 to age 55)||30 years|
|Total invested in 30 years||RM72,000|
|Est. portfolio value in 30 years||≈ RM202,107|
|Est. total interest/profit||≈ RM129,907|
If you do not get an early start, you may end up wasting one of the most powerful tools for achieving financial security. The longer you wait to start, the more you must save each month later on, thus putting additional stress on your finances as you attempt to reach your savings goals.
If you need some help with planning out your retirement savings and monthly budget, you can try using this Private Pension Administrator Malaysia (PPA) Calculator. The planner is a comprehensive tool that will help you determine how much you need for your retirement and whether your savings are on track to meet your goal.
Myth 2: When I retire, I will be spending less as there are not as many expenses
Are you sure you can cut back on your expenses once you retire? The truth is unfortunately more complicated than that. Once you are used to a certain lifestyle, it is not so easy to simply adjust to a new one.
These are the expenses that you’re expected to spend during your retirement besides paying for your daily food and utilities:
Travelling. Whether it is to visit your children and grandchildren or going on vacation, this expense can take up a huge chunk of your retirement savings each year.
Hobbies/activities. Taking up a sport, learning a new skill, or even just to start gardening as a hobby will still need expenses for attire, equipment and even membership fees for some.
Home maintenance. If you are planning to live out your retirement in your current home, you will have to spend money for repairs to ensure that it doesn’t fall apart with age.
Healthcare. This is something that retirees tend to underestimate. Rising medical costs and longer average lifespans means many retirees may not be prepared with sufficient funds for medical bills or insurance coverage.
As such, you will need to take all these factors into consideration when planning out your retirement budget.
Myth 3: My EPF savings can keep me financially secure
As mentioned previously, it is risky to delay your retirement planning as it can directly affect your post-retirement savings. One reason people might not have a sense of urgency is that they believe that their EPF savings will be more than enough to keep them financially secure after retirement.
Unfortunately, this is not entirely true. Last year, up to 6.1 million EPF members had less than RM10,000 total savings in their EPF accounts. This amount of savings is at a level that cannot guarantee a comfortable retirement, as mentioned by the KWSP. The truth is that we live in an era of rising inflation. Everything from petrol, to groceries, and even healthcare is getting more expensive. All these costs need to be added up when planning for retirement.
This is why it is advisable to seek out other avenues of income to ensure that you have sufficient retirement funds to enjoy your golden years comfortably. For example, you could try signing up for Principal’s Private Retirement Scheme (PRS), which can help to boost your total retirement savings.
Plan your retirement with Principal
The average Malaysian today is very likely to live for at least another 15 years or more after retirement. Principal’s PRS can help you to diversify your income and ensure that you have a reliable source of income to rely on during your golden years.
What does Principal’s PRS end-to-end solutions offer?
Here are some of the benefits that make Principal’s PRS the better choice:
- The ability to select a suitable target date fund (TDF) based on your year of birth. With this, the fund will have a target date that closely corresponds to your expected year of retirement. This simplifies the investment process as you will be investing in a TDF that offers appropriate risk and return based on your age and retirement goals.
- After the TDF matures on its target date, all members of the TDF will automatically make a seamless transition into the Income Fund to begin the decumulation journey.
- The TDF’s portfolio automatically rebalances over the years, bouncing from aggressive investments that focus mainly on growth, to a more conservative mix that prioritises wealth preservation, based on appropriate risk and returns according to your age.
- The TDF and Income Fund offer a diversified portfolio with global exposure.
- Incomes generated by all PRS funds are exempted from tax, including the Foreign Source Income (FSI) tax.
- Qualify for up to RM3,000 in personal tax relief for contribution into PRS, effective from the year of assessment 2012 to 2025.
Don’t wait until it’s too late. Start planning your dream retirement with Principal PRS today!
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