How Can Gig Economy Workers Prepare For Retirement?
Do you deliver meals or drive for e-hailing apps for a living? Perhaps you’re a freelance programmer, or you run a one-person consulting business.
If so, you are among the growing population of Malaysians who are self-employed or work in the gig economy. About 26% of the Malaysian workforce are freelancers, and that figure is growing.
Being your own boss means being in charge of your own hours, your own style of working and the types of tasks you take on. But this also means having to take sole responsibility in other areas – namely, your retirement planning.
Why you need to prioritise retirement planning
As a freelancer or self-employed worker, you may not have a predictable income. If work is running dry, it can be hard to think about something as far away as retirement when you’re worried about how to get through the month.
Nonetheless, remember that retirement planning is crucial, especially if you are not formally employed. Here’s why:
a) You don’t have an employer who contributes to your EPF savings
In traditional employment, your employer would typically help you set up an Employees’ Provident Fund (EPF) account. Every month, part of your salary automatically goes to your EPF savings, while your employer also contributes a fixed amount.
But as a non-salaried employee, nobody sets up your EPF account, makes you save or contributes to your savings. Your retirement planning lies entirely in your own hands.
b) You risk having to work later in life
According to EPF, Malaysians should have at least RM240,000 saved upon retirement. This is meant to support your basic needs for 20 years. It’s no small sum, and it may not even be enough if you want a comfortable retirement – that is, one that allows you to enjoy luxuries like travel and nice dinners.
If you don’t start planning now, you could end up with inadequate savings for retirement. You may be forced to delay your retirement, or not retire at all.
Even if you do want to continue working, you’ll need to have some savings set aside for your golden years. Medical inflation is on the rise in Malaysia – your savings will help you afford increasing medical expenses when you are older. Eventually, you may also need to fork out for long-term care if you can’t carry out daily living activities on your own.
c) It’s easier to start earlier
Here’s why you should plan for retirement, even if it’s decades away: it’s easier to start when you’re younger. The earlier you start, the more time there is to allow your savings to grow.
For example, here’s how much you’ll need to save a month to reach RM1 million at 60 years old:
If you start saving for retirement when you’re 20, you’d need to put aside RM502 a month. But if you delay just ten years later, this amount doubles to RM996.
What can you do to prepare for retirement?
First off, you’ll need to set up an emergency fund. This is a stash of money that you should set aside so you can cover unexpected expenses. Every month, put a portion of your income into a savings account until you have at least six months’ worth of expenses saved up.
This ensures that you won’t have to take out debt or dip into your retirement savings when a financial emergency (e.g. a family member falls ill, your car needs an expensive replacement part, etc.) comes up. If your income fluctuates every month, an emergency fund can also help you cover living costs during low-income periods.
Then, you can start thinking long-term.
One of the easiest ways to grow your retirement fund is to contribute to your EPF account via i-Saraan. Under this scheme, those who are self-employed or do not earn a regular income can make voluntary contributions to their EPF accounts.
Here’s why you should consider contributing to your EPF account with i-Saraan:
- Set it and forget it. Investing on your own can be confusing. You’d need to know which assets best suits your needs, monitor your portfolio and periodically rebalance it. But when you save with EPF, you just need to contribute to your account, and let someone else do all the hard work of growing your investments.
- Flexible contribution. Saving for retirement doesn’t have to constrict your cash flow. Contribute any time you want, and with any amount (subject to a maximum of RM60,000) a year.
- Annual dividends. EPF’s yearly dividends helps you beat inflation and grow your retirement fund at a potentially greater rate compared to savings accounts or fixed deposits.
- Government incentives. When you contribute via i-Saraan, you will receive a 15% government contribution on top of your own contribution. This is subject to a maximum of RM250 annually, until the year 2022.
How to start contributing to your EPF account with i-Saraan
Contributing to your EPF account is the most fuss-free way to prepare for retirement, so don’t put it off for later.
Opening an account with i-Saraan is easy. Just visit any EPF counter with your MyKad and fill up a registration form. Once you’ve signed up, you can contribute to your account through cash/cheque payment at an EPF counter or panel bank, or through internet banking.