{"id":12778,"date":"2014-12-11T11:20:45","date_gmt":"2014-12-11T03:20:45","guid":{"rendered":"https:\/\/www.imoney.my\/articles\/?p=12778"},"modified":"2025-04-08T16:08:19","modified_gmt":"2025-04-08T08:08:19","slug":"retirement-plans-for-the-self-employed","status":"publish","type":"post","link":"https:\/\/www.imoney.my\/articles\/retirement-plans-for-the-self-employed","title":{"rendered":"Retirement Plans For The Self-Employed"},"content":{"rendered":"

\"Retirement.IRA.401k.pension.plan.book.and.nest.egg.with.computer<\/a><\/p>\n

Being your own boss can be a great advantage in many ways. You need not ask for permission to skip office to catch your favourite football match. The only upper management breathing down your neck is your own conscience and of course, the bottom line. Above all, you are completely independent and fully responsible of your own financial well-being.<\/p>\n

However, being self-employed is not a bed of roses. One of the biggest disadvantage is the need to plan for retirement entirely on your own. You are solely responsible of achieving the quality of life you desire post employment. The sooner you start saving for it, the better it is.<\/p>\n

One of the biggest mistakes self-employed individuals make is not planning adequately for their retirement. When you are self-employed, it can be difficult to set money aside. You often use those funds to keep the business going if it does not turn out as you expected or when clients lag on payments. If you are a novice businessman, you could be focusing on start-up costs and put retirement last on the list. You may even rationalise not saving for retirement with the dream that ultimately you will sell your business and live off that proceeds in your old age.<\/p>\n

Nevertheless, it is best to be safe than sorry. One rule of thumb is that you will need at least 67% of your last drawn salary monthly to live comfortably. In order to achieve that, you will need to save at least 33% of your income every month, as soon as possible. To get started, you will need to identify the various retirement plans best suited for the self-employed.<\/p>\n

<\/span>1. Private Retirement Scheme (PRS)<\/b><\/span><\/h2>\n

The PRS<\/a> is a voluntary long-term contribution scheme designed to help self-employed individuals accumulate savings for retirement. Through PRS, you are provided a fixed range of funds or schemes<\/a> that you may choose to contribute based on your time horizon and risk appetite or by default based on your age.<\/p>\n

By default<\/a>, you will be categorised to invest in growth funds if you are less than 40, moderate funds if you are between 40 and 50 years old or conservative funds if you are above 50. There are currently eight PRS Providers<\/a> that you can choose from. The minimum initial contribution and additional contribution for each fund differs according to the providers.<\/p>\n

Unlike Employee Provident Fund (EPF)<\/a>, PRS funds are not capital guaranteed and dividends are not fixed. Both solely depends on the performance of the fund. You are only allowed to withdraw from PRS\u2019s sub-account B (this account consist of only 30% of total fund value) pre-retirement (before 55) but with an 8% tax penalty charged to it.<\/p>\n

By saving for retirement through PRS, you can achieve diversification as your contributions will be pooled for the purchase of a diversified portfolio of stocks, fixed income securities and other assets which yields returns at lower risks compared with investing directly in any individual investment. The funds are also managed by professional fund managers with the relevant expertise and resources to manage the funds. Like any other investments, PRS funds are subject to various cost and charges<\/a> that you must account for when saving under this scheme.<\/p>\n

Besides saving for your retirement, there are other perks you can enjoy by making PRS contributions:<\/p>\n