{"id":41058,"date":"2019-11-26T10:06:34","date_gmt":"2019-11-26T02:06:34","guid":{"rendered":"https:\/\/www.imoney.my\/articles\/?p=41058"},"modified":"2019-12-17T16:36:28","modified_gmt":"2019-12-17T08:36:28","slug":"retirement-savings-autopilot","status":"publish","type":"post","link":"https:\/\/www.imoney.my\/articles\/retirement-savings-autopilot","title":{"rendered":"Why You Should Take Your Retirement Savings Off Autopilot"},"content":{"rendered":"

In partnership with \"\"<\/strong><\/p>\n

<\/span>Twenty years. <\/strong><\/span><\/h2>\n

That\u2019s essentially how long you can expect to spend in retirement if you retire at 60, according to data published<\/a> by the Organisation for Economic Co-operation and Development (OECD).<\/p>\n

The question is, can your retirement savings last that long?<\/em><\/strong><\/p>\n

For many Malaysians, the answer is probably \u2018no\u2019. Most leave their retirement planning on autopilot mode \u2013 that is, they don\u2019t give it any thought and instead rely on their Employees\u2019 Provident Fund (EPF) savings<\/a> to fund their retirement.<\/p>\n

However, two out of three<\/a> EPF members aged 54 have less than RM50,000 saved. Alarmingly, half of EPF members over the age of 55 exhaust their savings within five years.<\/p>\n

<\/span>It\u2019s not enough to save just with EPF<\/strong><\/span><\/h2>\n

The general rule of thumb is that you\u2019ll need 2\/3 of your last drawn income<\/a> to maintain the same standard of living you have pre-retirement. Meaning if you earn RM7,500 a month during your last year of work, you\u2019ll need RM5,000 a month when you retire \u2013 otherwise, you\u2019ll have to downsize your lifestyle. Alternately, EPF\u2019s Belanjawanku<\/a> expenditure guide estimates that an elderly couple needs RM3,090 a month for a \u201creasonable standard of living\u201d.<\/p>\n

If you happen to be a young adult today, how much would you need to retire?<\/p>\n

Let\u2019s take the example of Lisa. She\u2019s a 22 year-old fresh graduate who earns a RM2,500 monthly salary. She\u2019d like to retire at 60, and have her retirement fund last until 80.<\/p>\n

According to Private Pension Administrator Malaysia\u2019s (PPA) retirement calculator<\/a>, if Lisa has an annual 3% salary increment until the age of retirement, she would accumulate RM974,641 in EPF savings by the age of 60.<\/p>\n

However, she would need RM1,198,599 to retire on 2\/3 of her last drawn salary (if this sounds like a lot of money to you, just remember that this is 38 years into the future \u2013 assuming a 3% annual inflation, this is equivalent to RM389,815 today).<\/p>\n

Lisa\u2019s EPF savings may not be able to sustain her 20 years of retirement. Along the way, if she uses her EPF savings to pay for housing, medical bills or education, she would have an even greater shortfall.<\/div><\/div>\n

This goes to show that relying on EPF alone is not enough \u2013 you may need to take your retirement savings off autopilot.<\/p>\n

<\/span>Boost your chances of retiring comfortably with EPF i-Invest<\/strong><\/span><\/h2>\n

Generally, there are two ways to boost your chances of a comfortable retirement \u2013 either save more, or make your savings work harder.<\/p>\n

i-Invest<\/a>, EPF\u2019s new online investment platform, can help you with the latter.<\/p>\n

This platform, which launched in August, allows you to enhance your retirement savings by placing part of your EPF balances in approved unit trust funds. This gives you the opportunity to potentially grow your retirement portfolio at a greater rate.<\/p>\n

<\/span>How do you choose which unit trust funds to invest in?<\/strong><\/span><\/h2>\n

Even though investing your EPF savings can potentially grow your portfolio at a greater rate, these returns are not guaranteed<\/strong>. Unit trust funds can even deliver lower returns than EPF.<\/p>\n

That\u2019s why it\u2019s important to evaluate each unit trust fund before you invest and choose funds that are performing well.<\/p>\n

One way of evaluating a fund is by looking as its annualised return. This refers to the fund\u2019s average return per year, over a period of time. You can find this metric by looking through a Fund Management Institution (FMI)\u2019s website, or through independent financial sites.<\/p>\n

For example, here are the annualised returns of some of Principal\u2019s top-performing funds:<\/p>\n

\n\n\n\n\t\n\n\t\n\t\n\t\n\t\n\t
<\/td>5-year annualised return
\n(23\/10\/2014 to 23\/10\/2019)<\/th>\n<\/tr>\n<\/thead>\n
Principal Islamic Asia Pacific Dynamic Equity<\/td>7.28%<\/td>\n<\/tr>\n
CIMB-Principal Asia Pacific Dynamic Income MYR<\/td>9.66%<\/td>\n<\/tr>\n
CIMB-Principal Asian Equity<\/td>8.70%<\/td>\n<\/tr>\n
CIMB-Principal Global Titans MYR<\/td>11.43%<\/td>\n<\/tr>\n
CIMB-Principal Greater China Equity<\/td>13.72%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\nSource: Lipper Investment Management; annualised returns based on reinvested dividends<\/span><\/p>\n

These funds have outperformed EPF\u2019s dividends, which have ranged from 5.70% to 6.90% in the past five years.<\/p>\n

Principal\u2019s funds also won two awards for being the \u2018best performing fund\u2019 in the following categories:<\/p>\n\n\n\n\n\t\n\n\t\n\t
Fund<\/th>Category<\/th>Conferred by<\/th>\n<\/tr>\n<\/thead>\n
CIMB-Principal Global Titans Fund<\/td>Equity Global - Malaysia Pension, 5 years<\/td>Lipper Fund Awards from Refinitiv 2019<\/td>\n<\/tr>\n
CIMB-Principal Equity Income Fund<\/td>Equity Asia Pacific ex Japan - Malaysia Pension, 10 years<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n

Of course, while past returns is not a guarantee of future results, it can be a helpful indicator to evaluate how well a fund is performing.<\/p>\n

Why choose Principal?<\/div>
<\/p>\n

Principal Asset Management Berhad (formerly known as CIMB-Principal Asset Management Berhad) has been recognised as one of ASEAN\u2019s top management houses. Principal has received awards for Best Asset Management House in ASEAN <\/em>by Asia Asset Management (2019) and Best Wealth Manager, Malaysia<\/em> by Asset Asian Awards (2018).<\/div><\/div>\n

<\/span>Put your portfolio into overdrive by eliminating sales charges<\/strong><\/span><\/h2>\n

When investing in unit trust funds, you\u2019ll also need to look out for sales charges \u2013 otherwise, they can eat into your portfolio returns over time!<\/p>\n

For a limited time, you\u2019ll incur 0% sales charges when you invest in Principal\u2019s unit trust funds.<\/p>\n

Here\u2019s an illustration of how sales charges can affect your portfolio growth:<\/p>\n

\n\n\n\n\t\n\n\t\n\t\n\t\n\t\n\t\n\t
Sales charge<\/th>0%<\/th>0.5%<\/th>3%<\/th>5%<\/th>\n<\/tr>\n<\/thead>\n
Initial capital<\/td>RM5,000<\/td>RM5,000<\/td>RM5,000<\/td>RM5,000<\/td>\n<\/tr>\n
Year 1<\/td>RM5,400<\/td>RM5,373<\/td>RM5,238<\/td>RM5,130<\/td>\n<\/tr>\n
Year 10<\/td>RM89,886<\/td>RM89,436<\/td>RM87,189<\/td>RM85,391<\/td>\n<\/tr>\n
Year 20<\/td>RM272,284<\/td>RM270,922<\/td>RM264,115<\/td>RM258,670<\/td>\n<\/tr>\n
Year 30<\/strong><\/td>RM666,068<\/strong><\/td>RM662,737<\/td>RM646,086<\/strong><\/td>RM632,764<\/strong><\/td>\n<\/tr>\n
Effect of fees after 30 years*<\/td>RM0<\/td>RM3,331<\/td>RM19,982<\/td>RM33,304<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n*Assuming an initial capital of RM5,000, an annual contribution of RM5,000 and an annual return rate of 8%<\/span><\/p>\n

A small sales charge like 3% might not seem like a lot of money, but it can cost you tens of thousands of ringgit over decades!<\/p>\n

<\/span>How to get started<\/strong><\/span><\/h2>\n

Investing with Principal through EPF i-Invest is easy. Just follow these five simple steps:<\/p>\n

    \n
  1. Register and activate i-Akaun (this is where you can access your EPF account online)\n

    \"\"

    On buy screen, select Principal & your choice of fund(s)<\/p><\/div><\/li>\n<\/ol>\n