Future

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Future wellbeing
By: (Jul 16, 2004)


GROWING old is never easy; what more if you don't have the financial resources to fall back on.

Below are some advice given by financial experts on initiating saving schemes for old age for different age groups.

In your 20s-30s

You may not have a lot of money since you're just starting out, but you have time on your side.

The temptation to spend is great but keep the end in mind. Do you want to retire to a reasonably comfortable lifestyle? Then, put away as much as you can into a designated retirement fund and make the money work for you.

Financial planner Teng Luen Foong illustrates the efficacy of compounding interest over time. He explains that at 25, with 30 years to retirement, you will need to save RM479 every month to get RM236,324 at 55, based on an interest rate of 2% a year, compounded every month.

If you start at 30, you need to put away RM607 a month. At 40, it is RM1,126 a month. At this age, you can afford to take more risks with your investments as you won't need the money until years later.

Invest in blue chips and do consider small cap stocks. Don't make the mistake of being overly conservative; let youth work to your advantage.

In your 40s-50s

You are at the peak of your career -- the peak of your earning potential. Be careful not to fall into the trap of extravagance, living up to the nines.

You still need to save for your children's education, your own retirement and perhaps pay for your parents' living and medical expenses.

Teng's advice is to manage children and parents' expectations well as there can be tremendous contention between accumulating funds for your children's education, your own retirement as well as supporting your parents.

Take note of your own medical needs in retirement too: consider medical insurance. It is also time to think about the lifestyle you want in retirement -- where to live, perhaps downsize to a smaller house, the hobbies you wish to pick up, and so on.

Review your retirement funds: are you on track?

Financial planner Robert Foo says you should have accumulated at least 80% of your required retirement funds by the time you hit 50.

As for your investments, take fewer risks: reduce your exposure to small-cap stocks and increase holdings of large-cap blue-chip stocks.

At 55 and above

By now you should be debt-free and any major purchases should have been taken care of. Now that you are no longer working, make sure you have sufficient medical cover, otherwise any medical costs will eat into your retirement fund.

Any retirement income you have should be used to maintain your lifestyle. With lump sum payments from the EPF coming into your hands, avoid impulse buys. You have the option of keeping your money with the EPF.

You may also continue contributing to the fund if you are still employed. You may also consider an annuity plan (unfortunately, annuity plans are few in Malaysia) to supplement your retirement income.

Or withdraw the cash value in your life insurance to tide you over the winter years, if you have no dependants. At retirement, you should not have more than 50% in equities, says Teng.

Take note of market conditions and move to safer asset classes such as bonds and cash. As you advance in age, gradually lower your exposure to equities to no more than 25%.


What you can do now

Does planning finances for your retirement seem daunting? Here are some practical ways to start.

Save more
If you can save half of your income during your working years, you can be sure that you will be able to live on that amount, or less, in retirement. Live modestly now, spread out your riches to cater for your retirement years.

Don't succumb to peer pressure
You may be pressured to live a lifestyle beyond your means, accumulating debt along the way. Well, don't. Take a good look at your financial position and live within your means.

Start saving small amounts
For those who have difficulties saving, start saving whatever you can, even if it is only 1% of your salary. Gradually increase the percentage as you adjust your lifestyle and saving habits.

Put your savings to work
Don't just save blindly. After saving enough for an emergency fund and other required purchases, put aside some to invest. Equities carry the highest risk but over time, give better returns over fixed income instruments.

The further you are from retirement, the more risks you can afford.

Put a financial plan in place
Set out a plan along with realistic goals and adopt time-tested strategies. Customise an asset allocation strategy you can live with.

If you don't have access to a financial planner, read up on financial planning and investing. Review your plan every year.

Pick up a skill
Acquire a skill that you can use to produce income. Invest in yourself to improve your earning capacity. Another option is to take on another job. Stick to something you are good at.


This article is courtesy of Personal Money, The Edge magazine on managing your finances.

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