How much money do you need to comfortably retire? RM1 million? RM2 million? More?
How you want to live in retirement
In other words, do you expect your expenses to go down when you retire? We call that a below-average lifestyle. Or will you spend as much as you do now? That’s average. If you expect your expenses will be more than they are now, that’s above average.
How do you know how much money is enough to last through your golden years? The answer is highly personal and depends on your lifestyle and spending habits, but there are a few basic guidelines to follow if you want to retire comfortably.
Now let’s determine how much savings you’ll need to retire. After you’ve figured out how much income you’ll need to generate from your savings, the next step is to calculate how large your retirement nest egg needs to be in order to be able to produce this much income in perpetuity.
People live an average of 20 years after retirement in Malaysia.
Income Replacement Ratio Method
Estimate your retirement income
A common guideline used by CFP CERT TM Professional or Certified financial planner is that you’ll need to replace 75 to 85 percent of your last drawn salary to sustain the same lifestyle and live comfortably in retirement.
In other words, if you make RM100,000 now, you’ll need about RM80,000 per year (in today’s Ringgits) after you retire, according to this principle.
To calculate your replacement rate, as it’s called, you’ll need to find out how much you’re likely to receive from your various sources of retirement income.
Adjusted Expenses Method
Estimate your retirement expenses (in today’s Ringgits)
You can estimate what you will need to retire comfortably by using your current level of expenses, compounded yearly to the retirement age with an appropriate inflation rate.
With this method, you need to examine your spending habits. Certain expenses may increase, some decrease, while others vary as you grow older.
For example, food costs will likely change as prices do, but your transportation costs could decrease since you won’t be commuting to and from work. If you pay off your mortgage before retiring, your housing costs would go down as well. Healthcare costs, on the other hand, could increase during retirement.
So, it is important to review your expenses before and during retirement. A clear understanding of your anticipated retirement expenses is an essential first step in figuring out how much income you’ll need in retirement.
The simple way, contact our consultant team to get a quick idea of how much you need to save for your desired retirement lifestyle or click AEM Button below.
