Start as early as you can
The earlier you start investing for retirement, the easier it is to reach your retirement goals. That’s because of the magic of compounding returns. That is, when you invest, you may receive earnings – and if you reinvest those earnings, you will receive earnings on them too. Over many years, these earnings can grow to be greater than your original investment.
For example, here’s the difference if you start saving at different ages:
In the example above, If you started investing at 25 years old.
You can earn RM683,481 from the capital RM210,000 only.
But starting at age 35 years old (delay 10 years time) could mean only earning RM262,059.
That's a difference of over RM420,000 due to a late decision to start
If you delay saving for retirement, not only will you lose out on compounding returns, but you’ll also have to save a larger proportion of your income in the future to catch up.
How much do you need to save for retirement
Retirement Calculator
A common guideline is that you should aim to replace 80% of your annual pre-retirement income.
No ideal how to determine how much you need ?
2 Simple Way to Estimate your retirement income (in today’s Ringgits).
Click here.
We recommend this online retirement calculator to predicts your retirement nest egg, and then estimates how it would stretch over your retirement in today’s Ringgit, taking inflation into account.
Common default assumptions are:-
A) Salary increases of 2% per year.
B) 6.5% dividend in average 10 years of Malaysian government retirement savings scheme (EPF).
C) 6% rate of return in retirement (assuming a moderate portfolio).
E) 2.5% inflation rate.
Use this calculator to find out how much you will need to save for your retirement.
Enter your age, income, current savings, and monthly savings rate to see how you’re doing. You can also fine-tune your retirement spending level, retirement age, and more.
“The question isn’t at what age I want to retire, it’s at what income.”
-George Foreman
Retirement Fund Example – Senario – Lady age 35
Assumptions
- Age: 35
- Life expectancy : 88
- Annual Income : RM100,000
- Salary growth in 2% per annum
- EPF balance up to RM300,000 and 23% contribution every month.
- Retirement income required at age 55 years old is RM100,000.
It’s 70% on her last drawn salary at RM142,826 (refer last EPF contribution is RM32,850).
Refer above retirement calculator result shows in the chart, the lady has insufficient funds for her retirement after age 78.
Recomendation & Solutions
She can either
to increase 15% retirement savings from 23% to 38%, or
to increase her rate of return for her retirement savings from 6.5% to 8.5%
to reduce her expected retirement lifestyle from 70% to 50%, RM70,000
to delay retirement age from 55 to 58 years old