ARTICLES
The Simple Retirement Plan
What we do know now is our current income levels support our lifestyle and standard of living, which needs to be replaced once we stop earning when we retire. Research has shown that we will need to save a minimum of 1/3 of our current income to replace 2/3 of our last drawn pay before we retire. Whilst 1/3 monthly savings may seem a lot, the good news is that we are already contributing 23% to the EPF with our personal and employer’s contribution.
That leaves us with a minimum 10% savings gap*, which we need to close by saving more with the private retirement scheme or PRS. Just like our EPF contributions, we need to ensure that we make our additional contribution in PRS a regularised monthly contribution. Over time, both EPF and PRS contributions will go a long way towards ensuring we have adequate savings for retirement.
“Save a minimum of 1/3 current income to have 2/3 replacement income”
As we progress on in our careers, we will likely get an increment or promotion which will also improve our living standards and lifestyle as we move along. So as we earn more, we will also need to ensure that we adjust our savings level to replace our latest income. By committing to a regularised monthly PRS contribution, our savings will be automatically adjusted when we earn more therefore increasing our savings for the entire duration of our earning years.
Having started to save more, we need to at least review our contributions and funds’ performances on an annual basis. Whilst we have control over our contributions, our retirement funds are often subject to market volatility which can provide upside and downside returns. We therefore need to review at least annually to stay on track towards achieving our retirement income objectives.
“Commit to a regularised monthly PRS contribution”
We can take the necessary actions to adjust our contributions by saving more, switching funds to reflect changing risk and returns expectations or to suit changing life stage needs. As we approach retirement and our thoughts on it becomes clearer, we will most likely need to make adjustments to reflect what we want for our retirement. The most important thing is to start now and not be bogged down with the perceived difficulties and complexities involved in retirement planning.
We can all start by making our plan simple by just saving additionally with the PRS from our current income. However this simple plan is just a start and is focused on helping you to save more only. You may need the services of financial advisers to assist you in making a detailed retirement plan customised to what you want out of your retirement.
Review your PRS account annually
Notes:
* You can check your respective retirement savings gap with PPA’s retirement calculator at www.ppa.my/retirement-fund-calculator as it involves assumptions based on your age, contribution amount as well as investment risk and returns.
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