It’s Never Too late to Save More for Retirement

For those of us moving on to middle age or transiting into retirement, we have progressed with our careers and moved on in our life stages. Our priorities, obligations and focus in life would have shifted as we matured through our life stages, whilst career progressions would have also increased our earning power and pay checks.  We would have spent the early years of our working lives busy building our career and our lifestyles, often putting our future on the back burner.  Now that we have progressed, it’s perhaps time to pause and think about what we want for our retirement.

Recent news have highlighted that our EPF savings may not be enough for majority of EPF members.  This is a disquieting concern especially for those of us in our middle age or transiting towards retirement.  There are positive steps that we can take to address potential shortfall in our retirement savings. We need to close the savings gap to accumulate the nest egg that we want to generate our retirement income.

Without closing the savings gap, we will be exposed to having a smaller than desired retirement fund which will generate lower income for our retirement.  Make the best use of our time before retirement to save more by maximising our savings for it.  How much time we have before our retirement will determine the additional amount of savings we need to plug the gap.

The first thing to do is to take stock of our current EPF savings.  If you have been contributing the standard 23% EPF  contribution, you will likely need to contribute an additional 10% of your monthly income, to make up the minimum 33% monthly savings target to accumulate sufficient funds to replace 2/3 of  your last drawn pay and continue living the lifestyle and living standards into your retirement.

However, depending on your current age, you may need to save more than the minimum 10%, as you will have to catch up on your savings with the remaining time you have before you retire. The shorter your time frame to retirement, the more you will have to set aside for your retirement, to close the savings gap.  You can work out the percentage of additional savings you will need by doing a quick computation with PPA’s retirement calculator at www.ppa.my.

What can we do to catch up on saving more for our retirement?  How do we find the additional monthly savings required to plug the gap?

1. You may need to rebalance your monthly spending, to allow you to start saving for your retirement.  It’s time to look at your spending to manage your needs and wants and to balance current spending and savings needed for retirement.   Our changing lifestyles and priorities at the later stage in our lives offer many opportunities to change our spending habits to save more.  We can look at the additional savings that we put aside now as providing the means to spend more when we retire.  You have the ability to start saving more now to reserve it for future spending.
2. You may also have the ability to save more if you have finished paying off your mortgage loans and/or children’s education funding.  Your reduced financial commitments release cash flows obligations, which you can now channel to accumulate more retirement funds for yourself.
3. You can further close your savings gap faster by increasing your retirement savings yearly from your annual pay increment and bonuses.   Whilst you are still earning an income, you should commit towards saving more with the objective of closing the savings gap for your retirement.
4. Even though you may be starting late in saving more, there is still time for compound growth to build your retirement funds.  Until your eventual retirement, compound growth can still provide returns that will contribute towards closing your savings gap, to achieve your desired retirement nest egg.

It never is too late to start saving more for retirement. It is just that the longer you wait, the harder it becomes as you will be limited by the time you have to initiate any actions to save for your retirement. Make the best use of the time that you have now to start saving more with the PRS as much as possible for your retirement and keep at it. Your future self will only thank you for it. Until we are finally retired there is still time to catch up on our retirement savings.

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