Regularising Your Retirement Savings

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Regularising Your Retirement Savings

Building your retirement funds is a savings game, as none of us would have any retirement funds when we started our work life. Setting aside a portion of your income over the course of your working life is the only way to accumulate and grow your retirement funds. The time to do it is now whilst we are still earning our pay checks, by saving for it until we retire to provide a nest egg that is adequate, sufficient and sustainable for our retirement.

The Employees Provident Fund (EPF) offers a great example of how regular monthly contributions together with compounding dividends have created one of the world’s largest employee funds. EPF which is the main source of retirement funds for private sector employees has highlighted the need to save more for retirement as a majority of their members have insufficient savings to generate income for their retirement. The Private Retirement Scheme (PRS) was launched to address the need to save more for retirement. The best way to ensure that you commit towards saving more is to contribute regularly on a monthly basis to your PRS account.

To make saving more with PRS a success, you will have to commit towards a regular contribution plan. It’s one thing to start your PRS account; you will also need to continue making the required contributions that will build up your PRS retirement funds which will complement your EPF funds. It’s often difficult to make a commitment towards saving for the future as we are conflicted with the focus on living and spending now. To avoid neglecting to save more for our retirement, we will have to make it an affordable and easy “unconscious habit” to contribute to our PRS account. The best way to it is to make it a regular monthly contribution.

Regularising your PRS contributions on a monthly basis also serves to make PRS contributions affordable, instead of leaving it to the year end to make a lump sum payment. For example, making a lump sum annual PRS contribution of RM3,000 may present a conflicting choice versus regularly contributing a monthly amount of RM250, which makes it an affordable and manageable amount. Think of it as making monthly “instalments” to your retirement funds. You will soon adjust your spending levels with your monthly PRS contributions, making it easier for you to continue to save more for your retirement.

You would be doing your retirement funds a big favour by firstly setting aside a minimum of your monthly pay check for your PRS contributions. This would create the habit of “paying yourself first” with your PRS contributions before you spend your remaining pay. What this does is to ensure that you can afford to make your PRS contributions and also to never miss your PRS contribution as you put saving more for your retirement a priority.

There is another benefit to making regular monthly contributions versus lump sum with regards to timing when you should invest your contributions into your chosen PRS fund. Since you will have to invest your savings to generate compound growth, managing market timing risks is an important consideration. As no one can time the market, investing lump sum contributions run market volatility risks. Regular saving and investing on the other hand, allows you to mitigate market volatility through “dollar-cost-averaging” by averaging out market fluctuations throughout the year. By regularly investing your PRS contributions, you would not have to worry about the condition of the market.

Making the decision to regularly contribute to your PRS account is not as complex and daunting as you may think it is. Firstly, determine the amount that you need to put aside to save more for your retirement with PRS. Our research has shown that you will need to start with a minimum amount of 10% of your current monthly income, on top of your EPF contributions. Secondly, commit towards making it a monthly contribution into your PRS account. Lastly, automate your PRS contributions through electronic banking by making it a recurring payment or standing instruction. By setting up your automatic PRS contributions, you will soon adjust your spending to save more for your retirement. What you don’t see, you don’t miss.

PRS members can now make additional contributions into their existing PRS funds and to save more for their retirement through regular top ups. To Top Up your PRS contributions in an easy, convenient and secure way, go to https://www.ppa.my/prs-online/