WHILE most people recognise the need to plan for their retirement, recent surveys show that only about 20% think they have planned and adequately saved for their retirement. The remaining 80% are not ready to replace their earned income when retirement comes along.
The need to plan and save for retirement is not in question. The key issue is the lack of action to address the gaps in providing for retirement.
The most frequently cited excuses are “it’s still a long way before I retire”, “I’ll do it ‘tomorrow’ ” and “I don’t know how”.
While these seem to be convenient excuses, most agree that not knowing what to do and how to do it are perhaps the main reasons for not taking action.
Deciding to start up your Private Retirement Scheme (PRS) account is the first step to making it happen but you will need to commit to the required long-term contributions to achieve your desired nest egg.
The next step is to make your PRS contributions a “regular unconscious habit” to build up your retirement funds over the years.
Last but not least is the need to monitor the progress of your PRS account, taking note of your contributions and the performance of your PRS funds.
Private Pension Administrator Malaysia (PPA) has formulated a simple process to provide the framework and structure on how to start and manage your PRS account.
Going through the “Save. Invest. Retire. Enjoy” or “S.I.R.E” process will assist you to start and manage your PRS accounts.
Achieving your desired retirement goals does not just happen; it takes proper planning and commitment.
SAVE – Accumulating funds for retirement needs discipline and commitment. Smart retirement planning suggests that we set aside 10% of our take-home pay for retirement. We also need to be very clear of the purpose – that it is solely for retirement.
PPA strongly encourages members to save monthly so that it’s more doable (rather than a high amount annually) and to inculcate the saving habit.
The earlier you start and the longer you have, the more retirement savings you will have.
Regular contributions will help to “dollar cost average” your savings, a technique designed to reduce market risk through the systematic regular monthly contributions at pre-determined intervals and set amounts.
INVEST – While saving is all about setting aside money, investing provides compounding growth. Money that is saved and invested has the potential to enjoy compound growth to ensure that the funds stay ahead of inflation and also to be rewarded with an expected return.
When investing, you need to ask what your retirement objective is – for pre-retirement accumulation capital growth (during the accumulation phase when we are gainfully employed) or retirement income generation (during the decumulation phase when we retire).
In addition, you need to customise your retirement investment plan according to your age, lifestyle and financial circumstances.
Before making an investment decision, you should consider the different types of risks and learn to manage them by way of diversification, managing the performance of your investment and knowing your options.
RETIRE – Retirement is not a destination but a journey. The 30-40 years pre-retirement phase is a crucial period to accumulate adequate funds for retirement, but it does not stop there.
Retirement also means, during the golden years (also known as the decumulation phase), one is able to manage his or her retirement savings in order to stretch a good 20 years as we live longer due to the advancement of medical sciences.
The best way to do so is to keep your savings invested and make monthly withdrawals of a set amount that is enough to use as expenditure, as passive income. This is to ensure that your money continues to work hard for you while you withdraw a regular monthly retirement income.
ENJOY – Retirement should be the most exciting phase in life but it requires that you have the income and financial security. The end objective of retirement planning is to ensure that you enjoy the golden years with an adequate, sufficient and sustainable income.
For all the years spent saving, where you seemed to be sacrificing your immediate wants for your future consumption, it is the only sure way to provide enjoyment for the retirement years.
* Dato’ Steve Ong is the CEO of the Private Pension Administrator Malaysia (PPA), the central administrator for the Private Retirement Scheme (PRS). The PPA is tasked by the Securities Commission Malaysia to promote the growth of the PRS industry, create general awareness and educate the public on retirement savings. The PPA also works to protect the interests of PRS contributors. This article by PPA first appeared in The Star Online and iMoney.my.
If you have any questions related to retirement planning, email AskPPA@ppa.my.