Share this article:
Pandemic has affected many of us withdrawing our EPF for short-term cash flow chock. As our country is heading for recovery face moving down the road. It is time for us to start reviewing our retirement fund. Below are the 6 simple steps to review our Retirement Fund.
Step #1 Define Your Goal
We need to know how to define our goal before we work on it. We need to be clear about how much we need to fund for our retirement. Without knowing this figure, we can’t plan for it.
A very simple way is to know how much you need for your living lifestyle. Let’s say you need RM5,000 per month for your living lifestyle, you will need RM60,000 per year.
Next is you need to know when do you plan to retire and what is the life expectancy we expect to have? For example, if we plan to retire at age 60 and our life expectancy is 80 years old. Then we have 20 years in our retirement.
With the annual living lifestyle of RM60,000 and funding for 20 years; we need at least RM1,200,000 for retirement.
The above example is just a very basic calculation. We have not to factor inflation into consideration. It will be more precise if we can factor those inflations into the calculation. At this stage, I just want to touch on the point that we need to know our figures for our retirement.
Step #2 Review Existing Fund
Next, we need to figure what are the existing resources that we have from now until the age of retirement.
We need to project how much will these resources that will generate for us when the time that we reach our retirement age.
The common resources most of Malaysia depends on for retirement include EPF accounts, savings, Unit Trust investments, insurance policies, stocks, and properties.
Add up all these resources with their projected value. See if we can meet the retirement fund that is needed in step 1 we have calculated.
If we do not have a sufficient amount to meet the required fund for retirement, then we need to start working on it before it is too late. Even we might have sufficient funds to support our retirement, it is wise we plan some extra in case we need some additional unexpected medical costs in old age.
In short, the more the better we have our retirement fund.
Step #3 Cut Down Expenses
Review our monthly expenses and see how we can cut down those unnecessary. Sometimes you can reduce some of the expenses without compromising your daily lifestyle.
For example, pay your credit card on time to avoid late charges; cleaning up the filter of the air conditional regularly can reduce electrical consumption.
Keep your tire all inflated. Remove those things, not in use from the car. The extra weight will cause the car to consume more petrol.
Your driving style might have an impact on how much petrol you will consume. Avoid unnecessary acceleration of your car and keep your driving smooth. Gentle acceleration in your car will reduce your fuel consumption.
With a few efforts, you may be able to save up a small amount of money. That will help us a lot in our retirement planning over a long period of time. Let’s start small, let’s find a way to save at least RM100 a month without compromising our lifestyle. We can slowly improve to save more from time to time. The point here is we start somewhere first.
Step #4 Increase Income
As we can only cut down our expenses up to a certain level. In terms of additional income, there is no ceiling that will stop us. If we are capable, we can generate as much additional income as we can.
We may already have our full-time job which will take most of our time. Getting a second income may not be easy as we still have other commitments like taking care of our old parents, children at home and we need to allocate time for ourselves.
Therefore starting the second income should be on the passive income. Find a way to automate the second income so that it will not take up your remaining rest time or personal time.
A few simple examples of passive income like renting out an extra room, an extra car park, interest income, dividend income, royalty income, writing a book or blog that has continued income, multi-level marketing, or agency force business that we can leverage on downline to generate income.
As the initial stage is always difficult but once you are familiar with the process, things always get smoother and you can increase your productivity and increase your income. We can start our initial figure of additional income as small as RM100 every month and increase the figure over the period.
Step #5 Invest
We work very hard for money and we should make the money work even harder for us. One of the best ways is an investment. The investment can be your third income stream to fund your long-term retirement.
By cutting expenses and saving RM100 and by generating additional income of RM100. We will eventually have RM200 to invest every month.
Every year when you have your salary increment and your year-end bonuses, remember to set aside a small portion of it and allocated it to investment. Over a long period of time, it will be very impactful to your retirement fund.
Step #6 The Power Of Compounding Interest
Compounding interest in simple terms is earning interest on interest. The new interest is computed on the previous interest earned and also on the initial principal. The compounding interest will make the investment sum grow at a faster rate.
The longer we allocate time for the investment to grow, the better return of the investment return. It is just like a snowball. Initially, the snow ball is very small but if we allow it to keep on rolling and eventually the snow ball will become bigger and bigger.
We need to allocate time for the compounding interest to work for us. The longer time we allocate, the better the return will be. Therefore we need to start our investment as earlier as possible. We can start with a small amount but we should not start late.
Share this article:
Related Articles
3 Steps To Boost Your Income
Malaysian is barely making enough to survive on their monthly expenses. 3 simple steps to boost your income.
Passive Income
Being depending on a single income now a day may not be sufficient. Learn how to create second sources of income and automate it so that you can save up your time for the things that you want to do that you usually don’t have time to do.
20 Ways To Cut Your Expenses Without Compromise Your Lifestyle
Reducing spending is the beginning step of financial planning. By reducing our spending, we will eventually have extra money to pay off debts earlier or have extra money to invest.
Subscribe to get the latest articles in future