6 Steps To Enhance Your Retirement Planning

Pandemic has affected many of us withdrawing our EPF for short term cash flow chock. As our country is heading for recovering 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.

We need to know how to define our goal before we work on it. We need to be cleared how much we need to fund for our retirement. Without know 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 the retirement.

The above example is just a very basic calculation. We have not factor the inflation into consideration. It will be more precise if we can factor those inflation into the calculation. At this stage, I just want to touch on the point that we need to know our figure for our retirement.

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 account, saving, Unit Trust investment, insurance policies, stocks, and properties.

Add up all these resources with their projected value. See if we can meet the retirement fund that needed in the step 1 we have calculated.

If we do not have 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 fund to support our retirement, it is wise we plan some extra in case we need some additional unexpected medical cost at the old age.

In short, the more the better if we have our retirement fund.

Review our monthly expenses and see how we can cut down those unnecessary. Sometime you can reduce some of the expenses without compromising your daily lifestyle.

For example pay your credit card on time to avoid late charges; clean up the filter of the air conditional regularly can reduce the electrical consumption.

Keep your tire all inflated. Remove those things not in use from the car. The extra weight will cause the car consume more petrol.

Your driving style might have impact on how much petrol you will consume. Avoid unnecessary accelerate your car and keep your driving smooth. Gentle accelerate your car will reduce your fuel consumption.

With a few efforts you may be able to save up small amount of money. That will help us a lot for our retirement planning over the long period of time. Let’s start with small, let find 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.

As we can only cut down our expenses up to 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 that will take most of our time. Getting a second income may not easy as we still have other commitment like taking care of our old parent, children at home and we need to allocate time for ourselves.

Therefore starting the second income should be on the passive income. Find way to automate the second income so that it will not take up your remaining rest time or personal time.

A few simple example 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 continue income, multi-level marketing or agency force business that we can leverage on downline to generate income.

As initial stage always difficult but once you are familiar with the process, things always get smoother and you can increase your productivities 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.

We work very hard for money and we should make the money work even harder for us. One of the best way is investment. The investment can be your third income stream to fund for your long term retirement.

By cutting expenses and save RM100 and by generating additional income 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 into investment. Over the long period of time, it will be very impactful to your retirement fund.

Compounding interest in simple term is earning interest on interest. The new interest is compute on the previous interest earned and also on the initial principal. With the compounding interest will make 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 snow ball, 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 it will be. Therefore we need to start our investment as earlier as possible. We can start with small amount but we should not start with late.