Retirement: Different Strategies At Different Life Stages


The adage goes: It is never too late to start planning for retirement. Regardless of whether you are a fresh graduate just about to embark on a budding career, or a middle aged working professional who hasn’t done much retirement planning, the time to start is always now.

Keep in mind there are no set guidelines on how to plan your retirement. Some would advise that your retirement income be around 70% of your working income, for example, but it could be far less than that if you are able to obtain part time work or lower your costs of living. The way you manage your retirement planning also depends on the age you’d like to stop working and your risk appetites when it comes to investing. Despite the fact that there are no rules set in stone, we do however need concrete strategies and targets in mapping out how we build our nest egg successfully.

20s to mid-30s

The biggest advantage you have in your youth is time. This is where the power of compounding interest should be best used to your advantage, so even if you have student loans to pay off, it’s always a good idea to start investing in your golden years now. Many might think that the mandatory employee provident fund (EPF) contributions will suffice, but this isn’t necessarily true. In 2013, Malaysia’s second finance minister announced that the average savings of an active EPF member at the age of 54 was RM158,302 in the last five years. This will only last a retiree for 20 to 25 years, without factoring in inflation.

Clearly it’s important to have another source of retirement income, and one other option is the private retirement scheme (PRS). It is a voluntary, long-term investment scheme to accumulate savings for retirement, and is meant to complement your contributions to the EPF. Youths below the age of 31 are eligible for the government’s youth incentive of a one-off RM500 contribution if the youth has accumulated at least RM1,000 within a year in the fund.

Apart from the EPF and the PRS, diversification into other investments and asset classes are also encouraged so you don’t rely on one source of retirement income. It doesn’t matter if you are only able to put a minimal sum of money into such investments, the idea to cultivate good saving and investing habits early on, and you can bank on having the power of compounding interest on your side. The earlier you start to save, the less you’d need to put in to achieve the same amount of retirement savings.

Lastly, make sure you are not spending more than you earn, and do put aside instant gratification when evaluating your purchases. It’s easy to get caught up in the latest fads and trends, but you’ll thank your younger self later on in life for the additional savings that you’ll have.

Mid-30s to mid-40s

In our 30s, most of us would have more or less settled down by now at a stable point in our careers and family life. At this juncture, your retirement and investment strategies should also have already been set in place, so now would be a good time to revisit them to see if they are still relevant. Are your investment allocations still adequately diversified, or is it time for some portfolio rebalancing? How have market conditions changed? Do your strategies still hold relevance today?

If your earning power has also increased as you build up your professional career, you might also want to allocate more of your income into your retirement funds and other investments.

Mid-40s to 50s

At this stage in your life, what you do next would depend on your planned retirement age. Are you planning to call it a day at 55, or would you like to remain at the workplace until your mid-60s? Strategists advise that you tone down the risk profile in your investment portfolio about 10 years before you decide to retire. The strategy now is to preserve as opposed to grow. You might want to reduce your exposure to the stock market, for example, if its volatility is not ideal in preserving the nest egg you have already accumulated. A suggestion is to limit the investment scope to blue chip stocks or stocks that carry dividends, or more conservative assets like bond funds.

Retirement and beyond:

In reaching retirement, hopefully you’d have already accumulated a nest egg sufficient enough to live on comfortably for the rest of your years. However, there are always other ways you can trim off excess expenditure. One option would be to downgrade from your current family home, if your children are already grown up and studying or living elsewhere on their own. If it’s just you and your spouse living in the four bedroom house you moved into so all of your kids could have their own rooms, consider moving into a smaller apartment or condo unit, or even to a smaller and cheaper city to live. If you are living in the Klang Valley or Penang, try Ipoh, Kuching or Kota Kinabalu where the pace of life is slower and more enjoyable, and the costs of living will definitely be lower. The money you’d save on utilities and maintenance can be channeled towards your retirement savings.

Regardless of your retirement status though, it is always important to have an additional source of income. As a side income, you could think about maintaining a relaxing job so you don’t have to dip into your nest egg that soon. This way, despite being considered a senior citizen, you’d still be able to contribute back to your community. With current health provisions and the increase in life expectancy, most of us are still able and healthy in our 60s, so it’s not a bad idea to work. Consider tutoring students, teaching a course for a particular skill that you have, or running a small business. You might even discover passions you never know you had. Another alternative would be to have an investment income from stable streams like stock dividends or rent from property, which will help reduce your dependency on your retirement fund.

Lastly, as a tip to help you throughout your years towards retirement and saving for it, always remember to hedge against inflation to prevent your savings from shrinking. Taking a long term approach to equity investments is generally a better way to go about it, as its double digit returns will be like to outpace inflation to further grow your nest egg.

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