Cracking the retirement code: Why your golden years might need more than just a piggy bank

Everyone will eventually arrive at the point of retirement at some point in their lives. As a result of the fact that every individual will reach the age of retirement at a different time, it is difficult to set a fixed sum that applies to everyone; rather, it will vary according to the requirements of each individual.

While retirement planning is a personal journey, recent studies have shown that the average retirement age in developed countries is steadily increasing. This trend is primarily driven by longer life expectancies, improved health in later years, and economic factors. For instance, in the United States, the average retirement age has risen from 62 in the 1990s to 66 in recent years. Similarly, many European countries have seen a gradual increase in their official retirement ages, with some projecting further increases in the coming decades.

On the other hand, as a point of reference, here are two numbers that are simple to remember and will assist you in accomplishing your retirement objectives with an almost full certainty.

Approximately thirty percent of the money that you make is the amount that you ought to put away in savings. You are able to enjoy a certain lifestyle based on the amount of money you make.

Regardless of whether you make RM1,000, RM5,000, or RM10,000 per month, if you are able to save thirty percent of your income as a result of always spending less than you earn, you will be able to retire and continue to enjoy the same standard of living.

It's important to note that the 30% savings rule is not a one-size-fits-all solution. Financial experts suggest that individuals should adjust their savings rate based on their age, income level, and retirement goals. For example, those who start saving later in life may need to save a higher percentage of their income to catch up. Additionally, high-income earners might need to save more than 30% to maintain their lifestyle in retirement, while those with more modest incomes might find a lower savings rate sufficient.

By combining your own payments to the Employees' Provident Fund (EPF) with those made by your company, you can already save approximately twenty percent of your income.

Unfortunately, the Employees Provident Fund (EPF) issued a warning to Malaysians in October that they will require a minimum of RM600,000 in order to retire comfortably in major cities.

In the event that the Employees Provident Fund (EPF) is your sole source of savings, it is highly probable that you will not have a significant retirement nest egg if you are not among the top twenty percent of high-income workers.

You need to save at least ten percent more on your own in order to improve your performance. Individuals who do not make contributions to the Employees Provident Fund (EPF) are strongly encouraged to strive for a savings rate of at least thirty percent.

When it comes to this topic, the most important concept is not the amount of money that is saved; rather, it is the habit of being able to defer gratification, live frugally, and refrain from spending your future money in a haphazard manner.

You will become aware of how wealthy you are capable of becoming once you have acquired the knowledge to live with less and to lead a simple lifestyle. This is because you will have more chances and choices available to you.

The concept of frugal living and deferred gratification has gained significant traction in recent years, particularly among younger generations. This shift in mindset is partly due to increased awareness of environmental issues and a growing desire for financial independence. Many individuals are now embracing minimalism, conscious consumption, and the "FIRE" (Financial Independence, Retire Early) movement. These lifestyle choices not only contribute to better financial health but also often lead to reduced stress and improved overall well-being.

Investment returns are the topic at hand here. Whether you are investing in real estate, stocks, or enterprises, you need to be able to make investments that give double-digit returns, or at least ten percent.

In order to increase the likelihood of having a good retirement, it is important to learn how to accomplish this as early as possible.

Take, for instance, the scenario in which you have RM1 million at the moment and you only generate a 3% return on your fixed deposit. This would amount to RM2,500 every month. However, if you are able to attain 12%, that is RM10,000 every month, which is a significant increase.

Keep your retirement fund in stable assets such as fixed income funds, bond funds, EPF, and Amanah Saham. This is the common recommendation from financial consultants. They recommend that you maintain a conservative approach to your retirement fund.

There is a problem with this typical piece of advice because even people who are retired are investing for the long term. Within the next year, they may be required to spend between three and five percent of their net worth, and this amount can be stored in funds that are stable.

While traditional advice often emphasizes conservative investments for retirees, a growing body of research suggests that maintaining some exposure to growth assets, such as stocks, can be beneficial even in retirement. This approach, often referred to as a "bucket strategy," involves dividing retirement savings into different time horizons. Short-term needs are met with stable, low-risk investments, while longer-term funds can be invested more aggressively to potentially outpace inflation and extend the longevity of the retirement portfolio. This balanced approach aims to provide both income stability and the opportunity for continued growth throughout retirement.