the secret to planning a happy retirement _ imoney

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The Secret To Planning A HappyRetirement

December 17, 2015 Investment, Retirement planning, Sponsored

Written by Iris Lee

Weve been writing about retirement planningfor as long as we can remember but the number

one question that our readers ask most often is, How much is enough? How much should you

save for retirement? How much do you need in retirement? How much will you spend in

retirement? How much can you afford in retirement? These how-much questions are all vital

questions that will come up in everyones retirement planning process.

There are many theories and rules of thumb to answer all these questions, and they all work

depending on the retirement lifestyle that you have envisioned for yourself. Planning this out is

essential to figuring out whether you will be able to retire or whether youll need to keep on

working!

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What would you do on your last day of work?

According to Datuk Steve Ong, chief executive officer of Private Pension Administrator (PPA), the

rule of thumb is to ensure that one has two-thirds of the last drawn salary to maintain ones

lifestyle past the retirement age.

If your last drawn monthly salary is RM6,000, you will need about RM4,000 a month to enjoy the

same quality of life in your retirement years.

Another way that gives you an idea of how much you will need for retirement is the multiply by

25 guideline. This rule estimates how much money youll need in retirement by multiplying your

desired annual income by 25.

Why 25? This assumes a conservative figure of 4% returns on your retirement fund, so you
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withdraw 4% (1/25) each year while earning 4% as well to ensure your fund leaving your fund

more or less unchanged so that it doesnt deplete before your time is up.

This means, if you want a monthly retirement income of RM4,000 a month, you will need to

withdraw RM48,000 a year from your retirement portfolio, which makes a total of RM1.2 million

in your retirement portfolio (RM48,000 x 25 = RM1.2 million). If you want to withdraw RM60,000per year (RM5,000 a month), youll need RM1.5 million.

Dont let the amount scare you. All these guidelines are just guidelines. Ultimately, you need to

decide what you want for your retirement to be able to determine how much you will need in

your golden years accurately.

Here are 5 most common retirement lifestyles and how much the estimated costs are:

1. The minimalist retirement

Though it is always the safest to prepare financially for a retirement that matches your lifestyle

pre-retirement, some retirees do opt for a minimalist retirement. Minimalist retirement involve

downsizing on your lifestyle for instance, moving to a smaller home assuming that your

children have grown-up and moved out.

The key to planning a minimalist retirement is to list down all the things that you are currently

paying for, and see which can be eliminated. Some of the lifestyle adjustments that you may be

required to make are:


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Assuming that you will be debt-free by the time you hit retirement, here is the ballpark figures of

how much you and our partner need for the necessities:

Category Annual estimated cost

Accommodation (inclusive of upkeep, utilities, etc.) RM6,000

Transportation (inclusive of petrol, servicing, repairs, etc.) RM3,000

Food & groceries RM3,600

Insurance for two persons (life and medical) RM10,000

Entertainment RM6,000

Eating in instead of eating out

Downsizing to a smaller home to keep maintenance and utilities fees low

Changing to a smaller, more fuel-efficient car to keep petrol and maintenance low

Cutting down significantly on entertainment costs (that expensive golf membership may have

to go)

Cutting down on vacations cost by going to nearer destinations, or limiting to once a year

only

Paying off all your loans and debts before retirement. This means no more housing and auto

loan
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Vacation (once a year) RM5,000

Contingency fund RM2,000

Total estimated cost per year* RM35,600

Total retirement fund needed for 20 years RM712,000

* Annual cost does not include inflation.

If you can stick to a minimalist lifestyle, you will mostly need about RM3,000 a month for yourself

and your partner in your golden years.

2. Starting a business

After working for decades, some retirees would consider exploring the idea of starting a

business post-employment. Perhaps its out of passion, or to kill time, but for most, they need to

supplement their retirement income due to poor retirement planning when they were in

employment.

Whatever the reason, starting a business takes thought and planning. When considering what to

do for a business, first determine how you can take your skills and turn them into a profit. For

example, if you like baking, you can start a baking business from home.

At this stage of life, your risk appetite should be kept small. Capital for starting the business


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should not be eating into your retirement income. Remember, start small and start slow.

Cost of starting a home-baking business Estimated return Risk

RM2,500

To buy materials, utensils and taking up a two-month

baking course.

- RM30 per kg for

cake

- RM20 per box of

cookies

- RM4 per cupcake

Low

If you are able to fulfil the following orders a month, heres how much you can possible make

every month:

Item Quantity Amount

1 kg cake 3 RM90

Cupcakes 60 RM240

Cookies 30 boxes RM600

Total revenue a month RM930

Of course thats barely enough to cover your monthly expenses but its a good way to


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supplement your retirement fund to keep up with your current standard of living or increase it if

youre able to.

3. Back to school retirement

Most people look forward to their golden years as a period where they would finally be able to

fulfil their aspirations be it to travel the world, or to go back to school.

However, the truth is, aspirations cost money. If you are planning to take up a course post-

employment, you will have to ensure your retirement income be able to cover all of your

expenses, plus the fees of going back to school.

Going by the rule of thumb used by the PPA, which is to achieve two-thirds of your last drawn

income of RM6,000 a month, this will be a rough estimation of how much you need:

Monthly retirement income2/3 x RM6,000 = RM4,000 a

month

Annual retirement income

RM4,000 x 12 months =

RM48,000

Estimated years of retirement 20 years

Master of Business Administration (MBA) at Universiti

MalayaRM29,727.90


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Total retirement funds needed RM989,717.90

So youd need to plan quite a bit ahead in order to afford that additional RM29,000. This will

need to come in the form of additional savings before retirement or a general decrease in your

cost of living post retirement. Whats important is that you never withdraw more than RM4,000in order to keep your retirement funds secure.

4. Retiring abroad

According to the latest study release by HSBC, the preferred retirement destinations for

Malaysian retirees are Australia, followed by New Zealand, Singapore and Switzerland.

Retiring abroad usually requires more money than retiring locally, especially if the exchange rate

is against you. If you are like most Malaysians, your preferred destination would be Australia.

According to Numbeo, estimated living cost in Australia is around AUD$30,000 a year, provided

you retire at age of 60, lives up to age of 75 and have no medical complications.

Heres how much you need to have before you jet off to your dream retirement in down under:

AUD$30,000 x 25 x 3.10* = RM2,324,232.85

* Based on exchange rate of December 2015


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The above calculation has not taken inflation into account. Just looking at that will show you that

you will need to have quite a substantial amount of money saved up!

Whichever retirement lifestyle you aspire, it is important that you plan for it as soon as you can.

There are various ways to help you boost your savings to ensure your retirement fund can

outlive you. One way to systematically save up enough to complement your Employees

Provident Fund (EPF) savings is by investing in a savings plan that come with insurance

protection.

Heres how much someone aged 30 would need to save each year to fit the retirement lifestyles

above:

Minimalist

RM712,000

Starting a

business

RM714,500

Back to school

RM989,717.90

Retiring

abroad

RM2,324,232.85

Average

annual rate of

return

4% 4% 4% 4%

Annual cost of

RM48,000

With


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living in

retirement

RM35,600 RM35,725 RM29,727.90

one time

payment

RM116,211.60

Average yearly

saving target

RM12,600 RM12,600 RM17,400 RM40,800

One of the most popular and easiest way to manage your retirement planning is through a

retirement savings planthat come with insurance protection. Here are some criteria that will

have to consider when choosing the right retirement savings plan to protect your golden eggs.

1. Flexibility The retirement savings plan should offer you flexibility in premium payment and

also in pay-out.

2. Fast-track The premium you paid can be reinvested and left to be compounded until

maturity of the policy. Other than just the guaranteed cash payment, opt for a savings plan

that provides an enhanced investment option. Though not guaranteed, the enhanced

retirement benefit will help boost your retirement savings.

3. Protection The policy should also keep you protected until maturity. The higher the age of

maturity the better, as you wouldnt want yourself to outlive your retirement fund.4. Security Get a savings plan that offer guaranteed payment that you can choose to cash out

before retirement or maturity, or reinvest as deferred retirement benefit.

No matter your age, or stage of life, dont ignore the white elephant in the room. Retirement is

an eventuality, and planning for it will only get harder, due to the rising inflation and cost of
https://www.allianz.com.my/savings


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Retirement Planning: Are You

Ready For The Big R

Tackle These 3 Big Retirement

Income Issues Now

Building A Retirement Nest

[Infographic]

Can I Retire With Just RM1

Million?

living. Grab it by its horn and face the issue as soon as you can. Dont leave it till the eleventh

hour!

Find out if youre ready to retire with our retirementcalculator!

Image from Sixty Me

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