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CHAPTER 7 : RETIREMENT PLANNING :pen: - Coggle Diagram
CHAPTER 7 : RETIREMENT PLANNING
:pen:
1.Importance of Retirement Planning
Set Clear Goals
• When do you want to retire?
• How much money will you need?
Pitfalls
• Starting late
•Saving too little
• Investing too conservatively
Misconceptions
•Expenses will decrease in retirement
•Retirement lasts only 15 years
•Social Security/pension will cover everything
•Employer/Medicare covers medical expenses
2.Importance Start Early
– Time Value of Money
The earlier you start, the bigger your savings (compounding effect)
Example:
• Start at 25: $1.4m at 65
• Start at 35: $550k
• Start at 45: $201k
• Every 10 years of delay = need to save 3x more per month.
3. Basics of Retirement Planning
• Analyze assets & liabilities
• Estimate spending needs and adjust for inflation
• Evaluate planned retirement income
• Increase savings: By working part time
• Reduce expenses
• Take a second job or work extra hours
• Make sure your investments are part of the solution, not part of the problem
• Retire later
• Refine your goal
• Sell assets that are not producing much income or growth
Review Your Assets
Housing
• If owned, probably your biggest single asset
• If large equity, a reverse annuity mortgage could provide additional retirement income
• You could sell your home, buy a less expensive one, and invest the difference
Life Insurance
• Life insurance cash value can be converted into an annuity (or decrease face value which reduces premiums and gives you additional income)
Other investments
• Review investments and consider taking the income from them (or receiving the dividends rather than reinvesting them)
Estimate Your Retirement Spending Needs
• Spending patterns, where & how you live will probably change
• Some expenses may go down or stop
Work expenses - less for gas (fuel), lunches out
Clothing expenses
Housing expenses
Estimate which expenses may go up:
Life and health insurance unless your employer continues to pay them (government sector)
Medical expenses increase with age
Expenses for leisure activities may go up (vacation, haji, umrah)
Gifts and contributions may increase (weddings etc)
Identify Your Retirement Housing Needs
• Think about where you want to live (climate, people, activities, transportation, taxes)
• Consider the cost of moving and the social aspects of moving (proximity to children, relatives, or good friends)
Planning Your Retirement Housing
Type of housing and changing needs
92% prefer to stay in their own home (U.S.)
A universal designed home is built to allow for potential physical limitations
If not built using universal design, home may need to be retrofitted
Continuing care retirement community provide increasing levels of care
Planning Your Retirement Income
Pension Scheme – JPA (Jabatan Perkhidmatan Awam)
To acknowledge and appreciate the excellent service, with loyalty, dedication and honesty, rendered to the Government by a personnel.
Types of Pension Benefits
Pensionable officer who retires or asked to retire from Government service is eligible for the following pension benefits:
Service Pension (monthly payment)
Service Gratuity (lump sum payment)
Cash Award in lieu of Leave, when applicable (lump sum payment).
Employee Provident Fund (EPF)
The Employees Provident Fund (EPF) is one of the world’s oldest provident funds, established in 1951 to safeguard the retirement future of the Malaysian workforce.
All EPF members under the age of 55 will have their accounts restructured into three (5) accounts namely Akaun Persaraan, Akaun Sejahtera and Akaun Fleksibel:
Akaun Persaraan, originally Account 1, aims to accumulate and increase the members saving level for the long term in order to achieve comfortable life after retirement.
Akaun Sejahtera, originally Account 2, aims to meet the pre-retirement life cycle needs for the medium term which contributes to retirement wellbeing. Savings in Akaun Sejahtera can be withdrawn for pre-retirement purposes (subject to EPF terms and conditions)
Akaun Fleksibel is designed to meet members' short-term financial needs. Savings in Akaun Fleksibel can be withdrawn by members any time, subject to terms and conditions. However, members are encouraged to withdraw only for emergency purposes and immediate needs only.
Savings and Investments
• Savings accounts
• Fixed deposits
• Stocks and Bonds
• Unit Trust
• Real Estates
• Gold
• Income from online businesses
• Income from other businesses
Living On Your Retirement
Tax Advantages
Take advantage of all tax savings retirees (Malaysia- tax exempt pension)
Retirees get a variety of tax savings
Investing for Retirement
Monitor your investments
Invest some of your retirement income for growth, to allow for inflation and increased health care costs
Dipping into Your Nest Egg
Dip into savings with caution, since you do not know how long you will live
Be financially independent
Malaysian Situation
• Life expectancy: ~75 years → need savings for 15+ years post-retirement.
• Concern: Many Malaysians don’t meet RM240k minimum EPF savings.
• Required savings (20 years, with 2% inflation):
• B40: ~RM808k
• M40: ~RM1.9m
• T20: ~RM4.7m
• Need reforms: increase saving habits, raise pension age, ensure income stream.
Tips for Retirement Planning
• Select a target date
• Talk with your banker or tax advisor
• Estimate money you need to accumulate
• Find out about your social security benefits
• Diversify your assets
• Seek the professional financial advisor
• Set clear short term and long term goals
• Don’t touch your savings