Reading The Star article “Our elders need better care” makes me wonder if we can actually afford to retire as planned. If you take into account the rising living cost, expensive private healthcare (when public healthcare is not accessible due to long waiting times or other relevant factors), pricey retirement homes (either it is independent living, assisted living, or nursing homes – all which are private businesses) – it boils down to how much is it enough to retire?
How much do I need to retire?
Everyone will have a different retirement figure to achieve. You may have different lifestyles, requirements, and needs – so it can range from RM1 Million to RM10 Million? There are many tools available in the market to calculate how much you would need to retire. I like to use OCBC’s calculator as it takes into account how many savings you have in cash, investment, EPF and also if you intend to sell your property or rent out and how much it is. When calculating the figure, it is good to be comprehensive because your assets may not all be liquid at the moment.
Once you have a rough figure to work on, it is time to figure out if you have sufficient based on your current savings, EPF savings, property(ies) or any other investments. Next, you would need to take into account unforeseen events such as health issues and the need to be admitted to an assisted living / retirement home. This is the tricky part because how much is enough to put aside? To give you an idea of how much these private facilities may cost you, I curated a list of nursing homes and retirement homes (independent living) facilities which you can refer to.
The retirement dream
I have spoken to quite a few friends, relatives, and acquaintances about retirement and everyone has their own dream retirement plan. From travelling around the world to purchasing their dream home, it is an opportunity to enjoy the last lap of their life after putting on so many years of hard work.
The question is: can we really afford this retirement dream?
Is RM1,000,000 enough to retire?
Is one million enough? Here’s what I did to make a calculation:
Assuming RM1,000,000 in EPF account at 5% annual returns
RM1,000,000 x 5% = RM50,000
Assuming that you use the returns for your monthly use, without withdrawing the initial sum
RM50,000/12 months = RM4,166 per month
So you have a sum of approximately RM4,000 per month for your expenses. This is also assuming that you do not withdraw the initial sum from your EPF account. The moment you start withdrawing the initial sum, your annual returns are less for the next year. With inflation and increasing cost of living, the amount may not be sufficient.
Now, assuming you want to travel around the world, how much would that cost? I took a look at a hotel that we rented when we were in Orlando, USA 10 years ago. The cost has doubled! So assuming it will also double every 10 years, you will need to really set aside sufficient money to travel. Everyone’s travelling habits differ, but it may be sufficient to say that you would need to set aside at least RM20,000 for a month’s travel – assuming it is not an exotic location like Bora Bora or Bahamas or some very pricey location. Do note that this is at current’s prices, so you need to put into account inflation and rising cost at your retirement date.
Pooling your assets together
Just last year when everyone is talking about amassing RM1 Million in their EPF accounts, and some people are panicking because they projected that they are not able to reach that sum when they retire. Some are happy because they already have that sum, or their projection surpasses that amount when they retire.
Firstly, don’t panic. Secondly, don’t jump into all sorts of investment opportunities promising outrageous returns. Thirdly, you may not need that one million – and I’ll explain why. But first thing first, remember that your total wealth is not just what is in EPF. Here is a list of assets that you may have overlooked:
- Your investment property – the property that you are not living in, possibly rented. You may still be servicing the loan but when the time is right, you can dispose (sell) and keep the proceeds after paying off the remaining loan.
- Current property you live in – if the current home you live in is already too big for you to manage when you are much older, consider selling it and moving to a smaller home. A smaller home would be easier to upkeep, and keep your running cost low (electricity, water, assessment tax, etc.).
- PRS – you may have been contributing and forgotten about it.
- Mutual funds – if you have purchased it is so easy to forget that it is part of your long term savings. If you have purchased using your EPF funds, remember that you cannot access the funds prematurely. If you withdraw, it will be channeled back to your EPF account.
- Endowment – This is also easily forgotten because it would have taken years to complete the payment, and then just put it aside. There is an annual payment plus there is also a value attached to it.
- Jewelry, Art & Collectibles – Precious metals like gold and silver, collectibles like stamps and coins, antiques, expensive watches are all valuable items. Do remember that the value can differ from what you have in mind. All these are really dependent on supply and demand.
- Cash – Your fixed deposit and savings account.
- Investments – Stocks, bonds, cryptocurrencies, commodities – remember to calculate their value as part of your wealth.
- Vehicles – If you have extra vehicles that you don’t use or no longer need to use in retirement, consider selling them for cash.
- Intellectual property – If you have patents, trademarks, copyrights – these also have a value attached to them.
What if you still don’t have a million?
Like I’ve mentioned earlier, you don’t have to panic even if you don’t have a million by the time you retire. Adjust your lifestyle accordingly to match what you have. If you don’t have RM4,000 to spend, then how about RM2,000? You may question whether that will be enough for daily expenses. My answer is simple – make do with it and adapt.
Similarly, everyone wants to live in a super luxurious home that costs (say) RM10 Million in prestigious addresses in KL. But not everyone can afford that! So can we make do with a RM5 Million home? Or if that is still not achievable, can we make do with a RM1 Million home? If that is still not possible, how about a home that is RM500,000?
So in the end, it is all about adapting to what you have. If you don’t have a million, how about RM800K? Or RM500K? You just need to adapt to survive. Here are a few things that I can think of to adapt to whatever retirement fund amount you have:
- Downsize to a smaller home – Do you really need to stay in a double storey landed house? Or would a 600 sq ft one-room apartment in a nice neighborhood in the city be sufficient? How about moving to the outskirts of the city or maybe a smaller town? If you have a kampung house, it may also be a good idea.
- Downsize the car – If you don’t have a need for large cars, consider a car that has lower running cost and cheaper maintenance.
- Watch what you spend and be prudent – Instead of having an expensive meal outdoors, consider home cooked meals. Maybe prepare simple meals at home that suit your taste buds.
- Travel prudently – Before you start thinking about your trip around the world, calculate the budget you have. Plan around the budget and not the other way round.
- Cut out things you don’t need – There are many things that you are subscribing to that you may not require. Are you paying a montly subscription for air purifier, air filter, mattress, air-conditioner, etc? Would it be cheaper to buy these items with a one time fee? How about your subscription to paid TV? Can you make do without it?
Finally, if you are still able to, consider taking up a part-time job, be a gig worker (such as Grab or Lalamove driver), or a work-from-home job to supplement what you have.
Start early, retire early
To wrap it all up, it is actually important to start planning early. We can get caught up in a lot of different things throughout our lifetime. Give a little thought on what you need when you retire. Work towards an attainable goal and while you are at that, remember to smell the roses along the way. We often are so busy chasing (material) things, that we forget to love ourselves.