As people grow older, their thoughts turn to retirement – taking it easy and enjoying their golden years. But for many it means increasing uncertainty. Does the retirement plan allow the desired lifestyle? When should one retire?

It is normal to be uncertain when thinking of an unknown future, especially as everyone wants security and comfort in their old age. But do not let fear put one off retirement planning as the best time to start is as soon as possible.

Here are five reasons why retirement is getting financially more difficult and what can be done about it.

1. People are getting healthier and living longer

Life expectancy is increasing in line with advancements in healthcare and technology. Malaysians are also living much longer.

According to the Department of Statistics Malaysia (DOSM), in 2000, the life expectancy of the average Malaysian was 72.2 years. Last year, it had risen to 74.5 years.

According to the United Nations, by 2040, the average life expectancy in Malaysia will be 79 years.

This is good news and bad news. The longer people live, the more years they will have in retirement, so more money will be needed to cover basic expenses.

That means young people today will need more money for retirement than someone who is retiring now.

2. High cost of living

Many young people are already struggling to pay their bills, so it is hard to think about retirement in the distant future.

The very thought can be depressing because the task seems daunting – there is not much left over every month to save and people are not sure how much they will need.

According to DOSM last year, a typical family earned RM5,873 per month and spent RM3,654.

According to payroll.my, someone on that income would have to put aside RM844 for income tax, Employees Provident Fund (EPF) and Socso.

This means there is little money left for savings or investment and, as a projection budget, the person would need at least RM3,654 per month until the end of their days, not counting inflation.

Some people trust that their EPF savings will suffice for retirement, but the provident fund said that seven in 10 of its members aged 54 would have to live on RM210 per month until they reach 75 years old, or finish their savings in less than two years.

The EPF said 68% of its active members do not have enough basic savings for retirement.

In essence, people need to find ways to save and invest for retirement since EPF savings are not enough.

3. Income is not growing as fast as it was

Getting a hold on spending is an important step to retirement but attention must also be paid to growing one’s income.

People often complain they are not being paid enough for the job they do, but just how low is their income?

According to the Household Income and Expenditure Survey published by DOSM, from 2009 to 2019, income growth has indeed slowed.

From 2009 to 2014, the median income of a family grew 10% a year from RM2,841 per month to RM4,585.

From 2014 to 2019, income grew 5.1% a year from RM4,585 per month to RM5,873.

As income growth slows, it becomes more difficult for young people to prepare for retirement compared with current retirees.

4. More financial commitments

As life expectancy increases, the expectations for one’s lifestyle after retirement also increase – changing homes or a new car, for example.

Meanwhile, the cost of living continues to rise and parents increasingly feel obligated to help out their children financially, even in adulthood.

Their concerns for their children include that housing is becoming unaffordable for the younger generation, education is expensive and it is important to make provision for the children.

It is no wonder then that many Malaysians are heavily in debt.

Bank Negara Malaysia said the main culprit is expensive housing loans. This threatens the ability to contribute enough to a retirement fund and would affect retirement if these expenses need to be maintained.

5. Fewer people contributing to retirement funds

The EPF or private retirement funds need people who are working to contribute. But Malaysians are having fewer children and the population is greying.

DOSM figures reveal that population growth has slowed.

From 2010 to 2018 it grew 1.6% a year, compared with 2.4% from 1970 to 2010.

And the percentage of Malaysians aged above 60 is expected to increase from 10.3% in 2018 to 19.8% by 2040.

A retiree’s benefits are supported by the contributions of people who are still working.

With potentially fewer Malaysians contributing in the long term, it will be hard to retire if retirement funds need to make higher profits to cope with the increasing number of retirees.

What can be done?

Take the bull by the horns and address these concerns by doing the following:

• Calculate how much is needed for the retirement fund, taking into consideration risks that could derail your plans and common misconceptions.
• Discuss retirement planning with your spouse and the rest of the family early.
• Those nearing retirement can still make preparations if they have not already done so.
• Try to increase cash flow to contribute more to the retirement fund. Save and invest more but do it wisely
• Reconsider your lifestyle and spending habits.
• Teach your children about money and plan for their education.

A licensed financial planner can help you better understand how much is needed to meet your retirement goals, what steps to take now to get on the right path, which financial decisions to prioritise to reap the best benefits and how far the retirement goal is from where you are now.

This article first appeared in MyPF

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