Let’s say you are in your late 50s, 60s, or 70s and are at the tail end of your career, contemplating retirement. Or perhaps you’re already a retiree.
Assuming you possess financial assets such as real estate, insurance policies, bank accounts, stocks and unit-trust funds, and EPF, here are four questions to consider.
1. Should you withdraw from EPF to settle your mortgage in full?
You have a mortgage balance of RM100,000, with close to 4% per annum in interest. Should you retrieve this amount from your EPF to pay it off?
Based on the math, EPF pays out around 6% in annual dividends, with the lowest payout being 5.2% in 2020 – still higher than your mortgage interest.
As such, withdrawing from your EPF wouldn’t be financially prudent as you’d be sacrificing the potential 6% in dividends to save on 4% in interest.
If you were to go based on emotions – that is, to feel liberated and debt-free – then it could be worthwhile. The impact, in this case, is not in ringgit value but psychological value.
2. Should you cancel your credit cards?
Some retirees wish to dine, travel, and be entertained. For them, it would be practical to hold on to their credit cards. But there are others who prefer being at home and leading a simple life.
One should consider the financial impact – that is, would it make a difference whether or not you retain or cancel your credit cards?
If there is little to no difference in holding on to them, why cancel? You could then use these cards in the event of emergencies.
Do bear in mind, also, that once a card is cancelled, it would be harder to apply for new ones as retirees may not earn an income – or, at least, as much as they did before retirement.
Again, however, there is a psychological aspect to this: if you feel it is troublesome to maintain many cards, you should consider cancelling those you rarely use.
3. Should you cancel your life insurance policies?
Suppose you bought life policies 20-30 years ago, when you were younger and healthier, with a combined RM500,000 sum assured.
If you cancelled your policies, you would receive some cash value but would forgo the RM500,000 amount, which could still be useful in the event of disability, death, or major disease.
It is a lot harder to purchase a new life insurance policy when you’re older, as the insurer underwrites this policy based on your current age and health condition.
As such, it is advised you hold on to your current policies and also do proper estate planning, which would generally include:
- nominating beneficiaries for your EPF;
- nominating beneficiaries for your life insurance;
- writing a will;
- setting up a trust, be it a testamentary trust or a living trust.
4. Should you invest in stocks?
By this age, you would have already formed opinions or conclusions with regard to stock investing. These views could be based on your experiences and insights over the years.
If you have built and managed a portfolio with fundamentally sound stocks, and are considerably experienced and emotionally mature to handle market crises, you could continue to invest.
But if you are a newcomer with little to no practical experience, you should either take the time to educate yourself on how to invest, or turn to other vehicles such as fixed deposits, fixed-income funds, digital cash-management platforms such as KDI Save or Stashaway Simple, and/or EPF.
This article first appeared in KCLau.com. Ian Tai is a financial content writer, dividend investor, and author of many articles on finance featured on KCLau.com in Malaysia, and ‘Fifth Person’, ‘Value Invest Asia’ and ‘Small Cap Asia’ in Singapore.