Can You Retire?

What happens when you have had a stable income for 30 years and now you are at the mandatory retirement age? Your company does not offer an option for contract extension and you are no longer employable by virtue of your age. Without a monthly salary, would you continue your previous lifestyle? A good example would be annual family holidays or even discretionary spending like buying a favourite watch or handbag. 

As a retiree, would you live with liberty or anxiety? This simple question becomes a major concern for working class private sector employees upon retirement. 

Source: https://www.wikihow.life/Retire-Rich

Civil servants have a fixed pension (60% of the last drawn salary), but not private sector employees. So, often, they will start drawing on their savings which in effect is a capital diminishing exercise. 

Based on EPF data as at 2023, 48% EPF members below the age of 55 have less than RM 10,000 in their account. If EPF savings are that low, then naturally fixed deposits, PRS or other forms of savings would not be any better. 

The new recommended minimum amount of EPF savings at the time of retirement is a minimum of RM390,000. This would indicate that retirees would have basic savings of RM1,625 a month for the next 20 years (excluding annual dividend), which is far from enough with today’s cost of living.

 

For an adequate lifestyle, RM650,000 is required, which is based on a 20-year benchmark for a senior living alone in the Klang Valley. For a higher quality of life, a much-enhanced amount of RM1.3mil is needed. This means contributors should only withdraw amounts in excess of that figure before they hit 55.

 

There are arguments that the RM2,690-a-month benchmark for a senior living alone in the Klang Valley is a little on the low end of what is needed. After all, that is quite close to what Bank Negara said in 2016 was the lower end of the threshold. Nonetheless, it is a guide for people on how much they need post-retirement. 

To me, EPF savings is the last line of defence. Leaving bulk of the savings in EPF and drawing only on the annual dividend for expenses is the most prudent measure. But to get there, it is crucial for private sector employees to live within their means during active employment and maintain the discipline of not drawing on their EPF savings until retirement. Those who hit retirement age should also not withdraw all of it and spend lavishly as tempting as it may be. Retirees can only rely on themselves after retirement. 

If you have enough, by all means spend. But if you do not, plan for a post-retirement career while you still have the demand, experience or network before you run out of options. 

References:

Not exactly rocking it in retirement, Ng Zhu Hann, Insight, The Star, 14 December 2024

Make retirement funds work for you, Jagdev Singh Sidhu, Insight, The Star, 21 December 2024