Financial provision before retirement

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How to prepare yourself for retirement?

These questions often come to mind when it comes to retirement issues. However, there is no specific answer to this question as it largely depends on one’s life style, health and well-being after retirement. Here are some steps you can take to prepare yourself financially before retirement:

Step 1: Define your financial needs

The first thing to do is evaluate your financial needs. After retirement, expenses such as office clothes, transportation / travel costs, food and more are gone. However, other expenses such as medical expenses, insurance and others may increase. Generally, a pensioner’s expenses are estimated to be within 75% to 80% of his or her employment requirements. Based on these requirements, you need to make appropriate adjustments taking into account your unique circumstances, such as your child’s education costs and the repayment of your home loan to estimate your monthly expenses. In addition to the fixed expenses you incur, you should also consider if it is possible for your lifestyle to change. If you are planning to travel, vacation, or have other hobbies that involve money, you should consider these costs when planning your retirement.

Step 2: Assess current status

Once you have determined your financial needs, the next step is to evaluate your current financial position and make a plan to meet your retirement needs. Here, you should pay attention to your investment portfolio which includes additional savings as well as your income. Also list all financial commitments that need to be clarified. If you are still working, estimate the amount of the Employees Provident Fund (EPF) or the pension you will receive.

Step 3: Calculate the money needed

After completing all of the above information, you can get advice from a financial planner or any website that publishes articles on retirement planning that you can consider in an attempt to financially prepare for retirement. It is important to evaluate whether or not you have enough money to meet your retirement needs. If the answer is no, at least you can count how much more money is needed. For example, Ali’s annual requirement is RM50,000 (about RM4,000 a month). He estimates that his retirement savings will generate a 7% annual return. As a result, Ali needs at least RM714,286 (RM50,000 / 0.07) in savings to cover his retirement expenses.

Step 4: Discipline in Financial Planning

To maintain your purchasing power, make sure it grows at least at the same rate as inflation to offset the negative impact of inflation. This is based on the assumption that you want to keep your retirement savings for life and save the principal amount for your children. On the other hand, if you don’t mind spending your retirement money, the amount needed will certainly be smaller. However, at the same time, be careful in planning your finances. Avoid spending money arbitrarily and make sure it is sufficient to cover your expenses until the end of your life. In addition, you may want to take into account the impact of compounding power because the earlier you start your retirement savings plan, the easier it is for you to achieve your financial goals. Once you’ve set the amount you need, the next step is to make a full commitment to the amount you want to keep and manage your investment portfolio properly. The closer you get to the retirement age, the lower the risk to be taken. So avoid high risk just because you are in your mid-teens and are just starting to plan the money you need. If you are experiencing this situation, consult a licensed financial professional. Finally, spend as needed and try to maximize your savings for retirement. What are you waiting for? Start your retirement plan now!

For more information about Retirement Planning Malaysia, please visit

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