It is never too early or too late to start planning for your retirement. The most fundamental issues to be addressed here would be – when to retire, how and what must be done to save up enough for a comfortable retirement.

STEP 1: Calculate the Duration of Retirement

First of all, you need to know when to retire. At what age. The current retirement age is 60 years. Someone is 55 years old. No matter what. Another person, another plan. Some are planning to retire early. For example, let’s say I want to retire at age 60.

Current age: 28 years old

Retirement Age: 60 years

Duration of retirement = Retirement Age – Current Age = 60-28 = 32 years

So, the time was another 32 years before I retired.

STEP 2: Determine Yearly Income Upon Retirement

When it’s time to retire. Many people are excited to withdraw the EPF money. And there are also many people around who are eager to admit friends and relatives. Save a lot of money. However, failure to plan properly will result in the money being wasted in no time. Imagine you’ve retired a year. The EPF money has run out. How do you want to continue living tomorrow? Who wants to pay for tomorrow’s lunch?

So it’s important that you know your budget during retirement. The problem is I don’t even know what I’m spending 32 years from now. Therefore, financial experts advise to estimate 60% of today’s income as the amount of income needed during retirement.

Current Income: RM 5000

Yearly Income: RM5000 x 12 months = RM60,000

Retirement Income: 60% x RM60,000 = RM36,000

To simplify planning, calculate your income for a year.

STEP 3: Determine the Total Value of a Year’s Income Upon Retirement

Inflation depreciates over money. Today’s RM1 is more expensive than RM1 next year. So is planning retirement. The value of your current income is worth more than your retirement. Assuming an average annual inflation rate of 5% per annum, let’s calculate.

Yearly Retirement Income (today) = RM36,000

Yearly Inflation Rate = 5%

After taking into account the remaining 32 years, the monetary value of RM36,000 is RM198,576.55. Take a look. The difference is very significant. It uses the Time Value Money formula. You can refer to the excel template I have provided.

STEP 4: Generate One-Year Retirement Income From Investment

Now you know how much income a year it takes to retire. Because now, how do you earn that much money? Even without work. Using the benefits of financial sciences, you can earn a lot of that year’s income by investing some money.

The next question is how much of that investment is needed?

Yearly Earnings Income: RM198,576.55

Retirement Age: 25 years

Investment Dividend Rate: 8% p.a

The amount needed to generate annual retirement income (RM198,576.55) is RM 1,004,504.84. Wow !!!

That’s a lot. You’ll need almost RM 1 million by the age of 60. Only that money can generate retirement income every year for your retirement days.

For more information about Retirement Planning Malaysia, please visit https://www.vka.com.my/