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Retirement money myths

August 27, 2013

Retirement funds are important and more often than not, the lack of a savings can be attributed to belief in the following myths.


By Diana Chai

In early August, the Star Newspaper reported that Malaysians on the whole, were not saving enough for retirement. Whether this is true for the majority of the population or an attempt to sell the new voluntary retirement scheme PRS (Private Retirement Scheme) that is seeing lukewarm response, is anyone’s guess. But beyond statistics, the importance of saving for retirement is non-negotiable.

For many Malaysians, the stress of living for now prevents them from thinking too far ahead. Retirement seems a long way off and a common notion for many is that their Employee Provident Fund (EPF) savings will be enough. Sadly, the same fund is being withdrawn to pay for home deposits and education loans depleting an already stretched retirement pot.

Retirement funds are important and more often than not, the lack of a savings can be attributed to belief in the following myths.

1) EPF has me covered

The most common of retirement myths that I myself was guilty of thinking is that EPF is enough to take care of me through retirement. Your EPF will be a nice addition to your savings and investments; provided you have them.

2) I am still young

Many people between the ages of 23-35 assume they are still too young to worry about retirement. However, starting your savings in your 20s is recommended by many money experts. Liz Weston in her book Deal with Debt did the calculations for you. In her example, starting retirement savings at 22 for only ten years versus starting at 32 for 30 years, gave the former two-thirds more money at retirement than the latter.

3) Saving money is enough

Unfortunately, simply saving a percentage of your earnings isn’t enough. Savings and fixed deposit accounts rarely give you enough returns on your saved sum to make it worth your while. On the other hand; risky investments may yield more returns but is just that – risky. Diversifying is the way. Some amount of fixed savings coupled with differing investments such as unit trusts, gold, property or stocks would be ideal. If you are unsure about how to invest your money, opt for a scheme such as PRS or consult an investment expert. PRS is flexible in how much you are required to contribute and how often but be warned that returns are never guaranteed so do ensure you have pots of savings elsewhere.

4) I have children to take care of me

As much as this would be an ideal situation; there are many reasons having children will not save you from a destitute retirement. Even the most filial of offspring may not be able to earn enough to afford to give a decent living (including escalating medical costs) to two aging parents.
5) I have insurance plans for medical and death

Because we typically don’t take the time to read through a 150 page policy; we don’t always notice that there are many things an insurance plan will not cover. Insurance plans usually have caps on amounts disbursed every year or based on illness. Medical costs can eat into your retirement nest egg faster than anything else: Be prepared.

The thought of retirement is undoubtedly daunting – but very much necessary. Although saving from an early age is always recommended; if you haven’t; it is never too late to start.

This article brought to you by Diana Chai of RinggitPlus.com. We believe all Malaysians should have access to free, accurate and independent personal finance information.


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