Many Malaysians view retirement as a significant stage of life, a time to finally unwind, kick back, and enjoy the fruits of our labour.

But for many others, retirement can be challenging, especially when it comes to finances. It’s important to start planning for retirement as soon as possible, and there are many considerations that should be made.

Planning allows you to adequately save so you can invest in the future, and also helps ensure you have sufficient funds to maintain your standard of living after you stop working.

In addition, planning helps you avoid the anxiety and stress that come with an uncertain financial situation. In the absence of adequate preparation, you might have to rely on pension plans – assuming these are available to you – which may not be sufficient to cover all of your expenses.

Here are some factors that must be considered when preparing for retirement.

1. Age

If you begin planning early, you will have more time to save money and make investments. This paves the way for you to amass more wealth and afford yourself a more comfortable life in your golden years.

2. Lifestyle

Your retirement plan should be tailored to your lifestyle and necessary expenses. If you plan to travel frequently or engage in hobbies that require substantial financial investment, you will need more money to fund your activities.

3. Health

As you age, your health could deteriorate, necessitating more medical care. As such, you may be in need of more money to pay for these expenses.

4. Inflation

As a result of inflation, the purchasing power of money will diminish over time. This suggests you will need additional funds in the future to maintain your standard of living.

How much is enough?

The “golden number” refers to the amount of savings necessary for a comfortable retirement, but obtaining it requires careful planning and consideration of a variety of factors. Here are some steps to help you determine your golden number.

1. Know your goals

First, you need to know what you hope to achieve in retirement. This includes determining the age at which you wish to retire, the type of lifestyle you desire to lead, and any additional financial objectives you may have.

2. Calculate expenses

Once you have determined your goals, you need to calculate your retirement expenses. This includes housing, food, transportation, medical care, and entertainment, among other day-to-day expenditure.

Future costs, such as those associated with long-term care or unanticipated medical costs, must also be considered.

3. Estimate your retirement income

The next step involves identifying any and all sources of income you will have during retirement, such as benefits, pensions, and investment income. Additionally, factor in any part-time work you intend to do after you retire.

4. Determine savings needs

Once you have calculated your retirement expenses and estimated your income, you can determine your savings needs. This is the amount you will need to save annually to achieve the desired level of financial security in retirement.

A retirement calculator, easily obtainable online, can help you arrive at a number that makes sense for you.

5. Make inflation adjustments

It is essential to account for inflation when determining your golden number, as it can have a substantial impact on your retirement savings. The rule of thumb is to assume an annual inflation rate of 3%.

6. Evaluate and adjust

After determining your magic number, you must evaluate and revise your strategy regularly. Your financial situation and retirement objectives may change over time; therefore, it is crucial to regularly review your plan and make any necessary adjustments.

Strategies for retirement planning

1. Save regularly

The consistent practice of saving money is essential for retirement planning. One way to simplify and accelerate this process is to set up a recurring transfer from your paycheck to your retirement account.

2. Invest cautiously

Investing wisely can help you accumulate wealth more quickly. By placing money in assets such as stocks, bonds, and other options, you can diversify your portfolio and reduce risk.

If you are just getting started, it would be wise to seek advice from a qualified and licensed wealth adviser who can assess your acceptable level of risk and return.

3. Consider retirement plans

Both the Employees Provident Fund (EPF) and the Private Retirement Scheme (PRS) are excellent retirement planning options for Malaysians. These are intended to assist you in accumulating retirement savings while providing tax advantages.

This article was written by MyPF. To simplify and grow your personal finances, follow MyPF on Facebook and Instagram.