Vol 10, No 3 - Financial Planning Association of Malaysia

INDUSTRY
July - September 2010
Bullet Proof Your
Retirement Plan (Part II)
We have established in the
previous article that investing
is for the medium- to longterm
and what is key to accumulate your
retirement fund is to be discipline and
consistent. Through this approach and
cost averaging you will be able to lower
your total cost of investing. Make this
habit your second nature because you
stand to benefit!
So now that you know the recommended
approach to take in accumulating your
retirement pool, consider the next few
questions: How much is enough? How
best to determine what you need?
Through proper planning you will be
able to determine how much you actually
need and whether your current wealth
accumulation method is effective. Four
simple steps have been outlined below
for you to follow when planning your
retirement:
Step 1:
Set realistic goals on the retirement
lifestyle you are aiming for
• By setting clear goals and having a
plan to help you achieve your goals,
you will be able to start making
progress, in big or small consistent
steps, towards your retirement goal
and financial independence.
• Apply a strategy and stick with it.
• Make adjustments along the way.
Step 2:
Determine your financial requirements
based on your desired retirement lifestyle
• Make allowances for your daily
expenses, foreign vacations and big
item purchases or expenses.
• You should also take into
consideration the effects of inflation
on the value of your money, children’s
education, clearing your debts,
miscellaneous expenses such as
health and living costs, or expenses
related to unforeseen incidences.
Step 3:
Make an inventory of all your financial
assets and liabilities
debts like housing loans, car loans,
personal loans, credit card debt, etc.
• Get a clear picture of your financial
status which will determine the kind
of financial plan needed to secure
your future. Be honest!
Step 4:
Determine the amounts for cash savings,
investments and the rate of return you are
comfortable with.
• This will help you choose the type
of investments that will help you
achieve your goals.
• Start early, reinvest your gains and
benefit from the compounded rate
of return. You will be amazed at how
a small amount of capital invested on
a monthly basis over a period of time
will enable you to live your dream
retirement life!
• Use the rule of 72 to determine how
many years it will take to double the
value of your investment, assuming all
gains are reinvested. Take 72 divided
by the returns you are receiving per
annum. The answer indicates the
number of years it takes to double
your investment. Better still, through
smart investing plans, you can
possibly enjoy an early retirement!
Now, let us apply the four steps to
retirement planning to Jacob’s case and
evaluate whether his retirement plans are
achievable. If not then, how to rectify the
situation?
Jacob - 33 years old and is the sole breadwinner of the family of four. He
has two children, a one-year-old and three-year-old and is just starting
to plan for both his retirement and his wife’s retirement.
Current Situation
• Current household income: RM10,000 monthly / RM120,000 annually
• Current Retirement Saving: RM150,000
• Current investment type and return: Regular saving / investments amounting
to RM1,000 monthly with an average return of 10 percent per annum
• Expected Increase in household Income annually: 4 percent
• Expected rate of Inflation annually: 3 percent
Retirement Plans
• Goal: To retire at the age of 55 (22 years to retirement)
• Estimated life expectancy after retirement: 22 years
• Desired lifestyle during retirement: Not have to work and to go for overseas
holidays yearly
• Estimated annual cost of living post-retirement: 90 percent of current expenses
equivalent to RM9,000 monthly/ RM108,000 annually
• Financial and economic challenges: Inflation and family commitments
TOTAL INVESTMENT VALUE at 55 Years Old: RM2,175,305.72
Retirement Fund (RM)
2,500,000
2,000,000
1,500,000
1,000,000
500,000
Balance
Retirement Fund
• Do a simple exercise of summarising
all your income sources, investments,
insurance coverage and deduct your
0
34
39 44 49 54 55 60 65 70 75
Age
12 The 4E Journal