Planning for retirement

Only 34% of Malaysians putting aside money regularly for retirement funds

YOUNG parents Xavier Arumugam and Kavitha Nair has been putting aside a fixed sum every month into their savings accounts as part of their retirement nest egg after deducting expenses for the household, medical insurance as well as education plans for their children and house loan installment.

Both of them had also voluntarily increased their employees contribution to 15% for the Employees Provident Fund (EPF) compared to the usual contribution rate of 11%.


Loke Kah Meng ... 99.9% of the contributors
will withdraw their EPF savings in a lump
sum and 70% will use up money in 3 years.

“We are aware though, that we do not have a formal retirement plan in place besides the EPF,” Kavitha admits.

According to Great Eastern Life Assurance (M) Bhd executive vice-president and chief marketing officer Loke Kah Meng, only 34% of Malaysians are putting aside money regularly for their retirement funds, but these may not take into account inflation, the rising cost of living and medical expenses in future, which could be a major financial burden.

“Although EPF savings is one of the main channels to provide for retirement, 99.9% of the contributors would withdraw their EPF savings in one lump sum once they reach 55 years of age and 70% of them would use up all their EPF savings in just three years post-retirement,” Loke notes.

Loke adds that longer life expectancy, delayed marriage and having children later would leave the retirees in a vulnerable position in their old age as they need to need to set aside medical funds for themselves and education funds for their children.

 Meanwhile, Prudential Assurance Malaysia Bhd chief marketing officer Thomas Wong, survey findings shows that although Malaysians have a high propensity to save (72% claimed that they do save for retirement), 41% do not have a concrete plan on how to build their retirement fund.

“They just save as much as they can now and hope they will have enough to cover their retirement needs,” Wong says. Wong adds that among those who save for retirement, 77% are putting their money in low-yielding savings vehicles such as bank fixed deposits and savings accounts to accumulate their nest egg.

“Contrary to the common belief that keeping our money in the bank is the best way to preserve our capital, this instrument may not be good enough given that interest rates of bank deposits can hardly outrun inflation,” Wong says.

He also notes that most Malaysians do not segregate their savings for retirement, which made matters worse.

“This means, all their monies are lumped together as general savings. More alarmingly, out of those who consciously separate their savings for retirement, 83% have said that they would use the money should other needs arise,” he says.

This is indeed a risky situation because if they are not careful, they may not have enough money for their retirement, Wong explains.

In addition, a staggering 73% do not seek advice from financial professionals – a behaviour that compounds Malaysians’ poor retirement planning ability further.

“All these could probably explain why about 39% of those surveyed see themselves working beyond the mandatory retirement age, citing income boost as the main reason for doing so,” Wong adds.

Loke advises that instead of relying solely on one’s EPF and personal savings, Malaysians should consider early financial planning, which would save them the stress of dealing with insufficient retirement funds or seeking prolonged employment to ensure financial stability.

“We could plan ahead with investment-linked insurance plans to counter the effects of inflation. In addition, there is also the need to consider providing for your medical needs after you have retired and would be no longer entitled to medical coverage provided by your employer,” Loke says.

Meanwhile, Wong advises that there are a variety of choices available when it comes to building your retirement fund.

“Depending on your risk appetite, investment horizons and affordability, you can invest in properties, equities, unit trusts and investment-linked insurance to name a few. The key is to have a sound investment strategy that is the ability to balance risks and returns effectively according to the desired investment tenure,” Wong says.

Nevertheless, it is always advisable to contact a professional financial advisor or a wealth planner who can provide advice on how to best go about securing your retirement based on your financial circumstances, priorities and needs, Wong adds.

- Source from The Star, 4 April 2009 by Lalitha Hunt

Is savings enough for retirement?

Retirement may not be the foremost concern for young adults in the prime of their lives. But that does not mean they are oblivious to the fact that they may need to have financial reserves for a rainy day.

FOR many young adults, retirement is not something they are thinking about at this stage of their lives. Those who have been working for less than 10 years have only recently begun to establish their careers, so foremost on their mind would be working to achieve success in their respective vocations.

For them, life still has a lot to offer, and the process of winding down an active lifestyle and retiring is, quite simply, not high on their list of things to do.

According to the findings of the AXA Retirement Scope 2010, a global retirement study conducted across 26 countries in Europe, the United States and Asia, the percentage of the Malaysian working population who have started preparing for their retirement has declined from 48% in 2007 to 38% in 2010. The study also shows that among the 38% who have started to prepare for retirement, most of them did so only at or near age of 40. Meanwhile, 46% said they would start to prepare for retirement when they hit 50.

Among the young, only one in five has started to prepare for retirement. Most of them do plan to start but rather late, at age 46.

Take for example, Anusya Sree, 28, who got married late last year.

“Retirement is not something I am thinking about at the moment; and isn’t it a negative thought with so much yet to do? I am only just experiencing life as a married woman. I am looking forward to spending many happy years with my husband and raising a family of our own,” says the bank executive.

For Anusya, her priority now is to ensure she has a successful career.

“I have been working for five years, and am enjoying the thrill of being an independent working adult. I have not even decided when I will have children, much less when I will retire.”

Similarly for Nicole Tan, 26, a producer for an online travel web portal, retirement is not high on her list of priorities at the moment.

“No, I have not started planning. I would like to build up my career so I have a good platform from where I can start planning for retirement. I am saving up to buy my first property, if that counts.”

However, she is aware that having sufficient funds in her retirement years will require a large amount of money.

“It would be an astronomical amount. I am not capable of reaching even 10% of it at the moment,” says Tan.

Findings of the AXA Retirement Scope 2010 survey confirm the general perception that only 14% of the Malaysian working population know exactly how much their retirement income should be.

However, not all young adults are focused on the here and now.

Badrulsyah, 35, for example, started planning for his eventual retirement five years ago.

“It is vital for one to start planning early. I learnt that if you leave it to the last minute, you will not have enough time to build up sufficient funds.

“I also know I cannot count on EPF savings alone. After making withdrawals to buy a house, for example, there is even less money to last through the retirement years,” says the self-employed entrepreneur.

The AXA Retirement Scope 2010 survey findings show that the working segment’s (especially young and mid-life) level of confidence in their own amount of retirement income suffered a big drop from 2007. Only 37% of the working population now consider their future income to be sufficient compared with 62% in 2007.

Badrulsyah roughly estimates that he will need about RM750,000 in his retirement fund and if invested wisely, should generate an income stream of its own.

“I try to put away 50% of my income every month, and this includes EPF contributions, insurance premiums, property investments and more.

“However, it is not easy as there are other obligations such as the house and car loans, utility bills and food expenditure,” he says.

Lee Yun-Han, 25, is one who had his life mapped out from when he was still in secondary school.

“I came up with my lifetime plan 10 years ago – become a professional chartered accountant, work my way up the corporate ladder and become the CEO of a listed company.”

Lee saysthe accounting path did not work out so well, but his plan is still on course.

“I modified my plan, and today I work as a management consultant. I am now in step two of my plan, and remain hopeful that I will reach step three before I retire.”

Lee also believes it is crucial to start planning early.

“Life goes by really fast, and before you know it, retirement is just around the corner. I have now lived a quarter of a century, and the time seems to have passed in a blink of the eye. With another blink, I will be 50, and in a third blink, I could be pushing up daisies (deceased).”

Lee has done his homework on how much he will need for retirement.

“I estimate that I will require at least RM5.1mil, assuming that I live for another 35 years and need RM5,000 a month to get by.

“I make a conscious effort not only to save, but also to grow my savings by investing in a diversified portfolio of shares and property.

“Right now, 50% of my income goes to servicing my loans on investment properties, 30% to bills, and 20% to cash reserves. There is a separate slush fund for girlfriend expenditure that is not on the books,” quips Lee.

Furthermore, not everyone who is not planning for retirement is living an extravagant lifestyle.

Anusya says that she does not spend money freely.

“Money is hard to come by – that much I have realised over the past few years. I realise now that I am more careful with my own money than I was when getting hand-outs from my parents!”

She says that she does buy the occasional piece of designer wear and her husband sports the latest-generation mobile phone.

“We like to enjoy life, and if this means spending money, then we will. But we only do so after the bills have been paid and there is money to spare.”

Anusya also says that they have other financial priorities besides retirement planning.

“We are saving to buy our own house, and also need a second car. Even after we have enough for that, there is the family issue to think about.

“Quite frankly, I do not see a distinction between the act of saving money and planning for retirement. We put some money away every month for what we call our ‘emergency’ fund, so isn’t that the same?”

Similarly, Tan likes to enjoy life, and she has a passion for visiting new places.

“I have an addiction to travel, so there’s quite a heavy monthly expense there. But I try to save about RM1,000 to RM2,000 every month.”

She says that she does not have any fixed monthly commitments now, but she expects more of them in future. That could be one of the reasons she still puts money away whenever possible, and not necessarily for retirement.

“I started saving five years ago when I got my first full-time job. I would feel insecure if I had no savings. We will always need to save for that rainy day that could hit us anytime – be it being stuck in a period of unemployment, or hospitalisation fees for a close family member, or to cover for those days when we just want to quit and travel the world,” she says.

Ultimately, those interviewed wished that their retirement will come at a time they choose, and not be forced upon them.

“The retirement age is something forced upon you by virtue of policy and legislation. If you enjoy and love what you do, it becomes a passion – and you do not retire from a passion,” says Lee.

“I would want to continue working past the retirement age of 55 – not because of the money, but because I would be able to contribute so much more to society. I would very much want to keep my body active, my mind sharp, and my spirit alive.”

But for Linda Eng, 31, an administration executive with a construction company, retirement planning is not just about saving.

“Yes, I have my own contingency fund for my retirement, i.e. savings in the bank, a small investment amount in unit trust funds and, of course, EPF. I am now planning to buy a house for my retirement. So, I have to work hard to ensure that my retirement life is well planned.

“Recently, however, something happened that made me realise only having savings is not enough. I need to also protect what I have saved.”

She explains that one of her colleagues who seemed to be in perfect health, ate well and kept a balanced lifestyle was diagnosed with cancer.

“It was a terrible shock to all of us, and what was even more shocking was that he had to spend close to RM100,000 for medical treatment. He and his family had to use some of their hard-earned savings, which was meant to be used for later years. It was gone in a blink of an eye!”

While Eng accepts that uncertainties in life cannot be controlled, “It can happen to anyone at any age”, she believes one can take precautions.

“It is not about how much you saved because what you have saved may just disappear overnight when something unexpected happens. And when it does, I do not want my savings to be affected. I want to be sure that my retirement fund will last my lifetime.”

- Source from The Star, 24 October 2010 by Joseph Loh

Where there's a will, there's a way

WE all know the importance of writing a will but it is one of those things that many of us never seem to get around to. In fact, it is estimated that 95% of people die without ever having made a will.

In Malaysia alone, less than 5% of the adult population have drawn up their wills.

If you do not have a will, it can lead to chaos and financial worry for your family or dependants after you are gone. For some, it could also cause a major family rift.

One thing for sure, without a will, you are not in control and you can’t be sure that your money and property will be passed on according to your wishes.

If you decide to write a will, there are options of either using a bank or will-writing firm, or doing it yourself by using a will pack. Since there is no fixed costs to writing a will, it is difficult to provide a cost comparison between the three but fees typically range from RM380 for a simple will to RM12,000 for a comprehensive one.

The fees charged by estate planning firm Rockwills International Group, which has signed up 10,000 wills as at November, are fixed according to a scale.

A do-it-yourself (DIY) will, of course, means there are no fees but could be risky as the will may not be drafted properly in compliance with the Wills Act, 1959.

What is the normal fee for a trustee and how much can a trustee charge to handle an estate after a death? And what are “reasonable” trustee fees?

A trustee is normally paid a small nominal appointment fee during the preparation of a will. There will not be any other charges until the testator passes on. The trustee will have to apply for a grant of probate through a lawyer and a fee will be paid to the lawyer for such services.

After the probate is obtained, the trustee will proceed with the estate administration process and the charges will depend on the assets and its value. If there are transfers of properties, then there will be the usual legal fees and stamp charges.

Normally, trustee fees range from 1% to 2% of the estate value. For an estate worth RM1mil, the fee could come up to RM10,000. Is it a fair price to pay?

Rockwills managing director Saw Leong Aun says is it a misconception that appointing a trust company will increase the administration costs and reduce the amount to be received by beneficiaries.

“Under the probate law, the fee allowed is up to 5%. Considering the difficulty and tedious nature of an executor’s role and functions, the trustee fees of 1% to 2% are very reasonable and competitive,” he tells StarBizWeek.

Singapore-based Estate Planning Practitioners Ltd (EPPL) director Bernard Lim also concurs the onerous responsibilities undertaken by a trustee justifies the 1% fee.

“You have to take into account the duty of care they have to perform to ensure that the interest of the beneficiaries are well taken care off. Also, the potential liabilities they carry are not something to be taken lightly,” he says.

“Fund or investment managers typically charge 1%-1.5% for managing the funds of their clients and often the financial planners themselves may impose 0.25% to 0.75% charge on asset under management as annual fees,” he says.

“With this in mind, I feel that a 1% charge is reasonable.”

Financial planner Chear Weng Khet says it is worthwhile to pay the fee if one has large assets “due to the complexities that could typically crop up”.

“The tendency for a will to be challenged is higher if one has a larger estate. It is better left to professionals as they know what to do,” he says, noting that time, effort and travelling costs should also be taken into account.

“Sometimes, professionals can be working on a case for one to two years. People who are in business would not mind paying the 1% fee to get it sorted for them,” he says.

Alternatively, one can get family members to be the executor. And it is always a good idea to nominate more than one executor in your will.

Financial planner Lawrence Tan says there should be a cap on the trustee fee.

“For an estate of RM1mil, the fee would usually be RM10,000 (1% of the estate value to be distributed). It is actually quite worthwhile because we are paying for a service whereby we can go on with our life. However, I personally feel there should be a cap on the fee,” he says.

“For people with assets of smaller value, especially below RM600,000, if they are not willing to pay the fee, then they can apply through Harta Pesaka Kecil. Of course, the process is shorter but you can run around yourself,” he says.

Lim of EPPL says there is a strong need for more qualified professionals in the specialised field of estate planning with the changing demographic and social trends in the country.

“Malaysia is at a stage where it is ready not to just take instructions on estate planning but have integrated solutions on it,” he says.

Lim says the Associate Estate Planning Practitioner (AEPP) designation is expected to raise the standards of the industry.

“Since its launch in Singapore in 2007, more than 600 practitioners from banks, insurance companies and independent financial advisors have completed the course. We expect 1000 people to be certified estate planners by next year,” he says.

Lim says financial planners are already providing products and services in the areas of wealth protection (insurance planning) and wealth accumulation (retirement planning) but do not provide much in wealth distribution (estate planning).

“I believe it is necessary to learn from the more developed countries on how wealth distribution can be incorporated into a financial planner’s practice to help their clients complete their wealth plan,” he says.

Here are some essential tips on will writing:

1. A will that is not properly signed and witnessed is invalid.

2. If you use a will writer, check what qualifications he has and by whom his firm is regulated. Also ask for evidence of indemnity insurance and for details about procedures should you or your beneficiaries have a problem with the will.

3. Don’t assume that if you use a solicitor or will writer, you will always get an expert – always ask for qualifications. If you need advice on inheritance tax, for instance, make sure that the person writing your will has additional tax qualifications.

4. If you use your bank to write your will, check how its will-writing service is regulated.

5. Don’t appoint a solicitor or bank as executor, as this can be expensive, but appoint a trusted friend or relative (or one of your children who is of above 18) instead. They can always pay for professional help if they need it later.

6. Should your circumstances change, for example if you get divorced or have children, don’t forget to update your will.

7. When not to DIY:

·Your circumstances are complicated or the way you wish to pass your assets on is very detailed.

·Someone who is unable to care for him or herself is financially dependent on you.

·You have been married before or have children from a previous marriage.

·You have property overseas.

·There is a business involved.

·You want to reduce or avoid inheritance tax.

- Source from The Star, 19 September 2009 by Eileen Hee