Do you know how much you need during your retirement years in order to have a dignified life?
Before you can answer that, there are several other questions you need to address first.
Let us explore.
To know how much you need during your retirement years, you need to know how long you expect to live in retirement. This is a tricky question for the obvious reasons that you need to know two numbers. The first being how long you want to be in active employment, the other is when you expect to cease to exist. The first number is somewhat under your control. For the second you simply must arrive to an acceptable number. You cannot expect to live to 200 years even if you feel indestructible now.
Let us assume you that you retire at 60, and you expect to be around until the age of 85. That is 25 years in retirement.
To know how much your expenses during your retirement age is, you need to know your current expenses and have an idea about the inflation rate of the country you want to spend your golden years.
You can get your current expenses from the personal cash flow statement. Say it is RM 60,000 a year and you have another 20 years before you reach 60. Assuming a 3% inflation rate, this will give an of amount RM 108,366 and taking 80% of this figure and rounding it up, we will get RM 86,700. The reason we are only taking 80% of the current expenses, is because we are assuming that by the age of retirement, your monthly expenses will be less with the house and car loans paid up.
We have the figure of RM 86,700 for the first-year expenses of retirement. Now, if you multiply this by 25, you will end up with RM 2,167,500. This figure is not the actual you will need for your retirement years for the fact that inflation does not retire when you do. Your expenses will rise 3% (assuming the inflation is still at 3%) year by year to bring your total expenses for 25 years to RM 3, 322, 305.22. See Table 1.
| Age | Expenses (inflation 3%) |
| 60 | 86,700.00 |
| 61 | 89,301.00 |
| 62 | 91,980.03 |
| 63 | 94,739.43 |
| 64 | 97,581.61 |
| 65 | 100,509.06 |
| 66 | 103,524.33 |
| 67 | 106,630.06 |
| 68 | 109,828.97 |
| 69 | 113,123.84 |
| 70 | 116,517.55 |
| 71 | 120,013.08 |
| 72 | 123,613.47 |
| 73 | 127,321.87 |
| 74 | 131,141.53 |
| 75 | 135,075.78 |
| 76 | 139,128.05 |
| 77 | 143,301.89 |
| 78 | 147,600.95 |
| 79 | 152,028.97 |
| 80 | 156,589.84 |
| 81 | 161,287.54 |
| 82 | 161,287.54 |
| 83 | 166,126.17 |
| 84 | 171,109.95 |
| 85 | 176,243.25 |
| Total | 3,322,305.76 |
Table 1: Total expenses During Retirement (Inflation at 3%)
If you are spending RM 5,000 per month currently on your expenses, you will need more than RM 3 million during your retirement considering a 3% inflation rate and a 20% reduction to your current expenses.
Next step is to look at all of your retirement funds. Say you only have EPF savings and it is at RM 240,000. At the age of 60, with a 4% pay increase and 5% EPF returns your EPF savings would be at RM 1,863,161.61.
| Age | Pay | EPF Previous Balance | EPF Contribution | EPF Dvd | EPF Current Year |
| 40 | 100,000.00 | 240,000.00 | 23,000.00 | 13,150.00 | 276,150.00 |
| 41 | 104,000.00 | 276,150.00 | 23,920.00 | 15,003.50 | 315,073.50 |
| 42 | 108,160.00 | 315,073.50 | 24,876.80 | 16,997.52 | 356,947.82 |
| 43 | 112,486.40 | 356,947.82 | 25,871.87 | 19,140.98 | 401,960.67 |
| 44 | 116,985.86 | 401,960.67 | 26,906.75 | 21,443.37 | 450,310.79 |
| 45 | 121,665.29 | 450,310.79 | 27,983.02 | 23,914.69 | 502,208.50 |
| 46 | 126,531.90 | 502,208.50 | 29,102.34 | 26,565.54 | 557,876.38 |
| 47 | 126,531.90 | 557,876.38 | 29,102.34 | 29,348.94 | 616,327.65 |
| 48 | 131,593.18 | 616,327.65 | 30,266.43 | 32,329.70 | 678,923.78 |
| 49 | 136,856.91 | 678,923.78 | 31,477.09 | 35,520.04 | 745,920.91 |
| 50 | 142,331.18 | 745,920.91 | 32,736.17 | 38,932.85 | 817,589.94 |
| 51 | 148,024.43 | 817,589.94 | 34,045.62 | 42,581.78 | 894,217.34 |
| 52 | 153,945.41 | 894,217.34 | 35,407.44 | 46,481.24 | 976,106.02 |
| 53 | 160,103.22 | 976,106.02 | 36,823.74 | 50,646.49 | 1,063,576.25 |
| 54 | 166,507.35 | 1,063,576.25 | 38,296.69 | 55,093.65 | 1,156,966.59 |
| 55 | 173,167.64 | 1,156,966.59 | 39,828.56 | 59,839.76 | 1,256,634.90 |
| 56 | 180,094.35 | 1,256,634.90 | 41,421.70 | 64,902.83 | 1,362,959.43 |
| 57 | 187,298.12 | 1,362,959.43 | 43,078.57 | 70,301.90 | 1,476,339.90 |
| 58 | 194,790.05 | 1,476,339.90 | 44,801.71 | 76,057.08 | 1,597,198.69 |
| 59 | 202,581.65 | 1,597,198.69 | 46,593.78 | 82,189.62 | 1,725,982.10 |
| 60 | 210,684.92 | 1,725,982.10 | 48,457.53 | 88,721.98 | 1,863,161.61 |
Table 2: EPF 60 years of age.
You can see that the amount needed is more than and total EPF savings. However, if you only withdraw your total expenses every year and invest the rest to grow at 5% you would actually have an excess of RM 279, 384 at the end of 25 years. See Table 3.
Page Break
| INVESTING at 5% RETURN A YEAR | |||||
| AGE | Savings | Expenses | Balance | Invested at 5% | |
| 60 | 1,863,161.00 | 86,700 | 1,776,461.00 | 1,865,284 | |
| 61 | 1,865,284.05 | 89,301 | 1,775,983.05 | 1,864,782 | |
| 62 | 1,864,782.20 | 91,980 | 1,772,802.17 | 1,861,442 | |
| 63 | 1,861,442.28 | 94,739 | 1,766,702.85 | 1,855,038 | |
| 64 | 1,855,037.99 | 97,582 | 1,757,456.38 | 1,845,329 | |
| 65 | 1,845,329.20 | 100,509 | 1,744,820.14 | 1,832,061 | |
| 66 | 1,832,061.14 | 103,524 | 1,728,536.81 | 1,814,964 | |
| 67 | 1,814,963.65 | 106,630 | 1,708,333.58 | 1,793,750 | |
| 68 | 1,793,750.26 | 109,829 | 1,683,921.30 | 1,768,117 | |
| 69 | 1,768,117.36 | 113,124 | 1,654,993.53 | 1,737,743 | |
| 70 | 1,737,743.20 | 116,518 | 1,621,225.65 | 1,702,287 | |
| 71 | 1,702,286.94 | 120,013 | 1,582,273.86 | 1,661,388 | |
| 72 | 1,661,387.55 | 123,613 | 1,537,774.08 | 1,614,663 | |
| 73 | 1,614,662.79 | 127,322 | 1,487,340.92 | 1,561,708 | |
| 74 | 1,561,707.96 | 131,142 | 1,430,566.43 | 1,502,095 | |
| 75 | 1,502,094.75 | 135,076 | 1,367,018.98 | 1,435,370 | |
| 76 | 1,435,369.93 | 139,128 | 1,296,241.88 | 1,361,054 | |
| 77 | 1,361,053.97 | 143,302 | 1,217,752.08 | 1,278,640 | |
| 78 | 1,278,639.69 | 147,601 | 1,131,038.74 | 1,187,591 | |
| 79 | 1,187,590.68 | 152,029 | 1,035,561.70 | 1,087,340 | |
| 80 | 1,087,339.79 | 156,590 | 930,749.94 | 977,287 | |
| 81 | 977,287.44 | 161,288 | 815,999.90 | 856,800 | |
| 82 | 856,799.90 | 161,288 | 695,512.36 | 730,288 | |
| 83 | 730,287.98 | 166,126 | 564,161.81 | 592,370 | |
| 84 | 592,369.90 | 171,110 | 421,259.95 | 442,323 | |
| 85 | 442,322.95 | 176,243 | 266,079.70 | 279,384 |
Table 3: Investing at 5% Return
To the question posed by the title of this article above, using the example that was given here and the many assumptions that was made, you will not outlive your retirement fund if your situation matches the example. Does it? What is your financial situation?
To comfortably outlive your retirement, you must know how much is needed. You must be able to calculate all the important numbers, I.e., total retirement, total expenses, and others like we did in the example given.
My advice before you calculate your retirement numbers, get your personal cash flow and net worth statement done.
There are many other factors that must be considered when you are doing retirement planning such as:
- Health Issues
- Location – i.e., city, smaller town, kampung
- Lifestyle
- Rising cost of living
- Children – is everyone on their own?
- Debt – if any
Retirement planning is not a slapdash exercise. It needs careful consideration and proper attention. If you cannot do this, please get a certified or a licensed financial planner to do this for you.
