The concept of retirement is a fairly new one. Before the advent of the industrial age, people worked as long as they were alive or able to. Today, retirement is seen as a significant life transition that involves leaving the workforce and usually marks the beginning of a new phase in one’s life. But how many are actually prepared for this.
We do not have go far; we only need to look at the statements that are coming out from the Employment Provident Fund (EPF). As recent as July this year (2023) Employees Provident Fund of Malaysia (EPF) chief executive officer Datuk Seri Amir Hamzah Azizan today said that, that as of May 2023 only 18 per cent of total members meet basic savings by age, which will enable them to have at least RM1,000 a month over a 20-year retirement age.
This is not the first time EPF have warned that only a small section of its members has adequate amount in their savings. Many people are not adequately prepared for retirement due to a combination of financial, behavioural, and societal factors. Here are some of the key reasons why retirement preparedness is a challenge for many individuals:
- Insufficient Savings: One of the primary reasons people are not prepared for retirement is inadequate savings. Many individuals struggle to save enough money during their working years due to various financial pressures, such as high living expenses, debt, and unexpected financial emergencies.
- Low Income: Individuals with low incomes often find it difficult to set aside money for retirement when they are struggling to cover basic living expenses. This can lead to a cycle of financial insecurity.
- Procrastination: Some individuals procrastinate when it comes to retirement planning. They may believe they have plenty of time to save for retirement and delay making important financial decisions.
- Lack of Financial Literacy: Many people have limited knowledge about financial planning and investing. This lack of financial literacy can lead to poor investment choices, missed opportunities for growth, and insufficient retirement savings.
- Rising Healthcare Costs: Healthcare expenses can be a significant burden in retirement. The uncertainty and potential high costs associated with healthcare can make retirement planning even more challenging.
- Longevity Risk: People are living longer, which means retirement savings must last longer. Many retirees underestimate the length of their retirement and may run out of money in later years.
- Inflation: The eroding effect of inflation on purchasing power can reduce the real value of retirement savings over time, especially if investments do not keep pace with inflation.
- Changing Employment Trends: The gig economy and the rise of contract work can result in irregular income and lack of access to employer-provided retirement benefits, making it harder to save consistently.
- Unforeseen Life Events: Unexpected life events, such as divorce, job loss, or caring for aging parents, can disrupt retirement plans and drain savings.
- Social Security Reliance: Some individuals overly rely on Social Security benefits as their primary source of retirement income, which may not be sufficient to maintain their desired lifestyle.
- Cultural and Societal Expectations: Cultural norms and societal expectations around consumption and lifestyle can lead people to spend more during their working years, leaving less for retirement.
- Fear and Avoidance: Some people avoid thinking about retirement because they find it intimidating or overwhelming. This avoidance behaviour can lead to a lack of planning and preparation.
- Lack of Mental Preparedness: Overestimating time available to retirement and apathy towards retirement.
Addressing these challenges often requires a combination of financial education, improved access to retirement plans, better savings habits, and policy changes at both the individual and societal levels. It is time we start having serious discussion about our retirement preparedness