Planning for retirement

I’m currently a mother with flexi jobs. I do quite a number of things to make a living and some savings for my old days which includes teaching and online business. Knowing that my current employment and earnings aren’t enough to allow me to retire in peace, I have fell in love with book which I accidentally found at my parents’. I know, it’s Allah’s willing to let me bump into it and I thank Allah for that. 

It’s actually a retirement gift for my Dad from his colleagues and he didn’t even remember about it. This book was published in 2006 so it’s been nearly 11 years now. Some of the facts (eg: return from EPF and ASB 9%) may no longer be relevant but the idea that we need to think about retirement from NOW captured my heart. The author also provides some calculations to give a clearer view about how our retirement should look like if we do and do not prepare for the day to come. 

Among the things mentioned here, assuming you retire at 56 : 

1. 25-yo employees earning RM2,000 per month will need to have RM1.48 million by the time they retire. 
2.  35-yo employees earning RM3,000 per month will need to accumulate RM1.5 million by the time they retire
3. 45-yo employees earning RM4,000 per month need RM1.35 million by the time they retire
4. 55-yo employees earning RM5,000 per month need to have at least RM1.14 million in his retirement fund already. 

Sounds A LOT right? Considering inflation rates, yes it’s true. 

Sounds IMPOSSIBLE to achieve aye? Yes I agree. That is why the author strongly recommends us to have Other Source of Income (apart from your main employment)
1. Sell Nasi lemak, pisang goreng 
2. Have savings in ASB/TH and the like, through compounding effect, they will grow together with the interest/dividend rate 
3. Write a book (like he does) 
Or anything halal and toyyiban that you could think of. 

Now I promised on my Facebook that I will share with you how to calculate your money 30 years from now. There are TWO scenarios here. 

Scenario One : 
You do not plan to add more money into that savings. Eg : You have a Tabung Haji (TH) account of RM10,000 and you do not see how you can consistently put more money into it. Don’t worry because through Compunding Effect, your money will beranak on its own. The formula is: 

P [(1 + i)^n -1]

P : Principal amount of savings (RM10,000)
i : Interest rate (or Dividen for shariah-compliant investments) (Assume 4%)
n : Number of years to retirement (30 years)

Eg: Say you have RM10,000 in your TH, and you assume the dividend rate to be 4% for the next 30 years (TH is currently offering 5.3% but I like to be extra cautious by putting less % of return) the calculation looks like this: 

10,000 [(1.04^30)-1] 
= 10,000 (2.243) 
= RM24,300 

You see, even by doing nothing to your money for 30 years, it will grow from RM10,000 to RM24,300. Imagine if you put in more money from time to time? Which leads us to Scenario Two.

Scenario Two : 
You plan to make annual contribution in your TH account , from zero, and you are going to be disciplined about it. 
Assuming you plan to put in RM1,200 annually in your TH. The formula is Future Value of Ordinary Annuity (because you save for RM100/month at in December you have RM1,200 so you transfer this amount to TH in December): 

where C = Cash flow per year (RM1,200)

i = interest rate (4%)
n = number of years (30 years)

Hence, RM1,200 [((1.04^30)-1) / 0.04)]
= RM1,200 (2.243/0.04)
= RM1,200 (56.08)
= RM67,301 

See this guys, with your commitment of saving RM1,200 annually at the end of the year to TH, you have successfully grown your money from RM36,000 (principal amount) to RM67,300 over 30 years. 

This is only RM100/month. What about RM200? or RM500? 

Now this are all SIMPLIFIED calculations assuming that the dividend/interest rate remains at 4%. There will be hiccups in the economy 30 years down the road but who can precisely predict the future? No one. So we assume, and assume, and assume. Now to make the right assumption, you will need to be literate about the economy and those financial stuff. We all gotta read and read and read about it. Any news, tips, and all sorts of information. 

So I would highly suggest y’all to grab a book about retirement. Go and do your homework so you’ll know what to expect from it. There are other factors that I didn’t discuss in here such as inflation rate, how much RM do you need per month in order to remain sane, and how much will that amount be pulak 50 years from now? 

Alternatively, there are heaps of online retirement calculators out there in the search engines. Simply google them and voila! 

Look for other aspects, how much you can withdraw, how much that money will last. It’s all available online. 

It basically says, if you want to have RM1,000,000 (as you currently have RM10,000) when you reach 60, you need to save RM1,200 montly starting from this month. or RM14,552 annually. But if you already have RM1,000,000 now, you still need to top it up with another RM265,000 because by the time you reach 60, that RM1,000,000 will be smaller so you need this extra RM265,000. 

I intend to keep this post text light because it’s actually about creating awareness among people of my age to START THINK AND ACT for your retirement. It starts today, even to the choice of your dinner tonight. Do you fancy candle-light dinner or just nasi campur?   

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