Your kids will be your source of joy, sure. But will they be your source of income?

You’ve provided for your children from birth to college. Perhaps even pays for their first car or forked out the deposit on a new home. Is it reasonable to expect the little boy or girl you once doted on to provided for you later in life? Many Malaysians seem to think so. In the HSBC Future of Retirement III survey, children or family are seen as the most important contributor to retirement income, regardless of wheter the survey participant came from a high income or low income household.¹

Filial piety may be a virtue in Malaysian society but let’s take a hard look at reality. Can the children of today adequately take care of their parents’ financial needs? For instance, if a grown-up child subsidises a parent’s shelter, food, clothing and other expenses at a minimalist sum of RM1,000 per month for 20 years (from retirement age of 55 to 75) it would add up to close to a quarter of a million ringgit in total. No child’s play.

Can your child afford to support you?

Then there is the problem of inflation. Consider this scenario. Let’s say you graduated in 1982 and found a job in KL which paid you a monthly salary of RM1,700. You bought the new car for RM18,000 and after saving up for a year, were able to put a down payment for a RM102,000 double-storey terrace house.

Fast forward 28 years. Your son has landed his first job with a starting pay off RM2,200, just marginally more than when you started. But unlikes your prime years, he will have to fork out at least RM30,000 for a local cars and a double-storey terrace house in Silicon Valley could set him back by RM300,000.

The cost of living has risen dramatically in 28 years unfortunately the overall salary scale has not. For him to support ageing parents on his RM2,400 salary in Klang Valley will be tough, if not impossible.

You’ve taken care of them, now it’s their turn?

Financial matters aside, there is also the question of personal freedom and independence. As many as 72% of Malaysian retirees fear dependency on others⁴ and over 90% want to be in charge of their own time after retirement¹. In short, they want to call the shots on how they spend their days. Being financially dependent on children maybe in many ways limit the ability to live out this desire and possibly even lead to friction between parent and children.

4 steps to declaring independence from your child.

Rather than hope or depend on your children to provide for you later in life, the more secure path is to build your own nest egg. Financial independence in your later years is crucial in maintaining your lifestyle and providing you flexibility in terms of how you want to live.

What does it takes to have a well thought-out retirement plan? First is to determine the amount you need to retire comfortably. Most retirees can maintain their lifestyle with around 60% of their last drawn salary. Then tabulate your sources of retirement income. Factor in, and calculation for, the effects of inflation your key life areas, such as a daily expenses, housing and medical fees.

From this you should be able to determine any income gaps between your desired retirement income and your actual finance position. If there is shortfalls, panic not. You can take pro-active steps now to put a narrow the gaps by reviewing you retirement portfolios and considering investment instruments that have a two-pronge benefits of building your retirement funds as well as providing regular income upon retirement.

Following these simple steps, you’ll be able to live your whole life by the important principle that you’ve taught your own child: Independence.

A fulfilling retirement begins with one small step today. Talk to our Relationship Managers on HSBC Advance to find out about HSBC’s new retirement plan.

Call 1 300 87 0181, visit your nearest HSBC branch for more information or visit www.hsbcadvance.com.my to register online.

Facts that figure

• More than 50% of Malaysians have not even given any thought to how much they need to retire comfortably.²  
• Only 35% of Malaysians are fully confident that a combination of EPF and personal savings will see them through retirement.²  
• Inflation will cause three meals today at RM20 to cost RM64 in just 20 years, given an inflation rated of 6%.³
• Medical costs inflation can run as high as 15% a year.³

Source:
1. HSBC The Future of Retirement III, 2007 Malaysia Report.
2. Synovate Malaysia, 2009.
3. The Star, “Counting on the Nest Egg” May 27, 2007.
4. HSBC The Future of Retirement IV, 2008 Malaysia Report.

September 2012