Generations & Journeys
Are you prepared for your retirement countdown? The Employees Provident Fund (EPF) doesn’t think the majority of Malaysians are prepared for their retirement.1 According to the EPF, most Malaysians have not saved enough to last them more than five years after leaving the working world.1
EPF’s annual report released in May 2016 unveiled that 68% of EPF members aged 54 had savings of less than RM50,000.1 The report also found that only 18% of EPF members achieved the basic savings quantum according to age – RM46,000 at age 35, RM102,000 at age 45, RM143,000 at age 50 and RM196,800 at retirement at age 55 – a large gap to EPF’s plan to get at least half of its members to meet the minimum basic savings according to age in the next five years.1
HSBC Group’s latest The Future of Retirement: Generations and Journeys report surveyed over 18,000 people in 17 countries including 1,015 respondents in Malaysia, aims to understand how people can better prepare for their financial security at all stages of life in today’s evolving world.
15% One in six pre- retirees from the survey have not started saving for their retirement
Current Malaysian workers are expecting to save for 27 years before retiring
14% Retirees rely on children for nancial support to fund their retirement years
Saving Longer for Retirement
According to the survey, current Malaysian workers are expecting to save for 27 years before retiring, meaning they will have to save for four years longer compared to current retirees who only saved for 23 years.
The average age Malaysian retirees started saving was 33 and they stopped working at 56. By contrast, working age people in Malaysia who expect to retire at 56 started saving at 29. “People recognise that they are living longer and may not be able to rely solely on more traditional forms of funding for their retirement, including state provision,” said Charlie Nunn, group head of HSBC UK’s wealth management division.2 “As a result, they are realising they need to start saving for retirement earlier than previous generations and to consider alternative methods to help fund their retirement. Even small amounts set aside today can go a long way to helping fund a comfortable retirement in the future.”2
Despite the fact that most retirees and working age people from the survey began saving much earlier, many still think they should have saved more. Looking back, 44% of retirees in Malaysia would have started saving for retirement at an earlier age given the opportunity to do something differently and 53% of pre-retirees would do the same. Other things working age people and retirees surveyed would do differently include putting aside a larger share of income for savings as well as choosing higher return investments and lower risk savings
Preparedness for the Future
While a large majority of Malaysians (85%) surveyed may have started planning and saving for their retirement, almost one in six (15%) pre-retirees from the survey have not started saving for their retirement. While those closer to retirement are more likely to have started saving for retirement, 6% of people in their 50s and 8% of people aged 60 or over have still not started saving. The survey indicates that among working age Malaysians who have started saving for their later years, 44% of them have stopped or faced difficulties saving for retirement.
According to the EPF, a common problem among Malaysian workers is that they tend to spend first and save the balance, whereas EPF would advice workers to save first and spend only the balance.3 This simple shift in terms of how you approach your monthly salary will help a lot with savings for retirement.3 Malaysia’s low salary structure also hinders Malaysian workers from saving effectively for their retirement according to Balqais Yusoff, EPF Head of Strategy Management.4 Using EPF as an example, Balqais says, “In terms of contribution rates in mandatory saving, Malaysia is the world’s fifth highest, but the salary structure does not translate into a high saving number.”4 Paying for a child’s education, covering a mortgage and other debt payments as well as meeting day-to-day expenses can also hinder a person’s ability to save for retirement.5
Some pre-retirees may also not be getting the appropriate advice on retirement planning with 12% of working age people never receiving advice and information about retirement. Friends and family are the most common sources of retirement advice or information with 76% of pre-retirees and 68% of retirees receiving information from them. For around a third, friends and family are their only source of retirement advice, while 40% of retirees and 34% of working age people have received retirement advice or information from professionals. Another source of advice or information is media, books and online sites with 38% of pre-retirees and 35% of retirees getting their advice or information from these sources.
“The fact that most Malaysians rely on their own savings and investment speaks about their desire to be self-reliant and self-sufficient”
Practical Steps to Planning a Better Financial Future
1. Start saving earlier for retirement
Plan to start saving for retirement earlier, to help build a bigger fund and allow it to grow for longer.
2. Make sure your advice is professional
Seek information from many sources, but make sure the advice you get is professional.
3. Consider all your retirement expenses
When planning for retirement, make sure to list all your possible retirement outgoings.
4. Be prepared for financial ups and downs
When saving for retirement gets difficult, make sure to review all your finances and seek alternative ways to help you continue towards a comfortable retirement.
Finances in Retirement
While household bills and leisure and entertainments costs are a given, you also need to consider other expenses and financial outgoings like financially supporting others and borrowings at different life stages. According to the survey, people are most likely to be financially stretched in their 40s. This age group is most likely to be financially supporting others (85%) and borrowing (79%). While these financial pressures reduce as they get older, many people in their 60s are still financially supporting others (69%) and borrowing (54%). Retirees continue to face regular expenses once they stop work, including credit card payments (29%) and other loan repayments (25%). While 26% of working age Malaysians are expecting to have other loan repayments in their retirement, fewer (19%) expect to have credit card repayments.
There are many methods of funding retirement, and the expectations of pre-retirees differ from the reality experienced by retirees. Cash savings/deposits (50%) are the most common funding method for retirees, followed by stock and shares at 36%, defined benefit employer pension schemes at 32% and other employer pension schemes at 29%. For the next generation of retirees, retirement funding methods are likely to be different. Fewer pre-retirees expect another employer pension scheme (12%) or stocks and shares (17%) to help fund their retirement than retirees (29% and 36% respectively). Instead, more pre-retirees expect to use a personal pension (22% compared to 11% of retirees), a defined contribution employer pension scheme (27% vs 17%) and their own income by continuing to work to some extent in retirement (24% vs 15%).
Nearly 70% of Malaysian respondents in the Nielsen Global Survey about Aging said they plan to rely on their personal savings and investments as the primary source of income after retirement.6 “The fact that most Malaysians rely on their own savings and investment speaks about their desire to be self-reliant and self-sufficient,” says Luca Griseri, Head of Nielsen’s Financial Services in Singapore and Malaysia.6 In addition, 14% of the retirees surveyed say that financial support from their children is helping them fund their retirement and a similar proportion (12%) of pre-retirees believe that this will help finance their retirement as well. Retirees in Malaysia, in fact, are among the most likely to rely on financial support from children to help fund their retirement among the 17 countries surveyed.
Pre-retirees aged 60 and over are the most likely to expect financial support from their children to help fund their retirement. 33% have this expectation, compared to 14% of pre-retirees in their 40s. However, retirees should not be over-reliant on their children to help fund their retirement as their children may also be financially stretched. This is particularly true for people in the 40s who are most likely to be financially supporting others (85%) and borrowing (79%). Whatever life stage you are at – working, almost retiring or already enjoying your retirement – your needs and priorities will change. Seeking retirement information and personalised financial review from trusted sources is a smart way to prepare for and help deal with any unexpected financial bumps in the road.
To find out more about our retirement solutions, like the Takaful Retirement Plan and HSBC’s Universal Treasure, which may assist you in planning for an ongoing income in retirement and also protection, speak to your Relationship Manager today or walk into any HSBC branch.
Reproduced with permission from The Future of Retirement: Generations and Journeys, published in 2016 by HSBC Holdings plc.