Would you like the money to work for you?

As at Dec 2006, there are RM224 Billion in EPF while average contribution amount for a 55 years old contributor is RM110K. If this EPF contributor expected to live for 75 years old, he can only spend RM475 per month. And he is categorised as ‘poor’ resident so long the monthly income does not exit RM530 in Malaysia. A survey by the EPF found that a contributor on average, exhausted his EPF money within three years of withdrawing the lump sum. Thus we can often see many old folks continue to work even reaching 60 years old. I know what you think; you should have much bigger amount than RM110K when you approaching retirement age, but bear in mind, the amount may not be a lot, say RM500K if we continue to make use of it for housing, education and medical. And who knows, the RM500K after 10-20 years, because of the inflation, could be as valuable as the RM110K today.
People forget about the inflation. Things has change generally, from one working father to support 7 kids, to 1 working couple to support 3 kids. The FD rate in Malaysia hit the highest of 9.06% in 1997, and drop ever since that to as low as 3.2% in 2002. And after another 7 years, FD rate drop to 2.5%. Whereas the inflation hit high of 8% in last June and now at more than 6%. As no body can avoid the inflation, there is no other way than investing to overcome the inflation. According to ‘Investopedia’, the definition of ‘investing’ is : you can’t create a dupicate of yourself to increase your working time, so instead, you need to send an extension of yourself - your money to work for you. Quite simply, making your money work for you maximizes your earning potential whether or not you receive a raise, decide to work overtime or look for a higher paying job.

According to financial planner, as long as there is an emergency fund backed up for 3-6 months of our expenses, one should consider to start investment. Putting too much money in the bank will not help to grow our wealth. It is advised to allocate 10% - 20% of our income for investment. With current expenses of RM32K per annum, which is about RM2.7K per month, assumming no additional expenses during the retirement age, because of 4% inflation, we will have to spend for RM85,307 per annum, which is not less than RM7K per month after 25 years. In other words, if you are spending RM2.7K a month, and you are now 33 years old, please make sure you have RM1.5M when retire at 58 years old with 75 years life expectancy. The number could be more with higher inflation, higher medical expenses and travel expenses. Personally i do not wish to just stay at home in my golden years.

At 4% inflation, RM100K will be worth only RM67,566 after 10 years. For a new born child, a local private university education which cost RM73,500 today, will cost RM235,935 in 20 years with 6% inflation. If we target to have half a million at the age of 55, look at the below table to see the consequences of delaying the saving.


Start at Monthly Saving Times
Age 20 RM 216 -
Age 30 RM 522 1 times
Age 40 RM 1,435 6 times
Age 50 RM 6,759 31 times



This is simple mathematic calculation base on 8% compounding return. So, if we are doing the saving in the bank with the very low interest, the monthly saving requirement would be 3-4 times higher. Don’t think that you will have better saving in future with the increase of your income because commitment will increase in tendem. I have friends who are working as management level, earning 20K income per month buying big house and luxury cars and sending their kids to overseas for study, will face financial challenge if they are not working for a year. In nowadays, the definition of ‘rich’ interpreted from how long one can sustain his/her life if not working, disregard how much saving he/she have. Of course their saving can be one of the passive income generator if this saving is put in any investment instrument.

Some investors of mine like the monthly investment in Public Mutual Fund simply because that is the most effective way to displine themselve to save. EPF contribution is just taking up 11% of our salary(ooppss, now only 8%), without the monthly investment plan, normally we could not answer where have the remaining 92% of our salary gone. Just imagine with a monthly investment of RM300, we will most probably accumulate to a fund of RM50K after 10 years. If this is not affordable, please try to increase your income instead of delaying the saving, because there is cost to delay the saving as stated in the above table. Nobody says we must retire at old age. You have your choice. But one thing for sure is, you can only retire when your money work for you!

THINKING TO FIND A PLACE TO SAVE FOR YOUR RETIREMENT?


CALL ME WITH NO OBLIGATION,
ANUAR BIN ASPURI
UNIT TRUST CONSULTANT
+6019764 6651