Build a better financial future

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You sit in contentment on the porch of your house, laughing as your spouse picks up your grandchild for a fierce tickle session. The weather is beautiful and you feel a great sense of well-being as the stress of your old professional life is lifted off your shoulders for good.

At least, that’s what you envision for your retirement. The sad truth is that, like many Malaysians, you may not be able to live out your retirement aspiration because chances are you won’t be saving enough for your after-work years.

Why most Malaysians can’t afford to retire

It’s easy to postpone retirement planning. When you’re busy meeting deadlines, raising a family, nurturing friendships and making important decisions, retirement planning often gets put on the back burner. Indeed, retirement can seem so far away and often it’s just easier to tell yourself that you’ll take care of it “tomorrow”. But if you want to be comfortable in your golden years, you can’t afford to procrastinate or lose track of your finances.

“Another important aspect is that people are constantly evaluating their financial situation based on the concept of net worth – which is simply taking all of their assets and minus their liabilities,” says Munirah Khairuddin, CEO and Country Head of Principal Asset Management. “Few people have a positive net worth, and they need to realize the importance of regularly assessing their financial situation.”

Of course, like many working adults, you would have savings with the Employees Provident Fund (EPF), the (Incorporated) Pension Fund (KWAP) or the Armed Forces Fund Board (LTAT). The problem is that you may have used some of those savings to pay for your child’s education or reduce a home loan. And even if you haven’t, you might not have enough squirrel. According to EPF statistics, 73% of its members are unlikely to have enough funds to retire above the poverty line.

Also, you may have set aside funds, but not in the right way. “A common behavior is to put money into a general purpose fund for all future needs, from family vacations to children’s education. It is crucial to have separate pools of funds for different purposes, especially for retirement,” says Munirah.

Munirah Khairuddin,
CEO of Principal Asset Management

Grow and protect your nest egg

So how can you maintain your pre-retirement standard of living? Determining how much you will need is not a simple mathematical equation. Many factors need to be considered, such as longer life expectancies, higher health and living costs, and market returns.

The World Bank has a good rule of thumb. It recommends that individuals benefit from a 70% income replacement rate during their retirement. In simple terms, this means that if your last salary withdrawal is RM10,000, you would need RM7,000 to maintain the same lifestyle after retirement. On average, however, most Malaysians only have an income replacement rate of 30%, according to the World Bank.

There is also the 60-20-20 budgeting rule based on your gross salary. This approach suggests that you set aside 60% of your income for day-to-day and essential expenses, 20% for emergency savings, and 20% for investments.

Other ways to replenish your nest egg include refraining from withdrawing your EPF savings unless absolutely necessary. You can also consider other ways to achieve your financial goals, such as investing in mutual funds or private pension plans (PRS). Remember that compound interest is your friend. The earlier you invest, the better the potential returns you can get.

This is important as Malaysia approaches aging nation status. By 2030, the number of people aged 60 and over will represent 15% of the population, and by 2042, this percentage will increase to 21%. This will raise policy challenges in areas such as employment, income security and health care, highlighting the importance of having adequate savings and income for future financial security and to help you prepare for any financial shock.

How Principal Asset Management can help you

But where to start ? Investment decisions can be complicated, confusing and daunting, especially when it’s your future that’s at stake. That’s where Principal comes in. Novice investors, in particular, can have blind spots when it comes to it’s all about knowing where they put their money, which is why it’s so important to have Principal’s financial advisors and retirement specialists as your financial ‘watchers’. . They are certified for conventional and Islamic products and solutions, and use digital tools to integrate and manage client portfolios.

If you are more experienced and prefer to take control of your investment money, Principal also offers a self-service investment portal where EPF members can invest in mutual funds using their EPF money or cash. Alternatively, you can supplement your EPF compulsory savings by investing in the Principal’s PRS.

“Start small. But as your salary or income increases each year, gradually increase your contribution to RM250 or RM300, for example. Based on compounded annual returns, you could potentially have up to RM150,000 in 20 years “Munirah explains. “You need to make your money work harder for you and this is where investments and savings can play a part in multiplying your wealth.

Learn more at www.principal.com.my/en/invest-online


Disclaimer: Investors are advised to read and understand the contents of the fund prospectus and product overview sheet available on the main website, which have been duly registered with the Securities Commission Malaysia (SC) . The registration of these materials does not imply or indicate that SC has recommended or endorsed the product or service. Investing in the funds involves risks, costs and charges. We suggest that you understand the risks involved, make your own risk assessment and seek professional advice, if necessary. This material has not been reviewed by CS. Past performance of a fund should not be taken as indicative of its future performance.

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