Retirement Planning: How Much Money Do You Actually Need?

When doing retirement planning in Malaysia, is there an actual magic number you need to reach to live comfortably? 

While the Employees Provident Fund (EPF) has set the recommended minimum retirement savings at RM240,000 by the age of 55, many Malaysians may not be able to reach that amount by the time they retire.

When it comes down to how long the average Malaysian can afford to survive without income, a Department of Statistics Malaysia (DOSM) survey found that many only had enough to survive 1 to 4 months. 

If we take the EPF recommended retirement amount above and assume you retire at 55, spreading RM240,000 equally across the next 20 years only leaves you with RM1,000 a month. Is this really enough considering there are various factors along the way that can impact your spending power? Let’s find out.

What does ‘living comfortably’ mean to you

Before delving into the actual process of retirement planning, you should first ask yourself what ‘living comfortably’ means to you. While each of us may have different expectations on how much we need to lead a comfortable life, there are basic needs which we should consider when doing financial planning for retirement. These include food, shelter, utilities, transport and access to healthcare.

According to the 2023 EPF Belanjawan expenditure guide, a single person who uses public transport needs about RM1,930 to afford a reasonable standard of living. This amount balloons to RM3,210 for an elderly couple living in the Klang Valley. Either way, the RM1,000 per month amount based on EPF’s minimum retirement savings figure is hardly enough.

This is because there may be other expenses involved, besides taking care of yourself. These indirect expenses can affect your retirement planning and eat into the savings you have planned for. Some of these include:

• Providing financial support for your spouse, children or other dependents.
• Paying for your children to complete their higher education.
• Housing or other debt commitments that you have not finished paying.
• Buying new insurance policies if you previously depended on employment coverage or reached the policy age limit for your personal insurance.
• Funding out-of-pocket health emergencies for yourself or your spouse if these expenses are not covered by your insurance.

What each person needs for these expected or unexpected expenses will vary depending on the nature of life’s course. For example, retirement planning would be a lot different for a couple who married late compared to a couple that marries young, simply due to the age gap with their children.

Depending on these factors, you would be able to arrive at a definition of ‘comfortable living’ that would suit you best. But that’s not all.

What will your retirement life look like?

How you want to live your life in your golden years plays an important part in the retirement planning process. But a lot of it will depend on what’s happening to and around you. Let’s understand what these are.

Life expectancy

The average life expectancy of Malaysians is 74.8 years as of 2023. So, if you retire at the age of 60, you could live for another 15 years. You’ll want to financially plan for those years, including the years beyond the average life expectancy. The more years you live out, the more changes you can expect in terms of factors such as healthcare costs and inflation, to name a few.

Inflation

Inflation refers to the general increase in prices of goods and services over time, causing the value of your money to decrease. As an example, a plate of chicken rice that costs RM7 today may cost RM9 or RM11 in ten years’ time. The same goes to pretty much everything you pay for in your daily needs such as electricity, transportation and even housing - all of which can impact your retirement planning.

While inflation affects the cost of almost everything around us, it is medical inflation that has been increasing rapidly in Malaysia. In 2020, inflation saw medical costs rise by 13.1%. This has directly affected the cost of medicine and medical treatments, all of which you’ll likely need to use more as you age. This is especially true if you have chronic medical conditions that need long-term full-time nursing care of medical support equipment.

Lifestyle

Besides figuring out how inflation and healthcare may eat into your retirement savings, you’ll also need to think about what your retirement years will cost from a lifestyle perspective. This depends on what your outlook on life may be. For some, retirement is a time to reward themselves after all those years of elbow grease, while others may look at it as a time to fulfil some of their higher education dreams - all of which involve some degree of cost.

Here are some examples of events that you can consider as part of the lifestyle bucket when doing retirement planning in Malaysia. Plus, how you can seek additional income opportunities to soften the financial blow on what you had initially budgeted for:

All these added expenses will need additional planning to afford them. This is to ensure they do not eat into the money you have set aside for daily needs during your retirement planning exercise. Post-retirement, you may also have additional income sources that can help you afford these additional expenses, such as the ones listed above.

How do you find your magic number from retirement planning?

You can start by opening a brand new digital spreadsheet and begin jotting down some of the important things in life that need your financial attention during retirement. It can be a personal reward for retirement, helping one of your grandchildren finish higher education or anything else for that matter.

In this list, be sure to include some of the things you’ve learned from this article such as your basic expenses, retirement lifestyle, additional income and so on. Then peg a number to these things to form an estimated total of what you’ll need.

If you need help with retirement planning, our financial goal simulator tool can help produce your retirement magic number using all of the above items, with even inflation factored in. It’s never too early to start planning for your dream retirement!

💡 The information provided above is purely for educational purposes.