How Much Do You Need To Retire Comfortably?

Is there a magic number you need to reach to afford retirement?

The answer depends on you. While the Employee Provident Fund (EPF), also known as Kumpulan Wang Simpanan Pekerja (KWSP), has set the recommended minimum retirement savings at RM240,000 by the age of 55, many Malaysians are not even able to reach that amount by the time they retire.

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

If we use the EPF example above and assume that you retire at 55, can you support yourself for 20 years on RM240,000? Dividing that amount by 20 years will only leave you with only RM1,000 a month. Will that be enough to provide you with a comfortable life when you retire?

What does 'comfortable' mean to you?

While each of us may have different expectations on how much we need to lead a comfortable life, there are certain basic needs that we all need -- food, shelter, utilities, transport, and access to healthcare.

According to the 2019 EPF Belanjawanku expenditure guide, a single person who uses public transport needs about RM1,870 to afford a reasonable standard of living. This amount goes up to RM3,090 for an elderly couple living in the Klang Valley. Either way, the RM1,000 per month amount based on EPF's minimum retirement savings number is not enough.

There may be other expenses as well. Besides taking care of yourself, are there other financial commitments that can eat into your retirement savings?

These indirect expenses may add to your post-retirement commitments:

• Providing financial support for your spouse, children, or other dependents
• Paying for your children to continue or 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
• 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 expenses for retirement will be different depending on the kind of lifestyle you have in mind.

What is your retirement lifestyle?

The average life expectancy of Malaysians is 74.9 years. So if you retire at the age of 60, you may live for another 15 years. You would need to financially plan for those years, as well as take into account the cost of inflation, which could increase your expenses far more than you have budgeted for.

Inflation refers to the general increase in prices of goods and services over time. This will cause the value of your money to decrease. With inflation, a plate of chicken rice that costs RM5 today may cost RM7 to RM9 in ten to twenty years’ time. The same goes for pretty much everything you pay for in your daily needs like electricity, transportation and even housing.

While inflation affects the cost of everything from food to transportation, it is medical inflation that has been increasing rapidly in Malaysia. In 2020, inflation saw medical costs rise by 13.1%. This will directly affect the cost of medicines, and medical treatments, all of which you will likely need to use more as you age, especially if you have chronic medical conditions that need long-term full-time nursing care or medical support equipment.

Besides figuring out how inflation and healthcare will eat into your retirement savings, you also need to think about what your retirement will look like.

All these added expenses will need additional planning to afford them to ensure these expenses do not eat into the money you set aside for your daily needs. Post-retirement, you may also have additional income sources that can help you afford these additional expenses.

With so many different factors to consider, how do you ensure you can save enough to hit your retirement goals?

How to find your retirement number

The Maybank Financial Goal Simulator can help you save enough to retire comfortably. It provides a step-by-step guide to help you prepare for your dream retirement.

All you need to do is work backwards from the numbers you arrived at earlier for:

• your basic expenses in retirement
• your retirement lifestyle
• additional income

Your answers above should help you decide on the following:

• your retirement age
• years to retirement
• how long the savings should last

Based on your individual needs, the simulator will produce your retirement number - your investment goal target, and how much you need to invest each month to reach that goal. It will automatically account for inflation too, so it is one less thing for you to worry about.

With the Financial Goal Simulator, it has never been easier to start planning for your dream retirement.