Retirement Planning .

In this report we will discuss about retirement planningand below are the summaries point:- Retirement planning involves preparing for life without regular income and ensuring a comfortable lifestyle during retirement. The financial cycle of retirement planning includes considering factors such as age, income, expenditure, savings, and family needs. Steps in retirement planning include setting goals, estimating available funds, identifying shortfalls, and constructing an investment plan.

RETIREMENT
PLANNING

PREVIEW OF TOPIC
INTRODUCTION
IMPORTAN CE OF RETIREMENT PLANNING
STEPS IN RETIREMENT PLANNING
TYPES OF RETIREMENT FUND
RETIREMENT NEED APPROACH
2

LEARNING OUTCOMES:
ABLE TO UNDERSTAND WHAT IS RETIREMENT
PLANNING AND WHY IT IS IMPORTANT
ABLE TO UNDERTAKE THE STEPS TAKEN TO
DO A RETIREMENT PLANNING
ABLE TO DIFFERENTIATE THE DIFFERENT
TYPES OF SOURCES FOR RETIREMENT FUND
ABLE TO APPLY THE NEED APPROACH OF
RETIREMENT PLANNING
3

INTRODUCTION
Preparing for life without regular income
from work
A financial planning for one who wants to
live comfortably during retirement.
Is it suggested to:
plan early - the earlier we plan for
retirement the better
plan seriously even it is still too distant
not to depend too much on EPF 4

FINANCIAL CYCLE
When and what to consider?
✔ Retirement planning should begin as soon as you
enter the workforce.
✔ Retirement planning should take into consideration
the family’s needs and resources over the financial
cycle.
5

FINANCIAL CYCLE –CONT’D
1. Age : 20’s - 40’s
❖ During the worker’s twenties, thirties and forties, b
income and expenditure will increase.
❖ E.g planning for marriage, starting family, buying a
house and vehicles, education for children.
❖ Savings at this stage will have more time to grow
6

FINANCIAL CYCLE –CONT’D
2. Age : 50’s
❖ Most of the children will have left the household,
there will be a dramatic rise in savings as
expenditure drop.
❖ Savings will be easier but have shorter periods in
which to accumulate returns.
7

3. Age : Above 60’s
❖ Earnings for the average market worker begin to
decline in his/her early sixties.
❖ When and how much to save are personal
decisions.
❖ There is no right retirement plan for everyone.
❖ In savings for retirement, you are trading off
present consumption for the future consumption.
FINANCIAL CYCLE –CONT’D
8

IMPORTANCE OF RETIREMENT
PLANNING
Increasing cost of living
Tendency to maintain a higher standard of living
Increasing life expectancy
Higher medical costs
Low EPF savings
9

STEPS IN RETIREMENT
PLANNING
1. Set retirement goals
2. Estimate available sources of funds
3. Estimate shortfall of funds
4. Construct investment plan
10

SET RETIREMENT GOALS
To meet daily expenses during retirement
To cover for any medical costs
To settle debt
Issues related:
❖ When to retire?
❖ Type of ‘standard of living’ wanted
❖ Estimate the funds needed during retirement (
methods)* 11

ESTIMATE AVAILABLE SOURCES
OF FUNDS
Typical resources:
EPF savings
Cash savings
Rental income from properties
Financial assets – shares, unit trust, deposits
Endowment from takaful/insurance policies
Proceeds from sale of assets
12

ESTIMATE SHORTFALL OF
FUNDS
Shortfalls = [Funds Required - Available Funds]
Early identification of shortfalls the better can take
actions to cover deficits
13

CONSTRUCT INVESTMENT PLAN
To calculate the savings/investment required to
meet shortfalls
Savings how much to save each year
Investment type of instruments suitable based on
time period, net worth and risk tolerance level
14

EMPLOYEES PROVIDENT FUND
SCHEME
A brief information on EPF…..
❖ Is a social security institution formed according to
Laws of Malaysia
❖ An institution operated under the EPF Act 1991
❖ It provides retirement benefits for members
through management of their savings in an efficient
and reliable manner.
❖ The members are from private sector and
non-pensionable public sector employees.
❖ Contributions come from not only employees
(members) but also employers 15

CONTRIBUTIONS OF EPF
A contribution constitutes the amount of money
credited to members’ individual accounts in EPF
Calculated based on the monthly wages:
i. 12% - employer
ii. 11% - employee
16

EPF ACCOUNTS
Effective 1 January 2007, the Account is divided into
two parts, namely Account I and Account II.
❖Account I - 70% of monthly contribution
Purpose:
Savings in this account is meant to be used for your
retirement, and it cannot be fully withdrawn
a.before you reach the age of 55
b.become incapacitated (disabled)
c.leave the country OR
d.deceased (payment will be made out to your nominee
/ heir). 17

❖ Account II - 30% of monthly contribution
Purpose:
Savings in this Account is meant to help you to make early
preparations for a comfortable retirement. Withdrawals
are allowed for the purposes of:
a. Attaining the age of 50 years;
b. Owning a house - the down payment for your first house;
c. Settling the balance of your housing loan - first house;
d. Financing education for you and that of your children's;
e. Medical expenses for you and that of your children's
EPF ACCOUNTS – CONT’D
18

EPF - INVESTMENT
ALLOCATION/USES OF FUNDS
1. Malaysian Government Securities (MGS)
2. Money Market Instruments
3. Bond
4. Properties/REITS
5. Equity
19

WITHDRAWAL FACILITIES
1. Upon Retirement
a) Attaining age of 50 (A/C I)
b) Attaining age of 55 (A/C II)
20

WITHDRAWAL FACILITIES –CONT’D
2. Others :-
a) Death
b) Incapacitation
c) Housing withdrawals
d) Leaving the country
e) Health
f) Members’ investment (minimum basic savings of
RM 5,000 in A/C I – 20% withdrawal only)
g) Members/members’ children education
h) Optional pensioners 21

PENSION SCHEME
❖ Government staff are granted two options for
retirement planning:-
i. EPF scheme
ii. Pension schemes
❖ Those who opted for pension scheme will receive
some benefits, once they reached the retirement age
(56 years).
22

PENSION SCHEME – CONT’D
Objectives of pension scheme:-
a) As a bondage for personnel to retain their service
with government.
b) To acknowledge and appreciate excellent
service with loyalty dedication, honesty rendered to
government by personnel.
c) To provide life subsistence for dependents of
personnel who have passed away during term of
service with government or after retirement.
d) To develop a form of compensation scheme
for personnel who are required to retire or passed
away due to an injury or contracted a diseases
because of exposed to harm in the course of
carrying on his/her duties. 23

PENSION SCHEME – CONT’D
❖ Pension scheme also extends pension benefits to a
deceased pensioner’s dependants who passed
away either while still in the government service or
after retirement.
❖ Known as derivative gratuity and derivative
pension.
❖ Types of pension benefits:
a) Service pension (monthly payment)
b) Service gratuity (lump sum payment)
24

PENSION SCHEME – BENEFIT
CALCULATION
1. Gratuity
7.5%X number of months of reckonable serviceX
last drawn salary.
2. Pension
1/600 X number of months of reckonable service
X corresponding last drawn salary.
Subject to a maximum pension of half last drawn
salary (after a service of 25 years or 300 months
reckonable service)
25

DISABILITY PENSION SCHEME
Additional benefit given to a government officer
who is required to retire because of health reason
due to:-
i. Contracting a disease to which he is exposed by the
nature of his duty.
ii. Sustaining an injury due to a travel accident.
On condition the injury or disease is not
contributed by negligence or misconduct of the
officer.
26

DISABILITY PENSION SCHEME
Degree of Impairment Rate Paid
Slight impairment 1/8 of last drawn salary
Impaired ¼ of last drawn salary
Major impaired 3/8 of last drawn salary
Total destroyed ½ of last drawn salary
27

DETERMINING FUTURE
RETIREMENT NEEDS -STEPS:
1. Determine number of years to retire
2. Determine desired retirement income
(60 – 70% of last drawn income)
1. Calculate inflation-adjusted retirement
income
2. Determine total funds needed at
retirement
3. Estimate funds available at retirement
4. Calculate shortfall
5. Calculate savings required 28

THANK YOU!!!
29

CASEEXAMPLE
Muaz is currently 31 years old. He has opted to retire
at the age of 56. His life expectancy age is 75. His last
drawn salary is RM 8,500 per month. Upon reaching
retirement age he may need 45% of the yearly last
salary drawn.
Calculate:
a)The last salary drawn on an annual basis.
b)The retirement income (income desired upon
retirement)
c)The retirement income (inflation adjusted – assuming
5% inflation rate)
30