Things To Avoid When Planning Your Retirement

Myra Athena & Sharifah Norashikin
Date: 24 Jul 2024
4 Things To Avoid When Planning Your Retirement
Article Image

Retirement — a word that stirs dreams, new opportunities, and perhaps a touch of anxiety for many. In Malaysia, as in other parts of the world, the concept of retirement is evolving alongside longer life expectancies, shifting economic landscapes, and changing lifestyles.  

Reaching retirement with enough savings does not happen by chance. For most of us, it requires decades of saving, budgeting and working hard to increase our income to be able to put away money for retirement.

Despite its significance, many individuals inadvertently make mistakes that can impact their financial security in later years. But with the right planning, you can improve your chances of avoiding the pitfalls. Let's delve into four common pitfalls in retirement planning:

Procrastinating the start of savings

back chevron

Delaying retirement planning is a common habit as it seems far away. However, time passes quicker than we think. Starting your savings journey early allows you to harness the power of compounding interest. With compounding, every ringgit you save today has the potential to grow. The longer your savings accumulate, the more your retirement funds will grow.

Tip: Start saving as soon as you begin to earn a steady income or have a stable job. Of course, the amount you save depends on the size of your income. 

A helpful guideline is the 45/35/20 Rule of Thumb for budgeting, which suggests allocating 45% of your income to necessities, 35% to commitments, and 20% to savings.

Underestimating living expenses during retirement

back chevron

Another common mistake is underestimating how much you will need to live comfortably during retirement. Overlooking expenses such as healthcare, travel, and leisure activities can lead to financial strain. It is crucial to factor in inflation and potential healthcare costs when calculating your retirement needs.

Tip: Create a detailed budget that includes all anticipated expenses and regularly review and adjust it as needed.
Alternatively, use tools like our Retirement Calculator to project approximate savings upon retirement, offering a clearer picture for your financial planning journey. You can also utilise the Belanjawanku app to plan your budget and assess the actual expenses needed for retirement later on.

Putting your eggs in one basket

back chevron

It is a common mistake to rely solely on your EPF for retirement funds. While EPF typically grows at around 5% per annum, it is essential not to depend entirely on it. There are several other avenues worth exploring that may match your investing objectives, time horizon and risk tolerance, and offer similar or even better returns.

Tip: Your savings and investment approach should not remain static as you progress from your 20s to your 40s and as your risk tolerance and financial commitments change over time.

Consulting a financial advisor to craft a diversified investment strategy that aligns with your risk tolerance and retirement goals is advisable. EPF's Relationship Advisory (RA) services may offer invaluable support in this area. 

Not having a contingency plan

back chevron

Life can be full of surprises; you might have your whole life planned out, but odds are you’ll come face-to-face with unexpected situations that alter your goals. While planning for the golden years, it is crucial to incorporate a robust contingency plan to manage unforeseen events like medical emergencies, home repairs, or economic downturns. Failing to plan ahead could result in tapping into your retirement funds to cover unexpected costs.

Tip: Build an emergency fund that is separate from your retirement savings to cover unexpected expenses. By setting aside a portion of your income regularly, you can build a safety net that protects your retirement savings from unplanned uses. Additionally, consider exploring insurance options to further safeguard against major risks like health or property damage. 

Retirement planning is not just about setting aside money; it is about making informed decisions and preparing for the future. By avoiding these common mistakes, you can navigate your retirement journey with confidence and ensure a financially secure and fulfilling retirement.

Remember, each decision you make today shapes your tomorrow. Take proactive steps now to build a robust retirement plan that aligns with your aspirations and safeguards your financial wellbeing in the years to come.