Deep, deep dive
Step 1: Know your retirement needs and set a financial goal
People often underestimate how much they’ll need in their retirement. Figure out the type of retirement you’d like to enjoy and budget accordingly.
We’ve come up with a list of common cost items – try to understand how much you’ll need for each item for you to get a sense of how much money you might need to fund your retirement:
- Household maintenance
- Healthcare, pharmaceuticals
- Subscription services (WiFi, mobile sim cards…)
- Travel and entertainment
- General consumption (buying clothes, books…)
Some important things to note about this exercise:
Don’t forget about including the costs of any dependents you may want to support in your retirement (spouses, children, grandchildren…).
It’s important to ‘sense-check’ the numbers you get.
A good rule-of-thumb is that your monthly retirement income would have to be about 2/3 of your last-drawn salary in order to maintain your current standard of living and the lifestyle you’ve become accustomed to.
Bank Negara estimates that the current living wage (per month) in Malaysia is:
- RM2,700 for a single adult
- RM4,500 for a couple without child
- RM6,500 for a couple with two children
You can use these figures to test your predictions. For instance, if you predict that you’ll only need RM1,000 per month, then you may want to revise your calculations as you know that even just a single adult would require at least RM2,700 to maintain a decent lifestyle. And these figures do not take into account inflation so you’ll need to have even more available every month.
Based on our estimates, you should have at least RM578,000 in savings by the age of 55 to be sure that you can cover RM2,700 in monthly expenses until the age of 80. (Assuming 5% returns each year and a 2% inflation rate)
Here’s a table to help you keep track of how much you’ll need to save up each year in order to reach this minimum target.