How Much Do You Need For Retirement?

Posted by : foongpc | Friday, October 3, 2008 | Published in

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A lot of us never bother too much about how much we need for retirement. Maybe because we are too busy living our lives at present that we don’t have time to think about the future.

Yet, the day will come when we need to retire. When that time comes, do you have enough money to live comfortably for the rest of your life?

Here’s how you can calculate how much you really need for retirement.

First, you need to decide how much money you will need every month during your retirement age. To have a rough idea, you can use your current monthly expenses as a basis. If you spend RM3,000 every month at present, you probably need about RM2,000 per month after you retire. The amount is less because you would have already paid off your house loans and life insurance. Furthermore, you may eat less and go out less during your golden age so expenses are naturally lower.

However, don’t forget that you have to take inflation into consideration. Let’s say, by the time you retire, the value of money has dropped to 50% of present day’s value. Then, what you really need is no longer RM2,000 but RM4,000!

Next, you will need to decide how many years you will live after retirement. Let’s say you retire at age 65, and you think you can live up to 85, then you need an amount of money that can last you 20 years!

So based on the calculation above, you will need RM960,000!

RM4,000 x 12 months x 20 years = RM960,000

If you are 40 years old now, and you retire at age 65, then you only have 25 years to save RM960,000!

But if you are 20 years old now and you retire at age 65, you have 45 years to do so. That’s why the younger you are, the better it is to start saving for retirement!

Note that the inflation rate fluctuates every year, so this calculation is just an estimate. Also, you may decide to retire earlier and your life span may even be longer. All these variables will affect how much money you will need to save for your retirement.

Do you think you can save that much? In this case, don’t save your money in the Fixed Deposit Account. Instead, you should try placing your money in unit trust funds to gain from the higher returns.

But before you do anything, please make sure you already have an Emergency Fund ready that can last you up to 6 months. Read more about it in my Emergency Fund post.

(34) Comments

  1. cbenc12 said...

    oh my..those figures really freak me out.. >_<
    and we havent started to calculate the cost of having children and their education funds, etc..

    October 3, 2008 at 10:25 AM
  2. -eiling- said...

    You're right. Most of the time we only look at the short term savings and we forgot about planning for our retirement. While unit trusts do not always guarantee a good return, however investing a bit does help. Most importantly, we must have adequate savings which I'm finding hard to cope with! Haha....

    October 3, 2008 at 11:25 AM
  3. Bengbeng said...

    i give up oledi. live a day at a time

    October 3, 2008 at 12:54 PM
  4. Bengbeng said...

    I have elaborated on this post and linked to yr blog. I hope u don't mind.

    I am a little worried actually. Of course we won't become another Zimbabwe but there is a global crisis going on and we are not immune from it.

    October 3, 2008 at 2:17 PM
  5. Happysurfer said...

    Good reminder about saving and wise investment, Foong. Thanks.

    October 3, 2008 at 2:52 PM
  6. My Bug Life said...

    That's a huge sum..sobering thought indeed and a wise reminder for the need of good financial management.

    October 3, 2008 at 3:23 PM
  7. foongpc said...

    cbenc12, sorry to freak you out with these figures. But if you are young, there's still time to save and invest. Of course having children will add to the burden, that's why don't have too many children! : )

    eiling, haha! frequenting expensive places and expensive food and wine may take its toll on you financially. But as long as you budget properly, you can still save and enjoy your indulgences. Just make sure you know how much money is going out and how much is coming in : )

    October 3, 2008 at 11:07 PM
  8. foongpc said...

    bengbeng, if we are USA citizens, we could do that - live a day at a time. Their Government takes care of the senior citizens. Too bad it does not happen here in Malaysia. Will read your post. Thanks for linking it to my post : )

    happysurfer, you are welcome. Just want to remind everybody not to keep spending, spending and spending! : )

    my bug life, yes that's what we all need - a good financial management.

    October 3, 2008 at 11:11 PM
  9. -eiling- said...

    Well, I need not pay for any of the expensive food and wine I had (that's lucky). I am quite spendrift though but lucky so far my input is more than output!

    October 4, 2008 at 9:25 AM
  10. foongpc said...

    eiling, you are so lucky can enjoy expensive food without paying for it! Well, as long as your output is less than input, you should be doing fine : )

    October 4, 2008 at 10:10 AM
  11. suituapui

    Buy some insurance policies to ensure you have forced savings!

    And there's ur EPF as well, which can be quite substantial. I only contributed for 10 years before I joined the pension scheme and at 55, I took out my portion only (Pensioners not entitled to government's contribution) plus the annual premium...and I got about half of the RM96,000 in your calculation...but I got a fair bit as well in gratuity.

    I think for people who contribute all the way until retirement, plus the employer's contribution, there should be quite a lot! Just don;t spend it all at one go!

    October 4, 2008 at 12:32 PM
  12. molly said...

    Saving and non stop saving. I wonder when can I really enjoy myself with my money. I wish I am a multi-millionair with no worry about money, and off course without any health problem also.

    October 4, 2008 at 5:04 PM
  13. foongpc said...

    suituapui, you are right. Buying insurance does force us to save. However, insurance is more for protection than for saving as the interest rate is rather low. Medical card is important as it helps us to cushion financial burden in case of illnesses. EPF also help of course, but the current rate for EPF is below the current inflation rate, so we are in fact losing money.

    molly, don't we all wish we are multi-millionaires? But the reality is different, and I think with some planning and careful budgeting, we should be able to live happily too.

    October 5, 2008 at 1:23 AM
  14. suituapui said...

    Be more optimistic! Gee! Why are people today so pessimistic? Something is better than nothing! I heard A LOT of horrible stories about EPF...but when I went to take mine out, I was pleasantly surprised that my small 10-year contribution had grown so substantially.

    Of course, the returns from insurance policies are small...but u get protection in the meantime and if you do not buy, are you going to save???

    Many people feel that same way and they get greedy...and they venture into "more profitable" ventures including those "get-rich-quick" schemes...and they get burnt in the process!!! I know MANY like that...and some spend all their lives paying off their debts!!!

    October 5, 2008 at 7:17 AM
  15. suituapui said...

    P.S. If you can afford the down payment and the instalments, get a loan and buy a house! Tighten your belt, in the meantime! The value of houses keeps going up by leaps and bounds! Don't waste money on fancy cars!!! The moment you drive it out of the showroom, the value has depreciated!!!

    And if you get married and have kids, it will be good to take up an education policy for each kid. He.She may want to go abroad. If he/she cannot secure a scholarship, can you afford it? And people marry late these days...and they would have retired by then! No money liao!!!

    October 5, 2008 at 7:22 AM
  16. HEALTH NUT WANNABEE MOM said...

    This is depressing because I looked and am way, way, way behind. I better think of something and fast. Great tip!

    October 5, 2008 at 12:23 PM
  17. foongpc said...

    suituapui, yes we should of course buy insurance and property. We should also have savings in EPF. All these are important and will definitely contribute to the money we need for our retirement.

    Properties are assets while cars are liabilities. So no point buying expensive cars.

    And very true, don't ever get involved in get rich quick schemes.

    But we have to start acting now, while we are still many years before reaching retirement.

    October 5, 2008 at 2:51 PM
  18. foongpc said...

    health nut wannabee mom, thanks. Yes, start coming up with a plan now to reach your targeted goals for retirement. The earlier you start planning the better : )

    October 5, 2008 at 2:58 PM
  19. lina said...

    well, we do have Jabatan Kebajikan Masyarakat, though they only give assistance to needy & old folks & it's not automatic assistance.
    Just putting your money in the bank is definitely not enough. You also need to consider passive income generator such as real estate. Having a few properties may help in terms of income in old age when you rent them out, IMHO.
    & make sure you don't have any debt left (mortgage/hire purchase) by them time you retire. (I'm aiming to finish up my mortgage payment in 2 years' time! wohoo!)

    October 5, 2008 at 4:32 PM
  20. EastCoastLife said...

    No matter how hard I save, my money is turning into banana notes! Cannot catch up with the inflation lah!

    October 5, 2008 at 5:44 PM
  21. foongpc said...

    Yes lina, I agree having properties and renting them out will definitely provide good income in our golden years. Good thing you'll be finishing your mortgage payments in 2 years time. How many more properties you are planning to own down the road? : )

    October 5, 2008 at 6:07 PM
  22. foongpc said...

    eastcoastlife, to catch up with inflation, you have to save in funds that can give you returns that is higher than the inflation rate. This not enough money issue reminds me of the movie I just saw recently called "Money No Enough 2" directed by Jack Neo from Singapore. Wonderful film - have you seen it?

    October 5, 2008 at 6:18 PM
  23. Jacqueline said...

    A message to the young...Please, please, I beg of you, start planning today, right now.

    October 5, 2008 at 7:07 PM
  24. Bengbeng said...

    Mrs BB needs a car toobut we decided to hold on and see first

    October 5, 2008 at 11:33 PM
  25. Tekkaus said...

    It's good to plan but sometimes budgeting just don't seems to work. I thing I would have to put my family and children 1st. Retirement is only for myself if I do have that extras. As long as my children are successful when they grow up and even if they broke my bank to fund them to uni...I'm fine with being "living homeless". Seriously! =)

    October 6, 2008 at 1:26 AM
  26. lina said...

    @foong,
    I'm thinking of buying one house for rental purpose down the road (when and if I can buy that low cost apt I've been eyeing for as it has good returns) and maybe a new house that is nearer to Raimie's school. Cannot afford to buy a lot of property lah... where got money. hehehe... (Maybe if I win that RM20mil jackpot eh?) LOL
    & we do have a land back in Terengganu, so maybe upon retirement we can move there to cut down expenses!

    October 6, 2008 at 1:31 PM
  27. foongpc said...

    jacqueline, yes if young people as early as 20 years old start planning for their retirement, they would have it done much easier. Unfortunately, retirement is far away from their minds so we need to educate them.

    bengbeng, go get the car if it's really really necessary. Otherwise, don't cos you know car is a liability and the value drops starting from the day you own the car.

    October 7, 2008 at 10:51 AM
  28. foongpc said...

    tekkaus, wow! You are such a great dad! Your family is really very lucky to have you! But please remember not to sacrifice too much for your children because I'm sure you've heard of children who do not appreciate their parents' hard work bringing them up.

    You should really try to include yourself too in your budget. That is, plan for your children's education by all means, but also save for your retirement as well.

    Oh, btw, don't have too many children! : )

    October 7, 2008 at 10:56 AM
  29. foongpc said...

    lina, wah, got land in Terengganu some more, not bad. Yes, a good idea to move there during your golden years to cut down expenses : )

    October 7, 2008 at 10:59 AM
  30. jam said...

    Alamak! That's a staggering amount of 1 million. How am I going to save that? There will be no entertainment, no traveling, no good food, no gf... Oh, life is miserable...

    October 8, 2008 at 6:35 PM
  31. Johnny Ong said...

    yeah, the amount required per month will be much lesser as we won't be spending that much and will be living a more modest life instead of our present energetic life

    October 9, 2008 at 12:42 AM
  32. foongpc said...

    jam, I'm sure with proper planning, you can still be able to enjoy your travelling, entertainment, good food etc. You just have to cut down on some not very important expenses and start working harder or find other means to earn more money! : )

    johnny ong, I guess that's the only consolation. Imagine if we still spend like how we spend now, it'll be even tougher to accumulate enough money for retirement.

    October 9, 2008 at 11:25 PM
  33. Faisal Admar said...

    that is why i want to save in my asb to the max. 250k here i come!

    October 16, 2008 at 1:34 AM
  34. foongpc said...

    faisal admar, yes, you are doing the right thing. Keep it up! : )

    October 16, 2008 at 11:19 PM