PETALING JAYA: Retirement is usually envisioned as a time when those in their golden years can sit back and reap the rewards of their decades of hard work.
However, do retirees or those approaching retirement age have enough to live comfortably with current economic conditions?
Some economists estimate that they would need at least RM2mil in their retirement funds.
One even suggested that Malaysia make use of the hundreds of billions of ringgit floating around in limbo to create a buffer.
Malaysia University of Science and Technology Research and Innovation provost Prof Geoffrey Williams mooted full-scale pension reforms, including a new “Malaysia Superfund” to provide a “universal basic pension” for those from B40 groups who are soon retiring.
“This can be done by merging existing government social security schemes, pension bodies and unclaimed assets,” he said.
He said these bodies held assets and money amounting to RM321bil, adding that it was more than enough to kickstart the fund.
“This would allow retirees in lower income tiers to have a monthly pension of about RM2,000.
“Payouts would also supplement the remaining savings in its beneficiaries’ EPF (Employees Provident Fund) accounts,” he said, adding that federal and state governments or even private funds could be merged into this “superfund”.
He said inflation had hit retirees hard as their fixed monthly income had not gone up in line with rising prices and cost of living.
“This causes their spending power and standard of living to fall, while eroding their savings – and they cannot save more as they have stopped working.
“Those approaching retirement have a similar problem, where they may need to save more to have a pension that allows them to live better in a future where prices will be higher,” Prof Williams added.
Citing EPF projections, he said 73% of its active members and 84% of all members had inadequate savings, which would see them unable to afford even RM1,000 monthly during retirement.
“This is below the poverty line and when we take into account those without EPF contributions such as housewives, the reality of old-age poverty is very serious,” he said.Prof Williams added that those in their 40s and 50s without any pension savings would have to save more than they earn to head towards the minimum savings rate.
“Meanwhile, those in their 20s and 30s should start saving up more consistently through EPF schemes, alongside voluntary contributions,’’ he said.
Another approach would be for retirees to match their lifestyles with their savings, with another economist also proposing full-scale pension reforms to help lower-income groups cope.Prof Yeah Kim Leng of Sunway University said retirees would have to adopt more frugal lifestyles.
“Those approaching retirement with insufficient savings may also have to work longer or seek supplementary income sources to keep abreast of the rising cost of living.
“From an individual perspective, a useful rule of thumb would be to save at least 20-30% of monthly income, although this can vary by age, life stage, spending needs and priorities,” he said.
He added that younger groups typically had higher spending needs and correspondingly lower savings.
“Through proper career planning, household budgeting and spending, alongside appropriate savings and investment strategies, they can stay ahead of inflation,” he said.
On projections by the EPF that at least RM1mil was needed to retire comfortably in the coming 20 to 30 years, Prof Yeah said it was not realistic, especially among the lower- income groups.
“That amount is also dependent on inflation rates and inflation-adjusted returns to savings that fluctuate over time. Those with lower savings also need to match their lifestyles and spending habits with their savings,” he said.
He added that inflation will always be the scourge of retirees given how it reduced the real value or purchasing power of savings.
“This fear is well founded – not only for retirees but the nation as a whole,” said Prof Yeah.
Recently, a survey found that Malaysians were in their “worst- ever financial position” in the face of a looming global recession amid rising inflation.
Data from the RinggitPlus Malaysian Financial Literacy Survey 2022 revealed “various painful truths on the current financial state of the rakyat, including depleted savings, cashflow issues and other worrying trends”.
Among its findings were that 70% of respondents said they save less than RM500 per month or do not save at all, 53% saying they could only survive for three months or less with their savings and 55% spending exactly or more than they earn each month.