When will we be ready?

By Carol Yip
Saturday August 29, 2009

RETIREMENT planning is a buzzword these days. But when we are asked to plan for retirement, it can be overwhelming because of many uncertainties and variables beyond our control.

Analysing a person’s subjective expectations about retirement is a complex process that requires an individual to make judgments about our life situation decades into the future.

Since we cannot see so very far into the future, planning for it becomes difficult and often leads to disappointment.

Moreover, a person’s retirement preparedness is directly affected by economic variables such as inflation, cost of living, financial market movements and also personal inputs such as employment and business success.

With so many variables, it is sometimes a challenge to maintain the same standard of living during pre-retirement and post-retirement periods.

As it is, our daily spending on basic needs like meals, groceries and medical fees are good indicators of paying a lot more money these days.

We no longer pay less than RM3 for a bowl of noodles in the city. Prices of goods and services have increased more than our annual salary increment. Like it or not, the inflation rate will continue to increase.

How about our lifestyle spending for fun and leisure like overseas holidays, eating out, shopping and clubbing with prices increasing at the rate beyond our financial means?

If you have a chance to travel out of Malaysia these days, you will feel the pinch of our exchange rate. Parents who have children studying abroad will tell you that the money they have saved is now not enough to pay for the increased tuition fees and this is compounded by our weak exchange rate.

Aging parents who need medical care will also cause us to dig deeper into our pockets to make ends meet, while at the same time, coping with rising costs of medical services and products.

When we face challenges in meeting the financial needs for ourselves and family, including “keeping-up-with-the-Joneses” and increasing cost of living, it is not surprising that many of us have difficulties articulating our retirement expectations.

Our retirement readiness cannot be justified by financial figures only but our psychological state of “being ready for retirement”.

Some have reasons and excuses for not planning like “I don’t have time”, “I don’t have money”, “I don’t know how to”, or “Still too early to think about it” because they can’t seem to see the light at the end of the tunnel.

Retirement may no longer be an option so continuing to work becomes a must.

This is because not many are lucky enough to retire with attractive retirement packages like lifetime free medical fees.

Neither do some have lucrative salary packages like fund managers or bankers.

Therefore, we need to be smart in our personal investment know-how in financial products to grow our money to retire comfortably. How do we know that as a society, we are progressing in terms of retirement preparedness?

Perhaps it would be a good idea to monitor our society’s retirement success by using a retirement index to measure the level of retirees’ standard of living relative to the general population.

Metrics could be based on the number of retirees who are financially poor compared to the retirees who continue to have the financial capability to enjoy life, experience good standards of living and have healthy relationships with family, friends and the society.

If the retirement index is showing an unfavourable level in an ageing society, then retirement initiatives have to be a collective effort of our people and our government. Some personal initiatives include:

● Having the right attitude towards retirement.

● Having family, friends and business community for mental and emotional support.

● Having access to personal financial education to improve financial literacy.

Government initiatives include:

● Strengthening economic growth, improving income purchasing power and curbing the inflation rate.

● Having financial aids to address retirees’ welfare needs.

● Putting in place effective banking and financial policies that promote healthy investment practices.

With the liberalisation of Malaysia’s financial markets and proposed private pension schemes next year, this means we will have more choices when saving and investing for our future.

It will only be ideal if the rate of return of these investment products is above the real inflation rate and not easily affected by the volatility of the economy and financial markets.

With more investment product choices in the marketplace, we need adequate financial education to understand the technical workings of these products to improve the quality of our investment decisions.

According to the Mercer 2006 financial literacy and retirement readiness study, the benefits of a financially literate society are many.

● We feel more confident and empowered to take control of their finances and make decisions which help grow their savings.

● We become more knowledgeable about financial matters and have more opportunity to grow their savings for retirement.

● We reduce the risk of falling victim to unscrupulous financial operators and schemes

● We are able to take control of our financial destiny.

The million dollar question will be: Who is best suited to spearhead these educational initiatives to avoid conflict of interest in providing quality, unbiased information to our people before it is too late – the government, financial education providers, product providers, professional advisers? Or will we have to resort to self-education?

Carol Yip is a personal financial coach who is founder and CEO of Abacus for Money.