Planning for retirement would most probably be unappealing to the majority of Malaysian Gen-Ys. Generation Y (Gen-Y) – generally defined that as those born in early 1980s to mid of 1990s or early 2000s. Sources* indicated that Malaysian Gen-Ys make up 40% to 50% of the workforce currently.
It is not difficult to find them thinking they are still too young to plan for retirement, even for the group in their 30s, simply because retirement is a distant event and therefore low in their list of priorities. But planning for financial goals in retirement is much more achievable if one starts early rather than later in one’s life.
Malaysians who work in the private sector rely on their EPF savings for their retirement income. Based on the EPF 2016 report, EPF members who attained age 55 years old in 2016 had an average savings of approximately RM200,000.
Assuming an individual needs RM3,000 a month to maintain his pre-retirement standard of living during his retirement years, then he will need RM36,000 a year. If he wants his money to last for 20 years during his retirement, he needs to accumulate (ignoring interest and inflation) RM36,000 x 20 years = RM720,000 on his retirement. Comparing this figure with the EPF data there is clearly a big gap.
According to a study conducted by Asian Institute of Finance (AIF)**, Malaysian Gen-Ys are experiencing significant financial stress early in their life with many of them living beyond their means and trapped in emotional spending. The majority are living on high cost borrowing with 38% reportedly taking out personal loans and 47% engaged in expensive credit card borrowings, while only 28% felt confident in their financial literacy.
Setting your priorities straight is a key to sound personal financial management. If your priority is to save first and only spend what is left, it is more likely your savings will grow. If your priority is to spend first and save what is left, then most likely you will end up having no significant savings and, in some circumstances, the chances of you saving could be zero! Hence setting your saving and spending priorities right is one of the keys to achieving your future financial freedom.
Gen-Ys may view savings for retirement as low or no priority compare to savings for other purposes such as savings for latest device/ gadgets, car or home purchase, or a holiday abroad. Those who are in their late 20s or early 30s may prioritize saving for the purchase of their first residence, supporting children’s education or supporting ailing parents. In spite of all these priorities, it is crucial to save for retirement on top of all the other savings needs to avoid the cost of delay.
Retirement planning is a long term commitment. Gen-Ys need to start saving for retirement as early as they can. Adopting smarter saving and spending habits can help you handle your eventual retirement better. Keep the principle of “save first, and spend later” as time waits for no man. The longer you wait to begin building your retirement nest egg, the harder it will be to ensure your golden years will be financially secure. So Gen-Ys, get started now!
* Sources from PwC, Millennials at Work
** Report released in October 2015