EVERY one of us will eventually reach retirement age. The day we stop active work life will be the day our active income stops.
When that time comes, there will be lots of adjustments from mental to physical and of course, the financial side, too. So, how should we prepare for it?
Firstly, we need to have the correct mindset – we must come to terms with the loss of our career so that we can happily pursue our personal passion.
We spent the last 20 to 30 years of our daily life busy working and building our family. Some of us may feel the emptiness or even drifting aimlessly in life. Just like a shooter who suddenly lost his target.
It is important for us to find things that we love doing and look forward to it during retirement. This will enable us to keep our brain active wile preventing us from slipping into dementia or depression.
A few years ago, I met a highly ranked government officer who shared that he fell into depression soon after his retirement simply because he was holding a very senior and highly respectable position but suddenly became a ‘nobody’ upon his retirement!
Lucky for him, his family discovered it early and brought him to seek counselling to overcome his mental distraught.
Financial health
Apart from depression, we can also expect changes in our financial situation.
In order to prepare for such change, we must first understand what our financial situation is by taking stock of our assets such as house, car, cash, EPF (Employees Provident Fund), properties and investments.
Some of us may still have liabilities such as mortgage, personal loans, car loan and credit card outstanding balance.
At the same time, we also need to know what our monthly expenses are during retirement. Start by preparing a computation of monthly expenses and also try to factor in expenses that occur quarterly, semi-annually and annually such as car road tax, insurance premium, travel and so for.
Most assume that they will spend less during retirement or can even downgrade their lifestyle. This may not be true.
With more free time, we may find ourselves venturing into different areas like travelling more or spending more time at cafés.
Don’t forget about additional medications or supplements that will be necessary especially when our previously well-tuned body engine may start to break down. Also, look out for large purchases during our retirement such as changing a car or house renovation.
We need to understand how much we can afford to do so. Some of us may still need to fund our children’s education. If we do not plan properly, our retirement fund will be insufficient.
It is advisable to settle liabilities fully before retirement. This is because once the active income tap is turned off, one may feel stressful with this double whammy situation.
In Malaysia, most of us have EPF savings as our main retirement fund. We can schedule monthly withdrawal from EPF to cover our monthly expenses.
However, it is very dangerous to withdraw the lump sum from EPF upon retirement as this sum of money can be depleted within two to three years. A client of mine who withdrew all his EPF savings at age 55 has in fact used up all his money by the time he was 58.
He spent 80% of his EPF money to fund his daughter’s education and the balance on changing furniture and electrical appliances such as washing machine and fridge. In the end, he had no choice but to get back to the work as he had exhausted all his retirement fund.
As we have spent at least 30%-40% of our life working and earning money, we deserve to enjoy our golden years comfortably.
Personally, I believe everyone can do so with proper planning. Do not procrastinate any more to plan for retirement. In the next article, we will explore other planning aspects that we must prepare for retirement.
Shing Yee Ling, CFP, is a licensed financial planner with VKA Wealth Planners Sdn Bhd. She is also a certified member of the Financial Planning Association of Malaysia (FPAM).
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
