The 2 magic numbers for a comfortable retirement | Free Malaysia Today – Free Malaysia Today

Retirement is a destination everyone will get to sooner or later. As each person will reach retirement age at a different time, it is difficult to determined a fixed amount that applies to everyone – it will vary according to one’s own needs.
However, as a guide, here are two easy-to-remember numbers that will help you achieve your retirement goals with almost 100% certainty.
The first magic number: 30%
This is about how much you should save, which is 30% of the money you make. How much you make determines the lifestyle you can enjoy.
Whether you earn RM1,000, RM5,000 or RM10,000 a month, if you can save 30% of your income by spending below your means at all times, you will be able to retire and maintain your lifestyle.
Why 30%?
If you are actively employed, you already save about 20% by combining your personal and your employer’s contributions to EPF.
Unfortunately, in October the EPF warned Malaysians that they will need at least RM600,000 to retire comfortably in major cities.
If you are not one of the top 20% high-income earners, you will most likely end up without a sufficient retirement nest egg if EPF is your only means of savings.
As such, to do better, you need to save at least 10% more on your own. For those of you who don’t contribute to EPF, it is highly recommended you aim for at least a 30% savings rate.
The essential principle here is not about the amount of savings but the habit of being able to delay gratification, live frugally, and not spend your future money willy-nilly.
Once you have learnt to live for less and lead a simple lifestyle, you will realise how rich you can be as you will have opportunities and options at your disposal.
The second magic number: 10%
This is about investment returns. You need to know how to invest with double-digit yields, 10% or more, be it in properties, stocks or businesses.
The earlier you know how to do this, the greater the chance you’ll have of a comfortable retirement.
For example, if you have RM1 million now and you only generate a 3% return in fixed deposit, that’s just RM2,500 a month. But if you can achieve 12%, that’s RM10,000 a month – a big leap.
The standard advice from financial advisers is to stay conservative with your retirement fund and keep it in stable investments such as fixed income funds, bond funds, EPF, and Amanah Saham.
There is a flaw in this common advice because even retirees are investing for the long term. They might need to spend 3-5% of their net worth in the next 12 months, and this can be kept in stable funds.
This article first appeared in kclau.com. KC Lau’s first book ‘Top Money Tips for Malaysians’ has sold thousands of copies. He launched the first online personal finance course specifically designed for Malaysians, the Money Automation System course, and also co-founded many other online financial courses including the Bursa Method, Property Method, Founder Method and REIT Method.
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