Financial Preparation Before Retirement

summarized by zakiahrana

You are never too young or too old to prepare for your retirement. The earlier is better, but better late than never. There are several basics of retirement planning that you should aware which are: How much savings or assets do you have? What is your monthly income? What is the percentage of your income contributed to EPF or other retirement plans? What rate of return do you want on your investments? How many years do you have until retirement to earn your money? After analyzing your current assets and liabilities, estimates your spending needs and adjust them for inflation, then decide when you want to retire- at age 45, 55, 60, 65?
Nonetheless, there are four steps that you should follows in order to prepare yourself in term of financial before retired. The first step is to set your financial needs. You should analyze your financial needs after the retirement. After retired, some of the expenses such as clothing expenses, transportation/travel costs, foods and other may not exist anymore. However, the other expenses such as medical cost, insurance and other expenses will be increase. Generally, the pensioner financial needs are 75% to 80% from their financial needs while working. Based on this, you have to consider the unique situation such as child education cost and housing loan to estimate the monthly expenses. Other than the fixed expenses, you should consider for the lifestyle changes. If you want to travel, go for holiday or you have any other costly hobbies, you should consider these costs while doing this retirement plan.
The second step is to make the evaluation of the financial status. After you have set your financial needs, you have to evaluate your current financial situation and make a plan for the retirement needs. Here, you should give an attention to the investment portfolio which includes additional savings and your income. Also, put in the list all of the financial commitment that you need to settle down. If you are still working, estimates the total amount of EPF or pension you will receive after retired.
The third step is to calculate the amount needed. After all the information above collected, you can get an advice from the financial planner or any web sites that provide an articles about the retirement preparation which you can use in order to prepared yourself before retired. It is important to evaluate whether what you have now (money) is adequate for your retirement needs later. If the answer is NO, at least, you can calculate how much money is needed. As an example, Abu’s yearly financial needs are RM50, 000 (around RM4, 000 per month). He estimates that his retirement savings will give 7% interest every year. So that, Abu’s will need at least RM714, 286(RM50, 000/0.07) in his savings to fulfill his retirement expenses.
The last stage is to be discipline to plan the financial. In order to maintain your buying power, make sure it expands at least at the same rate with the inflation to balance the negative inflation. This based on assumption that you want to maintain the retirement savings for your whole life and keep the principal amount for your children. However, if you are not care to spend the retirement money, the total amount needed must be much lower. But, at the same time, you must be careful to make the planning. You must avoid from making an unimportant withdrawal and make sure it is adequate for your whole life after retired.