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#31 The Importance Of Early Retirement Planning And Ways To Plan It

Updated: Jan 5, 2022

Have you ever asked some questions like at what age will you retire? Or how will your life be after retirement? If so, you may already be aware of the importance of early retirement planning and already pound have your planning. But if not, you need to be aware before it becomes too late.

Before that did you know that 54.6% of people aged 20 to 29 do not have a retirement plan at all? This will give them a rather bleak future. So, if you do not want to be a part of them, let us take a look at the importance of this retirement planning and ways to plan for it.

Wait a moment, some of you probably thinking that you already have retirement planning just because you already had an EPF (also known as KWSP in Malay) savings, right? So, do you think it is enough? It has been recorded that a total of 89.2% of people actually know that EPF savings alone will not be enough for their retirement. Let us repeat that part once again, "EPF savings alone will not be enough for retirement". Oh no, this is start going to be worse.

The importance of early planning for retirement.

The importance of this early planning is to fulfil your retirement imagination when you retire later. Of course, you want a retirement where you no longer need to worry about your financial problems. You want a quiet life and want to do all the things you could not do in your youth because you were too busy working. You want to go traveling and spend time with family and so on.

So, you may feel your savings in EPF are enough to do all that. But the reality is quite different. This is because the average life expectancy of Malaysians is up to 76 years as of the year 2020. Malaysians are expected to become weak senior citizens with diseases within 8 to 10 years before they die. So, half of your EPF savings will be used for your health care later. And to be honest, some of you will spend all your EPF savings within 3 to 5 years of your retirement. So, is that enough to cover your expenses when you retire later? You need to know the answer by yourself.

Ways To Plan It Other Than Using EPF.

Seeing all the facts and data mentioned above somehow gives us unknown fear to know how our retirement life would be later. But do not worry as the whole situation was already be seen by The Private Pension Administrator Malaysia (PPA). On 18 July 2012, PPA was launched together with the establishment of the PRS also known as Private Retirement Schemes to help Malaysian retirement.

What are Private Retirement Schemes (PRS)?

PRS is a voluntary long-term investment savings scheme by prospective retirees to help them save enough money for their retirement later. PRS is also for those who work in any organization/company or are self-employed to supplement their retirement savings under a structured and controlled environment according to the voluntary system used. Voluntary means that prospective retirees can keep in PRS voluntarily without being bound by any conditions. It is very different from a strict EPF system.

How does PRS work?

You can choose between 2 options which is the first one is to give contributions directly to the PRS Provider or second, just go through their registered distributor. After successfully starting a PRS account, you will be automatically assigned a PRS account. The PPA will manage your PRS account and will provide you with an annual statement of your PRS account with the PRS Provider(s).

You can also choose to save into 1 or more PRS Providers. So, under each PRS Provider you can also choose whether to invest in 1 or more funds where it has 2 more options that is by contributing based on the default option (age-based selection) or any fund of your own choice.

There is a feature embodied in this PRS which is known as the default option of core funds with the aim of making your investment for retirement savings easy. PRS default option for core funds has a mixed package of underlying asset classes that provides growth, moderate and conservative risk, and returns based on age scale up to their retirement day. Each PRS Provider must provide 3 core funds as a default option. If you choose to use the default option, you will be placed in core funds based on age differences.

There are 3 different core funds with different age groups: -

  1. Growth Fund (Below 45 Years) - Focus is on growing the portfolio.

  2. Moderate Fund (45 – 54 years old) - Focus is on growing the portfolio whilst seeking income.

  3. Conservative Fund (55 years old and above) - Focus is on generating income consistent with getting the portfolio ready for utilization.

Why choose PRS?

The advantages of PRS are the main reason why you should choose to invest in PRS. There are about 6 reasons why you should consider doing your retirement planning through PRS.

  1. PRS was indeed set up to help you accumulate more savings for your retirement. Easily, it was designed to help Malaysians to have a better retirement day.

  2. PRS also only requires at least 10% of your monthly salary and it is very affordable.

  3. PRS is also flexible because you can choose PRS Providers and various funds that can be matched with your investment profile and your risks appetites.

  4. You can also enjoy up to RM3,000 personal tax relief annually. Under the latest Budget of 2021, tax relief was extended to the year 2025.

  5. PRS has a regulated framework that falls under the Securities Commission Malaysia and the scheme is covered by the Scheme Trustee.

PRS had the automatic balancing system through their special features which are the default option for core funds. This was also known as Auto Glide Path. The fund manager will allocate the funds exposure to different asset classes, sectors, geographical exposure depending on changing market conditions. The fund manager automatically switches funds from higher-risk to conservative lower-risk.

Final thought.

The establishment of PRS is in line with the government's objective to improve living standards for Malaysians at retirement through additional savings. PRS is also now more active in providing knowledge on the importance of retirement planning to Malaysians to meet the objectives mentioned earlier.

A lot of information about PRS has been broadcast on public television stations as well as advertisements and awareness videos on the YouTube site. This clearly shows the importance of retirement planning to us. Want to know about PRS in more detail can visit the official website of Private Retirement Schemes (PRS).

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