Retirement & Malaysians

Excerpt from The Star 22nd August 2009



Saturday August 22, 2009

Malaysians less confident about preparing for retirement

By LAALITHA HUNT


LOTS of working adults are paralysed when it comes to planning for retirement. Most people will delay this as long as they can, possibly due to their lack of knowledge about financial matters.

Generally, the more knowledgeable an individual, the more confident he is in taking control of his financial destiny, which usually is about securing a comfortable retirement.

A recent study by the non-profit Employee Benefit Research Institute in the United States found that only 13% of Americans said they were confident of a comfortable retirement – drastically reduced from 27% in 2007.


Figures in Malaysia show a similar sentiment. The AXA Life Outlook Index findings for 2009 indicate that Malaysians’ satisfaction with their preparation for retirement has dropped. In 2007, 23% were confident about their retirement years, but this has since dipped to 14%.

While many working Malaysians are reasonably financially literate, certain groups are less so and therefore less confident in managing their finances. This is a worry considering that the elderly make up an increasingly large proportion of our society.

Demographic and socio-economic forecasting provider Global Demographics Ltd forecasts senior citizens (those 50 years and above) to increase from 15% to 25% of the total Malaysian population over the next 20 years.

As the Malaysian population ages and retirement looms for many, the issue of financial literacy in a retirement planning context has become particularly salient.

Abacus for Money chief executive officer Carol Yip says that there is no single product or solution available to guarantee one’s comfortable retirement.

She notes that the main asset likely to be available to most working Malaysians upon their retirement is their Employees Provident Fund contribution.

Other assets may include property, shares, unit trusts, term deposits, inheritance, insurance, government pension as well as emerging private pension funds.

Yip asserts that individuals must increase their level of financial literacy so that they can go cherry-picking from the wide array of products available in order to ensure a comfortable retirement.

Besides the usual means of consulting financial planners and reading financial magazines to improve financial literacy, Yip calls upon employers to provide training to their staff in order to empower them with financial knowledge to plan their future.

Yip also encourages retirees who are in the early stage of retirement to equip themselves with financial knowledge in order to wisely invest their money so as to protect it from inflation as well as to provide recurring income over the medium term.

The senior citizen population of 50 and above in Malaysia as well as regionally is said to be rapidly expanding into a large, affluent market.

MasterCard Asia Pacific, in a study, estimates that the spending power of the retired population in Malaysia to exceed US$10bil (RM35bil) by 2015 – more than double the figure from 10 years before.

Madam Chong (not her real name), 56, who recently retired but is still an active investor with a moderate risk profile, was looking to diversify her portfolio.

The ideal product that she is looking for is one that can offer recurring income with double-digit returns annually, monthly or quarterly. It should also be capital-guaranteed as well as easy to liquidate with no penalties over five to ten years.

“I was prepared to consider regional investments with a slightly higher risk,” she says.

After looking around, she discovers that there are no such products that meet all her criteria except for two that offer returns between 6% and 7% per annum, but require high deposits of RM250,000.

“There are a couple of insurance companies that offer returns of about 4% annually with smaller deposits,” Chong says.

Given the current economic uncertainty and the absence of investment products specifically catering for retirees, Chong reiterates the need for retirees to be financially savvy instead of just depending on advice from third parties to manage their wealth.