Want to plan your finances to have enough for retirement in Malaysia? Here are some tips

KUALA LUMPUR, Oct 27 — As Malaysians live longer, the question arises as to whether they are financially prepared for retirement. According to Malaysia's official data, individuals born in 2026 are expected to live to 75.5 years, while those aged 60 and 65 now are projected to live to 80.2 and 81.5 years, respectively. Licensed financial planner Rajen Devadason explained that planning for retirement finances involves dividing net income (after taxes) into three equal portions: past (existing debts), present (current expenses), and future (investments for the future).

At least one-third of the net income should be allocated towards paying off debts, another third for current expenses, and the remaining third for future investments.

Rajen advised setting aside an additional 22% of current EPF contributions to generate passive income for the future. Sources of passive income include bank interest, dividends from EPF savings or dividend-paying stocks, cash distributions from unit trusts, rental income from owned properties, and listed REITs and REIT funds. Once debts are cleared, half of the income can be spent on current expenses and future preparation, according to Rajen.

To manage finances effectively, Rajen suggested creating a written budget, increasing active income, controlling expenses, and allocating surplus towards multiple passive income streams. He warned against falling into the "hedonic treadmill" and emphasized the importance of saving for retirement rather than relying solely on government support. Rajen also highlighted the need to delay gratification and build cognitive reserves to maintain mental sharpness for financial management.

JP Morgan Asset Management's chief market strategist (Asia Pacific) Tai Hui suggested setting a retirement goal and working backwards to determine how much needs to be saved and invested. The EPF's Retirement Income Adequacy framework sets target savings levels for Malaysians at retirement age 60 - Basic Savings Level (RM390,000), Adequate Savings Level (RM650,000), and Enhanced Savings Level (RM1.3 million).