Higher earnings key to more secure retirement

 Experts say consideration must also be given to factors such as inflation, and medical expenses to ensure savings last one’s golden years.

A comfortable retirement is the least one should aspire to, but up to four in 10 Malaysians don’t come close. (Envato Elements pic)

PETALING JAYA:

The means for Malaysians to save up for their golden years are all there. What is needed is to ensure that they have enough money to put aside on a regular basis.

That, in a nutshell, is what the country has to work on, according to an economist.

For Goh Lim Thye, a senior economics lecturer at Universiti Malaya, the challenge is to ensure that workers have the financial capacity to consistently save meaningful amounts while they are still working.

He told FMT this can be achieved by creating better-paying jobs and raising productivity. “(That leads to) real wage growth, which remains the most sustainable way to strengthen retirement preparedness,” he said.

“Naturally, higher lifetime earnings will translate into higher retirement savings,” he added.

Inadequate savings to see retirees through their twilight years remains one of the biggest social problems in Malaysia.

Last week, deputy finance minister Liew Chin Tong said fewer than four in 10 active EPF contributors in the formal sector have reached the basic savings level expected for their age, raising fresh concerns about retirement adequacy.

Liew told the Dewan Rakyat that only 3.04 million, or 38.3%, of EPF’s 7.94 million active contributors aged 18 to 60 have achieved the basic savings benchmark for their age, up from 35% a year earlier.

Goh pointed out that the challenge is not so much about creating new savings channels, given that several are already available.

Apart from the EPF, which is mandatory for workers in the formal sector, there also are private retirement schemes and government-backed unit trusts available in the market.

“What we need is to ensure that Malaysians have the financial capacity to make consistent and meaningful contributions throughout their work life,” he added.

Economic impact

However, there are other considerations that must be taken into account.

Another economist, Firdausi Suffian, singled out low growth in wages as a troubling factor, while financial planners said the savings benchmark is too low under current conditions.

Firdausi, a senior lecturer at UiTM Sabah, attributed the low growth rate for wages as a structural problem in Malaysia’s economy.

He said Malaysia must undertake economic reforms to shift towards higher-value industries, creating better-paying jobs that would enable workers to make larger EPF contributions and retire with greater financial security.

“Productivity has improved, but wage growth has not kept pace, making it harder for people to build retirement savings,” he said.

Threshold too low?

Liew, when speaking during the question-and-answer session at the Dewan Rakyat, said EPF considers a savings of RM390,000 upon retirement the “minimum required for retirement income adequacy”.

Financial planner Kelvin Goh said the nation must rethink what constitutes “adequate”.

“For a start, RM390,000 should just be the starting point, not the finish line,” he told FMT.

He said a more realistic target is at least RM600,000. “Everyone should aspire to have at least that amount of money in their nest egg upon retirement,” he said.

“Having a savings of RM1 million and above should be the minimum for those who want greater comfort, flexibility and better protection against inflation and medical costs,” he added.

Another financial planner, Saidah Asilah, pointed out that EPF’s own Belanjawanku guide has suggested that many retirees would need considerably more than the benchmark.

“From my experience, (RM390,000) is unrealistic. As it has been pointed out in Belanjawanku 2024/2025, a senior couple in the Klang Valley needs RM3,390 a month,” she told FMT.

That sum will last barely 10 years, not taking into account inflation. The average lifespan of Malaysians, according to the statistics department, is 75 to 78 years.

With retirement fixed at 60 now, one would have a good 15 to 18 years left.

Saidah urged young Malaysians to start planning early by budgeting, saving consistently and investing to build sufficient retirement funds.

V Rajendran, also a financial planner, said retirement planning should move beyond simply hitting a targeted savings balance, as what ultimately matters is whether retirees have enough to support themselves through retirement.

“Ultimately, retirees live on monthly payouts, not on account balances,” he added. - FMT