Early Retirement a Dream, Later Retirement the Reality, Says Economist

Petalings Jaya: Rising Prices and Lack of Savings Threaten Phased Retirement

Rising prices and a lack of savings will place phased retirement out of reach for many Malaysians, who can expect to remain working for longer than planned, says an economist.

Juita Mohamad, who is with the UN trade agency, said one in four EPF members are projected to exhaust their savings within five years of retiring at age 60.

“An early retirement is a dream for many of us, but looking at the gaps in savings, inflationary pressures and price hikes in the future, more and more people would need to retire later in life,” she told FMT.

Inflation Rate on the Rise

Malaysia’s inflation rate was 1.8% in 2024 but is projected to increase to between 2% and 2.5%, driven by subsidy rationalisation, expansion of sales and services tax scope and other factors.

Cost of Living on the Rise

In 2023, the cost of living reportedly rose the highest in Putrajaya by 4.6%, followed by Perlis (3.9%), Johor (3.5%), Melaka and Kuala Lumpur (3.3%), and Selangor (3.2%).

Financial Planner’s Advice

Certified financial planner Jarvic Lau said retirees would need savings to last at least 20 years and should be free from major debts such as housing and car loans.

“If an EPF member at age 40 has a balance of RM2.1 million, they can theoretically retire early, provided their expenses remain at RM5,000 per month,” he said.

However, someone who retires at 55 but with only RM1 million in EPF savings would need to live on RM4,167 per month.

Lau said the EPF suggests RM650,000 as the minimum savings level, allowing for monthly withdrawals of RM2,708 in the first year, growing to RM7,389 by year 20.

Flexible Retirement Schemes

The idea of flexible retirement schemes was mooted recently by Calvin Cheng, a fellow at the Institute of Strategic and International Studies who urged policymakers to rethink Malaysia’s retirement policies.

Another economist, Geoffrey Williams, said that flexible retirement schemes could benefit both individuals and the economy if properly managed.

“Flexible retirement opens jobs to younger people but also releases older people from full-time employment, allowing them to do other things—for example, setting up their own businesses,” he said.

Williams said flexible retirement can be applied across all industries; the only real obstacle was resistance from employers.

“Early, flexible and phased retirement schemes should be encouraged and is just as feasible in Malaysia as anywhere else if the infrastructure to change the retirement age and pension fund withdrawal rules is in place,” he said.

Conclusion

In conclusion, the harsh reality is that many Malaysians may be forced to delay their retirement plans due to rising prices and lack of savings. It is crucial for individuals to plan and save diligently to ensure a comfortable retirement.

FAQs

* What is the current inflation rate in Malaysia?
+ 1.8% in 2024
* How much does the EPF suggest as the minimum savings level?
+ RM650,000
* What is the expected monthly withdrawal from the EPF for someone with RM650,000 in savings?
+ RM2,708 in the first year, growing to RM7,389 by year 20
* What is the expected monthly withdrawal from the EPF for someone with RM1 million in savings?
+ RM4,167 per month