Attended a talk on Private Investment Scheme (PRS) upon invitation from SK. It was quite interesting as I suddenly realised that 'Hey, retirement is no joke!'. As the name suggests, PRS is similar to EPF (Employee Provident Fund) except that PRS is voluntary while EPF is mandatory. But then for private sector employees, I think it's good to complement your EPF with this PRS.
PRS has similar fund allocation as EPF, i.e. the 70% and 30% allocation into Account 1 and Account 2. However, you can't withdraw any fund from PRS until you reach retirement age. Any earlier withdrawal is subject to 8% penalty. Good thing is that, since it's voluntary, you don't have to commit monthly, and the minimum required investment is only RM100 monthly (by Hwang). Some other fund house will require a minimum of RM1000 though. But then, since you already decide to build up on your retirement fund, might as well contribute regularly.
The downside is that, you will need to pray that the fund house which manages your PRS is competent enough as there is no guaranteed % of return. EPF on the other hand, has a guaranteed minimum return of 2.5% (still very low, even when compared with EPF, but then it's still better than nothing). But if you switch between funds from the same provider, there won't be any switching fee charged.
There are also 3 categories of investment fund for different appetite investors, i.e. growth, moderate and conservative. Do Google more on PRS if you are curious. You can also get some info on it from here. I am no expert so I apologise if there is any mistake in my clarifications above. To be safe, contact your financial adviser friends to find out and research it on line.
I wish to share what I knew from the sharing, to the best I could remember, of course. How many people dream of retiring early? I think if given the option, most of us would like to do it. But then, retirement means reduced income or no incoming income at all. So it is advisable to plan early to build up your retirement fund. Minus off those people who are good in investment etc, who won't need to worry about their retirement of course. We are talking about the majority of the crowd here.
When you retire, you will need these 8 elements to sustain your life, though some of it can still be omitted:
1) Food
That's the most basic necessity of life, can't be omitted. If you want to live, you got to eat, just a matter of what you eat. If you eat healthily, then you will live longer. Otherwise, unthinkable!
2) Festive Spending
As you get older, you tend to cling to faith more religiously. Especially for Chinese community when there are so just so many festivals, e.g. CNY, Mooncake, Dumpling, Winter Solstice, etc. Spending in this sector can be reduced but then, the elderly always get satisfaction from here since this is the time where everyone gathers and stay united.
3) Medical care
As your engine gets older, maintenance gets higher. No matter how fit you are, some aspects of your health will deteriorate somehow. If you have already bought sufficient medical insurance coverage, then it's fine, but hey, with the current inflation rate and the booming health tourism (especially in Penang), who knows how much will a simple blood check costs in the future?
4) Supplement
Required in order to complement the poorer nutrient absorption in the elderly and also to complement the basic function for our body. Better allocate some funds into this. Supplements nowadays are not cheap but then, so does medical bills! Still much better to invest in prevention rather than cure.
5) Social networking
You spend more time with friends or family as there wasn't much for you to do. Activities like mahjong, evening walk, tea session with friends, hiking, jogging etc somehow still needs some investment, be it on food or drinks or sports attire, equipments or shoes. Also can be limited.
6) Transport
The only transport which is free is your two pair of legs, but how much distance can you cover to get you from one destination to another? This can be minimised if you limit your travelling though.
7) Accommodation
Household expenses, appliances, maintenance, utilities, etc. is no cheap expenses, no joke. This is beyond control since you won't know which part of the house or appliance will fail you indefinitely.
8) Retreat
Once in a while, you still need to have relaxing trip or vacation, sort of treating yourself better. This can still be omitted though. I mean, if you mean it, just an evening stroll by the park can do wonder.
There are 5 accelerators (DOs) to building your retirement fund:
1) Buy house ASAP
Property prices almost doubles up for every 10 years period. And there was no telling when the bubble burst will happen. Even if it happens, property prices will not go too low anyhow. Property is probably the highest investment one makes in life. I dread thinking how to buy a house, and honestly it never came across my mind to save for one, not yet. I don't like being a slave to house.
2) Save ASAP
The sooner you save, the more returns you will get, the sooner you get to build up your desired retirement fund. Also don't forget to factor in the inflation rate, please. I will say a 5% inflation rate factor seems safe for the moment. And the sooner you save, the lesser monthly saving you need to commit to as you age. Especially when it is at that particular age where your commitments such as marriage, kids, households get higher.
3) Insurance to protect your retirement fund
Yup, if anything happens to you before retirement, your retirement fund building will be affected, especially if you can't contribute any income anymore. So buying an insurance does provide some assurance that your retirement fund plan is still intact. Hence, it pays to maintain your health well as you determine your own capability to generate revenue.
4) Invest with 6-8% average annual return in the long run
You have to if the inflation rate is 5%. Fixed deposit is no longer an attractive option to build up your wealth since the interest rate is just around 3%. You are losing 2% if you do that.
5) Prepare 6 months emergency fund (of monthly commitment)
In case you lose your mean of income, either due to health or retrenchment or pure bad luck. Whatever happens, your commitment still stays. Any can happen, even to a healthy and happy family. One string of bad luck and there you goes. So saving for rainy days and preparing umbrella beforehand is definitely a wise move. I have yet to build up on that.
And there are 5 stops (DON'Ts) to building your retirement fund:
1) Clear debts (credit card, hire purchase, personal loan, mortgage)
Don't spend well ahead of your income. Financial discipline is very important. Those with weak determination should never ever use credit card. Any fixed liability should be settled first each month before treating yourself better with some form of entertainment.
2) Don't invest just because of high return
Need to check out whether the investment is being recognised by the Securities Commission, stable over long term or short term and whether it meets your investment appetite or not. Don't follow the crowd blindly without understanding your investment portfolio. A good example will be the Geneva gold investment scheme.
3) Stop wasting tax relief
Claim back any tax rebate or relief because it's your hard-earned money. If there is a way where you can claim tax relief and still build on your retirement fund, why not? Mind you, the average lifespan of a Malaysian has increased, so anything which can possibly build up the retirement fund, by all means, do it. Though I don't really have much idea on how to do that just yet. I was told that this PRS is subject to maximum RM3000 tax rebate.
4) Don't invest in investment plan that doesn't meet your retirement goal
If you have a big appetite for high return and is willing to take the risk, do it. But make sure it's calculated risk, something which you can take if things don't turn out the way you want it to be. Then probably equity and stocks serves you better. But you are a conventional type investor, then you might as well invest in those fund with guaranteed returns.
5) Don't spend beyond budget
Always live within your means. Using credit card to support your extravagant living just to look and feel good is a stupid act as you will suffer towards the end. Don't blindly go after the latest gadget or fashion, etc just for the sake to appear trendy. Spending ahead of your expected income is quite risky as well. There are so many youths declared bankrupt because of this. Expecting bonus to cover the advanced expenses, signing up for instalment payments etc, this are all a part of debt. I'd rather save up for the items I want and buy it at one go. Not that I spend much on all this anyway.
So do you think you are ready to build up your retirement fund now? If no, better do some planning. You don't have to start immediately, but at least, you must plan out when and how you want to do it because even researching takes quite some time, if you intend to do it seriously. I myself is still scratching my head over it.
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