Final Phase: Retirement in Malaysia
At the beginning, we explored the average cost of living in KL, Malaysia for a single independent professional at the start of this 3-part series. The calculations put us somewhere between RM4k – RM5k.
As part 2, we explored what are the 2 main things that will change that cost of living amount last weekend.
To conclude this series, let’s look at what it takes to retire in Malaysia. In other words, how much do we need to have to be able to retire in Malaysia.
Disclaimer: I am not a retiree (very from it at this moment), and this sharing is mainly based on my theoretical forecast and calculations of what is required when I hit that age. Retirees.. Feel free to weigh in on what is true for you in the comments section!
The Retirement Age
Before diving into the numbers, I think it’ll be meaningful to first look at a reasonable retirement age.
Officially, the retirement age is 60 (raised from 55 in year 2013). Can we reasonably retire by the age of 60? Sometimes when dining in coffee shop having my wantan mee, I see old uncle / aunty carrying a bunch of items walking from table to table to make a sale. They are clearly way beyond the age of 60.
Retirement refers to when one stops working. That also becomes the end of our active income (the bulk of it, anyway). If this is so, then retirement is only possible if:
- We have passive income to sustain ongoing lifestyle expenses (able to leave inheritance)
- There is enough in our net worth to live off for the remainder of our years (may not have inheritance left)
The shift in our lifestyle changes when our children starts to become fully independent and we no longer need to support them financially. This will most likely be when they are 25 – 30 years old. Going by this rationale and that more people are giving birth in their 30s rather than 20s nowadays, this will take us up to 55 – 65 years old as a feasible retirement age to aim for.
Why is this important?
- It gives us a basis of how much time we have to amass the passive income / net worth required
- We can forecast how long we need our wealth to sustain us for
Drawing reference from the Department of Statistics Malaysia, Malaysians on average live till 70 – 80 years old (females live longer, as we all know). This means that our wealth / income post-retirement will need to sustain us for 5 – 25 years.
We can’t predict death. With the advancement of health technology, there is a chance that we will live longer. As such, it would be better to plan for the scenario of us living longer. One of the major pitfalls of retirement planning is the planned income / wealth is depleted before death.
So let’s take 25 years.
Cost of Living post-retirement
This will largely depend on the lifestyle. However, let’s just do a simple scenario, following the previous format.
1) Stay
As we progress through life, we would upgrade our house to accommodate a family and children. However, this place may seem too big for post-retirement life. On the one hand, the mortgage might have been fully paid off by then so there won’t be any financial burden other than maintenance. On the other hand, maintenance of a bigger place might be taxing for the body so there may be a choice to move to some place smaller.
Monthly Estimate: RM1,000 (maintenance and staying expenses) + RM2,000 if still renting
2) Transport
Over the course, we may have upgraded our ride. However, given the tenure of car loans, these will tend to be paid off within 5 – 9 years. Hence, it is likely that there will no longer be any car loan commitment. We just need to worry about the maintenance and servicing of the car. Unless, of course, we decided to upgrade again thereafter.
Monthly Estimate: RM1,500 (2 cars)
3) Food
This is very personal. This expense will definitely fall as children become independent and move out. However, it will not revert back to the single professional life kind of expense level (most likely). This is due to the upgrade of lifestyle on the way and it will tough to revert back to economy rice everyday for most people.
Monthly Estimate: RM2,800 (For 2 people = RM10 * 3 meals * 30 days * 2 people + RM1,000 buffer)
4) Others
This is the big basket of unknown, so I’m going to make some broad assumptions:
– Insurance: RM800 (medical insurance)
– Phone bill: RM160
– Groceries & Toiletries: RM150
– Grooming: RM100
– Entertainment: RM100
– Shopping: ???
Total of RM1,010 excl. shopping
Add (5) Post-Retirement Activities
This differs from each person. However, a big part that I see consistent amongst retirees nowadays are taking long overseas trips to “see & experience the world”. Well, since no longer having to work, retirees will need ways to fill their time, right? So, let’s just assume they take a 2 weeks travel every 3 months (here’s to hoping this pandemic ends soon so that everyone can travel again)
Estimate Monthly Estimate: RM6,700 (RM20,000 cost of travel for 2 people every 3 months)
Add (6) Health
It’s no secret that as we age, there will be more health related issues that may crop up. Medical insurance should be able to cover some of the major ones, especially hospitalisation. The option of taking supplements, physio, etc… is there as well. Definitely something to budget for but I can’t put a finger on an estimate number here.
To sum it all up, we’re looking at RM13k – RM15k per month for the cost of living post-retirement for 2 people.
Putting the numbers together
We have to plan for sustenance for 25 years and calculations come up to RM13k – RM15k per month.
Simply put:
- Yearly expenses = RM156k – RM180k (excl shopping & health-related expenses)
- Total amount needed over 25 years = RM3.9 million – RM4.5 million
- In the scenario with no “post-retirement activities” then it’ll be roughly RM6k – RM9k per month / total of RM1.8 million – RM2.7 million
Take some time to let that sink in…
The Money Eroder: Inflation
The cost of living post-retirement calculations have been computed based on current prices. However, we know that a Nasi Lemak 10 years back vs Nasi Lemak now costs very differently. That is all thanks to “Inflation”, which just means that money today is worth more than money tomorrow.
On average over the last 10 years, Malaysia’s inflation rate is about 2%. This means that to sustain a lifestyle that costs RM180k this year, we would need RM184k next year.
Compounded over 25 years, we’re looking at RM290k by year 25.
Total amount needed over 25 years assuming RM180k per year now with a 2% inflation rate:
RM5.8 million
That’s an extra RM1.3 million from the calculations that we have before (a whopping 30% increase).
This is assuming that we are retiring now. But if you’re like me, retiring only 30 years later… Then this number balloons again!
On the other hand, maybe this is just something those guys with their charts (i.e. economists) cooked up to scare us and the reality of things won’t be as scary. But who knows?
Closing Thoughts: Can we retire by 60?
In this post, I lay down my thoughts on what I would need to prepare for retirement.
I don’t know if it will take more than that or less in actuality, but I think it’s a good target to start working towards for retirement planning. This amount will also vary depending on the kind of lifestyle that we want to be living post-retirement.
Retirement by 60 will be possible for those who can amass the amount required beforehand. If not, then actively finding ways to generate income past 60 will be the constant worry.
I stress this a lot… it is important to start planning for retirement as early as when we start earning our first income. It takes a long time to build up sustainable wealth. EPF is one of the wonderful mechanism to help us do so, but in most cases it is insufficient! All the more so when people start to withdraw whenever they get the chance!
Do your own calculations, plan your future, retire stress free.
