I always think no matter how much we may earn, relying on just saving as much as we can every month is no longer enough today. Definitely not in the future when we retire. In a recent article, it was revealed that 42 percent of retirees have zero savings! I think it’s time we take our future seriously if we do not want to end up as part of the statistics. I asked my friend KC Lau to give us some answers as part of kopiandproperty.my Expert Series.
1) Is the problem of retirees having no savings by the time they retire getting worse over the years in your opinion? Why would you say so?
I think the more serious problem is the inequality in the income gap, that resulted in some rich retirees being able to enjoy life much better than the poor retirees. This is a worldwide phenomenon I guess. Overall, the problem of retirees having no savings happens all the time. The situation gets worse when their next generation couldn’t support the parents’ retirement needs. I think it is the fact that the middle age group being sandwiched in between of taking care of both the elders and children, coupled with escalating living cost and societal pressure, that makes the retirement issue more apparent. It simply means that if you are a retiree now without adequate nest egg, and if you can’t rely much on your children to support your retirement, you are in a very tough situation!
2) Savings is such an important action but many did nothing until it’s too late. Do you have any special tips to ‘trick’ us to save?
A system is needed for savings. That’s why EPF is such an effective scheme to force people to save. There are many “tools” available on the market, such as insurance endowment plans, unit trust auto-debit, even mortgage installment, or just a matter of setting up auto-transfer on your bank accounts. The “trick” I know about saving is when it is lost of sight, it is out of mind. Believe me or not, try directing your unit trust statement to be sent to your relatives’ whom you only meet once a year. You’ll never spend that money and you’ll be shocked by how fast it grows.
3) What should EPF do to help at least some of them with EPF savings by the time they retire?
Most people have the problem of spending that EPF lump sum money too fast. Especially for those who have never got hold of such a big amount before, the temptation is irresistible. What I think EPF can do is to give an option to let members convert that lump sum into an annuity, guaranteed for life. For those who are enticed to opt in, their income will be guaranteed for life!
4) If I am below 35 years old, should I focus more on unit trust vis savings or should I think about property investment instead? Why?
To be frank, I see a lot of people getting rich via property investment. But I’ve never heard of anyone who accumulate a lot of wealth through unit trust investment. This shows one thing – when your money can be withdrawn anytime, easily, it probably won’t stay long. When you are young, property investment gives you the best leverage of financing, and the best time horizon for long term appreciation. So, buy your properties as early as possible.
5) If I am 40 years old or older, which investment should I focus on and why?
Good return comes from good asset allocation, comprising of diversified asset classes. But great return comes from great investment skills, which is also known as strength-based investing. For example, if you know how to identify good business selling at bargain price, it is okay to invest all your money in stocks. See how Warren Buffett does it over so many decades.
So no matter what’s your age now, investing is about putting money where you know best. If you don’t have that skill, you better brush it up. The earlier you acquire this important skill, the better you are. For your record, Warren Buffett bought stocks since age 11.
About KCLau. He is the best selling author of Top Money Tips for Malaysians. His popular personal finance blog is one of the most visited websites in the financial blogosphere. He also hosts regular and free financial training online (http://kclau.com/webinar) featuring different financial experts. You can follow his latest updates by visiting www.KCLau.com.
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