Chapter 1: An Overview of Retirement Issues

Introduction

- Retirement planning is a very delicate process that no one really knows

with full certainty the exact amount that will be required for retirement.

- This is because we don’t know how long we live, some people die at
young age and need no retirement fund at all, and we sometimes not
sure about our expenses before retirement & during retirement.
 Definition of retirement planning
“A process of managing an individual’s financial resources, expenses and
liabilities, both present and future, with the purpose of providing
sufficient future periodic passive income that starts at a predetermined
retirement date, for the individual and its dependents”.

- Passive income suggest that a retiree should no longer be engaged in the

generation of active income upon retirement.
- Economic death – term used to describe that retirement is the period
where work-generated income ceases.
 Purpose of Retirement Planning
The basic purpose of planning is that one can live his retirement years as
worry-free as possible.

It is mainly to ensure that when an individual retires, he is able to live in a

desired lifestyle without or with minimal outside financial help.

Phases in Retirement Planning

(i) Accumulation phase – Accumulation phase for an individual starts
when his resources for retirement are first created.
(ii) Retirement phase – Period where the individual has ceased his active
working life.
 Barricades to retirement planning

(1) Penchant for high living

(2) Heavy fixed commitment –

(i) car instalment – huge car instalment during retirement age

(ii) housing loan instalment – huge housing instalment at the retirement

age

(3) Spending your future dollars – credit programmes and credit cards
are probably some of the most sinful doorways to spending future
dollars that can hurt a person’s retirement.
(4) Unforeseen expenses – includes emergency, expensive medical
treatment. Once people get old, the unforeseen expenses might
occur.

(5) Divorce maintenance – if you are a male, and if you divorced with
your wife, you have to allocate some allowance for your ex-wife as
well as for your children. This will affect your preparation for the
retirement.

(6) Self-employed – if you are self-employed, and you are not

contributing to any of retirement scheme such as EPF, or PRS, then
this is an awkward situation when you reach retirement age.
(7) Competing needs and temptations – Let say you already reach your
retirement age, and you already accumulated your retirement fund,
but you somewhat carelessly spent the money on unnecessary things,
such as sponsoring the lavish wedding of your children, or you use it
for vacation overseas, buy the musang king farm, or starting a new
business investment by hoping that you will get higher profit later on
– anyway, these are seriously dangerous.

(8) Taxation – another things you should know is about the impact of
taxation/ zakat on your retirement fund.
 Impact on retirement due to aging population
“The longer the person lives, the higher shall be the fund required for
retirement”.
Life 1980 1990 2000 2004
expectancy at
birth (years)
Male 65 68 70 71
Female 69 72 75 76

By examining the life expectancy of the Malaysian, we can see that the
female lifespan is longer than the male.
The factors that contribute to higher aging population
Improve healthcare systems and biotechnology research (powerful medicine)
Elimination of poverty
 Changing cultural Trends and Its Impact on Retirement

Culture also has an impact on retirement:

Asian culture - filial piety – the grown children taking care of their aged
parents

Since parents already contributed a lot to ensure the success of the children,
it is the time for the children to pay back to their parents by taking care of
their needs during old age.

Nevertheless, the so-called modern society, will always have different views
or perspectives in regards to this matter.
Non-financial aspect of retirement planning

(1) Loss of identity and feeling of loneliness

(2) Health considerations

(3) Marital stability

(4) Notion on life expectancy

(5) Pre-and post-retirement interests