TIPS - RETIREMENT PLAN

With people living longer, marrying and having children later and not saving enough, facing retirement is a challenge. While there is growing awareness about the need to plan, less than 5% are prepared for retirement and fail to take into consideration inflation rates and rising medical costs.

In 1981, when Kamal graduated, he got a job in KL which paid him RM1,800 a month. He bought an imported Mazda at RM17,000 and months later he put down money on a RM78,000 single-storey terrace house.

Today, 25 years later, Lily, one of Azman's daughter has just finished university. Her starting pay is RM1,800, just like her father's two and a half decades ago.

But unlike her father's time, imported cars cost over RM100,000 today. So Lily has opted to buy a Proton for RM45,000 (more than double what her dad paid for his first car).

While her father could afford to buy a house early in his career, Lily can't. Houses in KL these days cost at least RM200,000 so she has to work for a few years first before she can own one.

Compared to 25 years ago, the prices of goods, food, petrol and electricity have all gone up. Understandably, it's an uphill task for Lily to save on her RM1,800 salary, since the purchasing power of her salary is much lower than her father's back in the 1980s.

It is a fact that wages have not moved in tandem with the rise of the cost of living and inflation. That trend is expected to continue.

If people do not start planning early for their retirement, they are going to find themselves in a spot after they turn 55.

Today, three meals cost you RM20, but in 20 years time, with an inflation rate of 6% a year, you will need RM64 per day for the three meals.

So while the RM500,000 in your EPF or bank account at retirement might look good on paper, if you do not invest that money to make it grow at a rate higher than the inflation rate, 20 years later, it would be worth only RM145,053 in purchasing power!

Reality hits when people find that they cannot afford to retire because they had not seriously put aside the money early on in life.

People in their 20s think they are too young to think about retirement, while those in their 30s and 40s tend to believe they are doing enough because they have their EPF savings, and those who are 55 feel it is just too late for them.

And the truth is at 55, most people cannot afford to retire.