How Prepared Are You For Retirement?  
Retirement Preparedness in Malaysia

How Prepared Are You For Retirement?

According to the AXA Retirement Scope 2010 which surveyed about 1,000 working and retired Malaysians, the attitude of respondents towards retirement is generally balanced, with a very high percentage (typically above 80%) of the respondents conscious about the financial preparations for their golden years and also the start of old age, dependence and health problems. However, although Malaysians have the right mindset when it comes to retirement, not many are actually doing something about it during the earlier stages of their work life, with about 46% of the working population perceiving their retirement income to be insufficient.

Chart 1 shows the preparedness of the working population surveyed in Malaysia compared against those of other countries. Malaysians in comparison are generally among the least prepared for retirement with only 39% of the total working population surveyed having already started to prepare for retirement and this is starting at an average age of 39. Of the total working population, 46% have not started to prepare for retirement but will only do so when they hit 50 years old on average. In contrast, 72% of the working population surveyed in the US have already started preparing for retirement, with an average starting age of 31 years old.

Chart 1: Retirement Preparedness
Source: AXA Retirement Scope 2010

In terms of the source of retirement income, the main source for Malaysians is still the Employees Provident Fund (EPF) which comprises 63% of the total retirement income of the working population surveyed. As such, perhaps even more alarming than the financial preparedness of Malaysians is the reliance on the adequacy of the EPF in order to maintain the expected quality of life after retirement. Table 1 shows the average EPF savings that active members have, according to age group.

Table 1: Average EPF Savings Per Active Member
Age Group
Average EPF Savings Per Active Member (RM)
Savings amount not inclusive of 2011 annual dividend
Source: EPF 2011 Annual Report, Fundsupermart compilations

With the minimum retirement age of the private sector extended to 60 years old beginning from January 2013, the government is following the steps of other nations such as our neighbours Thailand, Indonesia and Singapore. The reason cited for this move is the general inadequacy of EPF savings to provide retirees with a satisfactory quality of life. The minimum retirement age in Indonesia and Thailand is 60, while it is 62 in Singapore. Even then, increasing the minimum age of retirement has always been a consideration for our neighbours.

The increasing minimum retirement age highlights one important point: although living expenses may vary among people, the consensus is that RM130,000 is not enough to live on for 20 years (the life expectancy for Malaysians is 74 according to the World Bank). If the EPF is your sole savings for retirement, your savings amount would need to be much larger than that of the average Malaysian as shown in Table 1, or you would have to live an austere retired life, or it's high time to consider accumulating and storing wealth with other investments.

More Needs to Be Done

Summing it up, the attitude of Malaysians toward retirement is generally positive but a lot can be done in terms of actual preparedness, whether financially or otherwise. To that end, the Securities Commission of Malaysia has taken steps to reform the private pension framework in Malaysia in order to offer more avenues to individuals to accumulate adequate retirement savings. Enter the Private Retirement Scheme.


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