The Simple 3 Steps
Retirement Planning Guide
The amount you need to save will depend on the retirement
lifestyle you have in mind and the income that you are earning
currently. There are three steps in retirement planning guide.
Step 1: What’s your monthly retirement income?
First, decide how much you think you will need every month
to retire comfortably. For example, you may think that if you were to
retire today you would need RM2,500 per month. But you are only 45 years
old and your retirement is still another 20 years away. Because of
inflation, you will need more than RM2,500 a month in 20 years time to
spend on the same things you are used today. Assuming an average
inflation rate of 4% per annum, you will need RM5,477 per
month in 20 years time, so that you still have the same purchasing power
as RM2,500 today. The higher the rate of inflation, the greater the sum
needed per month to give you the same purchasing power as today.
Step 2: Required lump sum
From previous assumption of 4% inflation rate,
you will need RM5,477 per month or RM65,733 per year. The next stage is to
calculate the lump sum required to generate RM65,733 for the rest of your
life. The return on your investment will determine the lump
sum required to earn you a regular income of $65,733 a year. The higher
the rate of return, the smaller lump sum needed and vice versa. For
example, if the average return on your investment is 10% per
annum, then the lump sum needed to generate that income is RM657,337. But
if you managed to find investment with 20% potential return, RM328,668 is
enough for your retirement planning.
Step 3: How much to save?
Along the way, let say you can earn 10% return per annum, you will have to save
RM11,128 a year or RM927 every month for
20 years to get lump sum of RM657,337. How do I get that? You can derive
the annual or monthly savings required by multiplying the lump sum
figure with the respective figure in the table. In my case, I multiply
RM657,337 with 0.01693.
However, if the rate of return is 15% per annum, then you would only need to save
RM5,129 a year.
Same if you start a bit earlier, you only need to save RM5,826 a year for
10% return rate but 25 years of savings.
No two persons are ever the same.
No two persons will ever need the one same retirement
Plan yours today.