PROTECTING OUR NEST EGG FOR THE GOLDEN YEARS

Retirees come from a myriad of backgrounds. But one thing they have in common - an accumulated pool of financial resources to draw from by the time they turn 60. The size of this pool is determined by how much they have been saving during their working years and how well they have been managing their money.

Most new retirees can't wait to withdraw all their EPF (Employment Provident Fund) savings in one lump sum. They have made plans on what they intend to do with this pile of available funds in their hands. Here's a sampling:

Lavish wedding banquet - only if you can afford it

• renovate the house
• get a new car
• invest in shares
• pay for their son or daughter's wedding
• start their own business, or help their son or daughter start their own business
• put a down payment on a house for their son or daughter
• sign up for a Rm8000 2-day course on how to make money
• spend thousands on expensive holiday trips

The list is endless, and before they know it, these retirees are looking at their rapidly shrinking nest egg. We need to stretch our savings to last us for the next 20-30 years given that our life expectancy has risen to 76.

It's all about smart money management, as Mdm Koid Swee Lian, CEO of AKPK, told retirees at a special talk arranged for Seniorsaloud community last June. AKPK is an agency set up by Bank Negara Malaysia to help individuals take better control of their financial situation. 

Mdm Koid addressing members of Seniorsaloud community at AKPK headquarters.

Unless we have several golden geese that continue to lay golden eggs, we can't afford to help our grown children with huge sums of money. While it's fine to donate small amounts to charity, it's not okay to be paying for our adult children's housing mortage, post-graduate studies, car loans, and credit card debts. They are old enough to fund their own plans and pursuits.

Remember, retirement funds are for our retirement, and not for expensive weddings, luxury holidays, and children's tertiary education. As parents, we love our children, but loving them also means letting them learn self-reliance. We have heard too many stories of irresponsible adult children getting their parents involved in their debts. Some children become so used to parental support that they expect their parents to step in whenever they need an injection of funds. The financial aid has to stop once the children start earning.

It is also not okay for retirees to develop extravagant tastes just because our retirement savings make us feel rich and deserving of a 'better' lifestyle. The key words for retirees are 'Downsize' and 'Economize'. Move to a smaller house if you can't afford to maintain your current one. Switch to a smaller car that isn't a petrol-guzzler. Reduce club membership to just one. Limit your credit cards to one or two. Travel on a budget and trim shopping expenses. We can still live a comfortable life, and have fun and adventure without depleting our retirement savings.

If there is one single item that will swallow up all our hard-earned savings at one go, it has got to be medical expenses. Surgery, post-surgery rehabilitation, prescription drugs, medical treatment and procedures can cause severe haemorrhaging to our retirement piggy bank. We should opt for public hospitals and clinics. They are just as good if not better. Remember, many of us have elderly parents to support as well.

The smartest tip for retirees, in my humble opinion, is to invest in an active and healthy lifestyle. Look after your health. Adopt an exercise regime that is cheap and effective. Brisk walking is free. You don't have to spend a cent on taichi or qigong exercises done at home or in the park. Take up hobbies. Join clubs or groups that promote fun activities. 

Sign up for lifelong learning courses that don't cost a bomb. Look for senior discounts when you sign up for classes or tours. Extend your social network of friends of all ages. Make sure these friends have a positive influence on you. I can't think of anything more depressing than spending our precious time hanging out with friends who talk about nothing but their pains and aches, about growing old or about dying soon!

Let our motto be "Live a simple life without envy or regrets".

To find out more about smart money management tips for retirees, you can click on this link below:

Tips for a financially secure retirement

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SAY NO TO PREMATURE WITHDRAWAL

Report in The Star 16 August 2012

This post is mainly to keep a record of public announcements made by the EPF on the issue of withdrawals. Decisions made in haste without sufficient time to hear the views of all stakeholders often result in the authorities involved having to retract their earlier statements. This 'flip-flopping' is a waste of public funds and manpower hours. The current public outcry against the unpopular amendment (section 114a) to the Evidence Act is a case in point.

Report in The Star 16 August 2016

The Star columnist P. Gunasegaran gives his views on why he thinks the EPF announcement defeats the purpose of raising the retirement age from 55 to 60. If EPF contributors are allowed to withdraw the full sum upon reaching 55, they risk having insufficient savings to see them through the next 15-20 years of retirement.  I fully support Gunasegaran's views.

Do read his article.

Related post:

Why it makes sense to leave your money in the EPF

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WHY IT MAKES SENSE TO LEAVE YOUR MONEY IN THE EPF

While awaiting the EPF Act 1991 to be amended which will likely take three to five years, contributors can still withdraw the full sum at the old retirement age of 55.

When the government raised the retirement age for the private sector from 55 to 60, contributors to the Employees Provident Fund (EPF) were concerned about whether they would have to wait an extra five years before they could withdraw their EPF savings in full.

Based on views expressed in the media, many are unhappy with the government's proposal to amend the EPF Act of 1991 to allow only partial withdrawal of EPF savings at the age of 55, and full withdrawal at 60.

There are contributors who are happy they can now work longer and accumulate more savings in the EPF. There are also those who have retired and are content to leave their EPF funds intact until such a time when their EPF savings no longer earn interest. Last year a 6% dividend was paid out to EPF contributors. That is way more than the interest paid by banks.

Would you get this much if you saved with a bank? Makes sense to leave your money in the EPF for as long as possible. It's risk-free as by law contributors are guaranteed of a minimum return of 2% .

On the other hand, public opinion seems to be in favour of lump sum EPF withdrawal at 55. Some of the reasons cited by EPF contributors include the pressing need to:

• clear their debts and housing mortgage
• pay for their elderly parents' medical treatment
• start a small business
• invest in shares, business ventures
• renovate the family house
• upgrade to a better car
• finance their children's post-graduate studies
• contribute towards their children's wedding expenses
• help their children with the down payment on their first home

Our EPF contributions make up our retirement nest egg . Will we have enough to retire on for the next 15 years or more, given that the average life span of Malaysians is now 75? If we withdraw our savings and spend some of it on any of the reasons listed above, how much is left for us to live on?

Adult children should not take for granted that Mom and Dad will help them with their debts and financial commitments. They should remember that Mom and Dad may have no other income to draw on, and they may still have Grandma and Grandpa to support.

As for using EPF funds to start a business, conventional wisdom says "Don't do it!". Without the essential business know-how and with age against them, retirees are likely to end up losing every single ringgit they have invested in the business venture. Only a handful will succeed in business after retirement, regardless of what wealth gurus may tell them.

To many new retirees used to drawing a 4-figure salary, suddenly having their hands on hundreds of thousands of ringgit makes them feel rich and reckless. Prudence goes out the window, with frugality hot on the heels. No wonder all their retirement savings are gone long before they themselves are gone!

Remember, EPF savings are for our old age.

If you think you can manage your EPF money wisely and even make it grow, by all means take out every sen from the EPF. But if you don't have a good track record of money management, or are adverse to risk, hold off touching your retirement nest egg till you are fully retired. Many retirees seek a second career and continue working till 65 or even 70. Your EPF savings are meant for your old age, in case there's no one to look after you and your needs. Sustain yourself on other sources of funds, including drawing from your bank accounts, interest from FDs, or dividends from shares and unit trusts. If you don't have enough saved, you have little choice but to work for as long as you are able to.

Welcome to the harsh reality of retirement. The truth bites!

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SHOULD ADULT CHILDREN REPAY A LOAN FROM THEIR PARENTS?

It is our parental duty to provide a good education for our children. That can mean right up to post-graduate studies. Scholarships offered by the public and corporate sectors are very competitive, especially in Singapore. Not all parents can afford to support their children through university. To meet this need, both the CPF (Singapore) and the EPF (Malaysia) allow parents to withdraw funds for educational purposes.

Unlike the EPF education scheme which is a withdrawal scheme, the CPF education scheme is a loan scheme. CPF members are allowed to use up to 40 per cent of their accumulated Ordinary Account savings for their own or their children's full-time local diploma and first-degree courses. The total amount withdrawn for tuition fees plus accrued interest has to be repaid IN FULL WITH CASH. Repayment starts one year after date of graduation or date of leaving the institution, whichever is earlier.

According to a news report in the Straits Times today, about 5% or 7500 of borrowers have defaulted on the repayment of their educational loans and have failed to return money to CPF accounts for at least four consecutive months.

Even when the children have graduated and found a job, repaying their parents seems to be at the bottom of their list of priorities. Taking precedence are buying an apartment, paying for a car, starting a business, going for an overseas vacation, preparing for a wedding, ... the list goes on. And when their credit card debts start to snowball, their banker of last resort are...their parents, of course!

The end result? Their parents are left with depleted savings in their retirement funds.

Call it parental love or a reluctance to lose face, most parents are unwilling to take action against their children, or seek help from the Tribunal. They would rather work longer years or cut down on their living expenses to compensate for the shortfall in their retirement savings.

If parents are committed to shouldering their parental responsibilities, shouldn't adult children be just as committed to their filial duties? Or is filial piety on the wane?

It comes as no surprise that many middle-aged wage earners with limited retirement savings are facing this predicament. What would you do if your adult children did not repay a loan from you? Would you pursue it? Or let it go and consider it an early gift already allocated for in your will? Or silently hold it as a grudge against them and cut them out from your will?

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