Guide for young Malaysians to start planning for retirement

Money doesn’t fall from the sky but if you have done proper investment planning, they can grow like one. Whether you are approaching 25 or big 4-0 in life, you are never too late or early to start planning for your own retirement. The moment you reached the golden age you’d want the peace of mind of knowing that you have a stable bank account and a roof over your head. 

If your retirement plan is poorly done, you will suffer in your later life. Thus, it would be ideal to start thinking about saving for your retirement as soon as you begin earning your first paycheck. If you planned for your retirement early, it will make the biggest difference in your retirement age. Whether it is investing condos in Penang or bank in your money in fixed deposit. We are about to list down reasons why you need to start planning for your retirement now.

1. Capitalise on compounding interest

Are you aware that compounding interest makes the biggest difference between the beginning of your retirement? The sooner you begin saving, the more time your money can grow. Plus, each year’s gains will generate bigger gains the following year.

For instance, if you start saving RM 1000 at age 25 for 30 years in a tax-deferred retirement account with a 5% annual return, by the time you reach the retirement age of 55 your investment would have grown to RM 835,726.38. In contrast, if you start saving the same amount of money every month with the same percentage of annual return at age 35, your money will only grow to only about RM 412,746.31 by the time you retire.

2. Retiring early

Yes, you heard it right. You can retire early, isn’t that your ultimate goal? Imagine to be kicking back at home at only 45, sipping some coffee by your fresh lawn or pool side and never have to worry about being late for work or meeting deadlines. If you keep tabs on your spending from a young age and start saving for your retirement in 20s, you are more likely to reach a state of financial independence at a younger age.

There are studies shown that those who have achieve earlier retirement are significantly healthier due to higher quality life and reduced stress. If you retire early, it also means that you have more energy to travel and live in exotic places. You could also start exploring hobbies that you have always dreamed of.

3. Lesser insurance coverage

It is also the time for you to start thinking about getting insurance coverage for yourself. Your rates increased as you get older, assuming that you age well without the slightest hint of illness. One day, your health has taken a serious hit, you will be deemed as ‘high risk’ and will be charged a premium price for compensation on risk of early death. The insurance company have the rights to choose to exclude coverage illnesses that you have been diagnosed with. Thus, do remember that the younger you are, the cheaper your premium will be.

4. Longer loan tenure

You can begin researching on property investment - ideal location and development type to invest on. The maximum loan tenure given out by banks is 35 years. However, for borrowers who are 30 years old and above, the maximum tenure is tied to their age. Thus, their home loans will have to be repaid before they reached 65 or 70 years of age. Those in their 20s have the privilege of stretching their loan tenure to the maximum and paying lesser monthly installments. This shows that it is much cheaper to buy property in your 20s than at a later age and your chances of getting loan approved are a lot higher than those in your 40s.

5. Greater flexibility to get creative with your finances

The benefit of retiring early is that it gives you better flexibility in terms of financial, you can explore and be creative with other investment options out there. It also gives you room to diversify your investment and significantly beat the inflation rate. For example, you can use an amount of your money to invest in mutual fund and also invest in property. Selecting the right property is crucial in not only ensuring that your investment is suitable to live in your retirement years, but it also enable you to capitalize on rental yield in years leading to that.

Easy right? so enjoy your retirement :)