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Wednesday, April 22, 2009

How to accumulate enough money for retirement

Good article from Biz thestar ....
  • I would like to share this business article with you which I read today from the Biz thestar ... it is very useful especially how we gear up for our retirement.
  • Definitely we need some cash to enjoy our old days ...

    Wealth for retirement, How to earn 30-year investment returns with different savings amounts and rates

    ON Jan 28, we have written an article on We all need to become millionaires. That article explained that we need to have cash reserves of about RM1mil to be able to maintain our current lifestyle 20 years after retirement.

    Some readers responded and would like to know more on how to accumulate enough money for their retirement.

    In this article, we will look into 30-year investment returns with different savings amounts and rate of returns. Our computation is based on the assumption that we start investing at the age of 25 and intend to retire at 55.

    Based on how much rate of returns you can achieve

    The table shows that if we save RM100 per month and invest the money into fixed deposits (FD), assuming the FD can provide about 3% return over the next 30 years, our investment portfolio will reach RM58,274 when we reach 55.

    However, if we can generate 5%, 7% and 10% returns, our investment portfolio will achieve RM83,226, RM121,997 and RM226,049 respectively.

    The EPF may be able to provide us about 5% whereas unit trust investments may be able to give us 7% to 10% returns over a very long-term period.

    Assuming that we treat the 3% FD return as our risk-free rate, any extra returns above this rate will be the risk premium for the additional risk that we are prepared to face.
    Therefore, we need to understand our risk tolerance level before considering any type of risky investment.

    We should ask ourselves whether we are willing to accept the uncertainty of return that is inherent in those investments.

    Besides, we need to understand whether we can afford to have our savings tied up for a long period before we can achieve our investment targets.

    Based on how much you save and not how much you earn

    We agree that when you earn more money, you should have more money for your investments. Unfortunately, some investors are unable to save even though they earn high salaries.

    From the table, we can see that if we are able to save RM500 per month in FD, assuming a 3% return per annum, our investment portfolio will reach RM291,368 when we retire at age 55, five times higher than the savings of RM100 per month.

    Hence, if we can cut down on our expenses and live below our means, we should have more money to save.

    We should always ask ourselves whether we want to spend money on unnecessary luxury items to keep up with the Jones or be more frugal and spend less to achieve financial freedom earlier.

    The question on how to generate high returns is frequently asked by readers. Unfortunately, there is no straight-forward answer to this.

    We can equip ourselves with strong financial and investing knowledge which helps us in making better investment decision that will eventually translate into better returns.

    To do so, we need to be interested in the economic and business activities around us.
    For those who are beginning to learn about investing, you can go to any bookstore to look for investment books that you can comprehend to build up the foundation.

    Remember that there is no point in buying books written by top investment gurus in the world if you cannot understand what it is trying to tell.

    Once you have built up your knowledge, you should be able to digest the financial information and do your own research in investment.


EVo said...

Via taiko! thanks for sharing this man..really quite useful info lor.

I also just found out ur name is johnson tay chong seng..ur not vialentino ah -__-

By the way do u twitter?

Cindy Khor said...

that is totally informative.. i think i'm gonna start investing next year too, saving £50 per month for my retirement (although I don't have a decent job yet).

thanks so much for sharing

Agnes said...

thanks for sharing!

Angie Tan said...

Time to beef up our knowledge about finance and etc.

Also, time to encourage the saving habit again. The reason why US is into a lot of trouble is because they are encouraging a very bad spending habit.

A lot of folks in the US have no savings.

I'm glad that we have to contribute to EPF but also, need to start a bit of investment habit as EPF and savings alone is not enough to keep us going in our old age later.

CH Voon said...

Do you know how to calculate the KWSP dividen? if 4.5? i calculate that ... KWSP always give less around Rm300...

I will verify it with KWSP...

vialentino said...

evo: i join twitter long time back but not active one....yeah, useful info for me to read back next time.

cindy: wah...i saw at first and thought is RM 50... but re-look again ... it is £50 more yeah!

agnes: AED and bring back here

angie: for sure, epf and savings is for sure not enuff for ur old days....even investment is risky too...just pray hard to strike lottery ....just kidding...

ch voon: bro...very easy to epf, u got 2 accounts rite ... each account x 4.5% and u get the dividen for each account 1 and 2 and total the both account up.

Twilight Zone said...

I have been asking many retiree friends about their plans and retirement income but they gave me blank looks! Not wanting to share, I forced myself to put some thoughts and realised property investment helps.

Lisa717 said...

wow wow~~
good and thoughtful info!!
thanks bro on sharing this!!

I gotta save from now on to have a better future..will seek more help on u in this matter since u seems so pro..heheheh~

CH Voon said...

haha.. via .. you are wrong la..

you try to do for yourself one...

you will know that ur one is less...

hihihi i know the formula liao...

first, the baki caruman x 4.5 x 12/12,

and for jan is caruman x 4.5 x 11/12,

and for feb is caruman x 4.5 x 10/12, and keep going on....

until dec, you will not get any interest because carumn x 4.5 x 12-12/12...

this is the calculation

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