Saving for your retirement

There is an article on retirement planning in the Malaysian Investor (MIN)* entitled Saving For Your Retirement. It is a step-by-step guide to estimate how much one needs to save for retirement. We created a financial model for retirement planning based on the article. Users do not need to learn the calculation but need merely to key in the variables, in a simple step-by-step manner.

Get your free download on this financial model, MI's Retirement Planner, here.

The steps of the methodology involve
a. estimation of working years, retiring years and the amount to save for retirement
b. creation of a pool of reserve fund for retirement
c. estimation of the depletion of this retirement fund during your retirement years

The methodology involves the creation of retirement fund before your retirement and depletion of this retirement fund in your retirement years.

It is an interesting exercise even though we do not think the methodology of the article is logical. For instance, you need to estimate your date of demise (!), you need to plan to spend all you have saved and to leave nothing for others after your departure (!) and if you estimate wrongly and live longer than you thought you could end up on the street (!).

In FPM, we don't think depletion of retirement fund is acceptable. For instance,
a. if you own a shop, the rental will take care of your retirement, and the shop will not deplete in value just because you receive rent. However,
b. if you own an equivalent amount in unit trust funds, the value of the unit trust is most likely to reduce every time you withdraw money out during your retirement years.

We think item (a) is the way to go and item (b) is illogical and unacceptable.

Download the financial model here. However, read the more sensible guide on retirement planning here, on building assets that generate income and will not deplete in value.

* Malaysian Investor is a web site created by the Securities Industry Development Centre (SIDC), which is the training and education arm of the Securities Commission. It contains many interesting and useful guides and resources on financial education of investors.

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