EPF Isn’t Enough

One of the tragic occurrences in life is retirement. Retirement is not tragic; it is a great thing. However, the same cannot be said about the life during retirement. The carefree lifestyle that we dream of – travelling around the world and doing things that we like, free from money worries – is exactly that, just a dream. Most retirees will never get anywhere near those dreams. Not even halfway.

Why not? Because most people do not have sufficient money for retirement.

This will result in a few things: One, they have to scale back their lifestyle drastically; two, they will run short of money; three, they will have to depend on others (usually their children) for survival.

As horrifying as it sounds, the three situations above will actually happen to 95 percent of people. That means that practically everyone you meet &ndash! ; your neighbours, relatives, co-workers, clients, suppliers and even bosses – will not have enough money for their retirement. And worse, ‘everyone’ could very well include you.

If that does not scare you, then think about this; the ultimate prison is to be poor in old age. There is no escape and there is no second chance.

The money that we need for our retirement need to last for as long as we live. That means the money must last for at least 30 years after retirement (assuming we check out at 85). And that is a mighty long time.

The only way we are going to have enough money is to save and invest as soon as we can.

Some folks say, “I already have my EPF (Employees Provident Fund). That will take care of everything.”

Yes, our savings in EPF is good. But it is not enough. In fact, it is not even halfway enough for retirees to maintain a decent life.

A friend of mine nearly had a hea! rt attack when I sat down with him to calculate the funds needed for his retirement. Just to maintain his current lifestyle (without touching the principal and after factoring in inflation), he needs RM6 million when he hits 55 in 2017! And that is just to maintain the basic lifestyle. I had not factored in the promised carefree life.

Now, some folks may say that amount is only for my friend. Perhaps he needs to have that much money because of a flashy lifestyle. But they live a simpler live, so they don’t need that much money.

This argument is wrong on two accounts. Firstly, this friend of mine leads a fairly simple life. And two, why downsize your life after retirement? Common sense tells us that we should be rewarded after working hard for 30 or 40 years. We should be having more, not less, money at the end. But in reality, people have much after retirement. Doesn’t sound sensible to me.

Now that I’ve scared you enough, let me sha! re the solution with you.

We need to save for our retirement, on top of our EPF funds. The saving must start now. Today. Not tomorrow, not next week. Today.

Set aside at least 10% of your income specifically for your retirement nest egg and on top of your other savings (children’s education, buying a house or vacations). If you have to postpone buying that new Mercedes, then do so. If you have to KIV the European vacation, then KIV it. You may have to adjust your lifestyle a little but hey, this is your life we’re talking about here. We’re not talking about a cartoon character or a celluloid actor. This is your life and your future!

Once you have saved the money, you need to invest it to make it grow. This is where you have to get educated about stocks, unit trusts, properties and businesses. Read, ask, observe and more importantly, participate.

Once you have done this, then you are on track to the promised heavenly lif! e after retirement.
Amen.
Copyright © Azizi Ali 2010

“You’ll know you are rich when your income generated by
your investments exceeds your expenditure. Learn to live on
70 percent of your income, and put the rest towards
accumulating quality assets that will appreciate.”

* Peter Spann *

QUESTION 1:

Assalamualaikum, En Azizi. I have one question regarding tax. What is our obligation regarding the rented property? Do we have to declare the income?

For your information, currently I’ve purchased two properties which gives me positive income, even though it’s not that much.

Thanks.
ANSWER:

Yes, you must declare the income from your rental properties to the IRB. However, you can also deduct most of the expenses incurred for the properties. These will include insurance, repairs made to the property, assessment taxes, commissions paid to agents (if any), advertisements and the interest portion of the loan (if you took a loan). As you have a positive cashflow from the properties, the ‘profits’ from the rental will be added to your income from other sources (salaries, commission received, etc.). In other words, you will be taxed on the rental income.

I must add that you should not worry too much about paying taxes. They are just a small part of a bigger picture. Worry just about how to make more money.

All the people I know who pay a lot of taxes do so for one nice reason – they are making a LOT of money. So you should be happy to pay taxes because it means that you are making money.

QUESTION 2:

What do you think about properties that comes with rental guarantees?

ANSWER:

Folks, always remember this – a guarantee is only as good as the person giving the guarantee. A homeless, broke, liar or dying man can also give you a guarantee. But you will have serious doubts about his ability to honor his guarantee – even if you had signed an agreement.Now, the same applies to acompany. A company can guarantee you 8 percent rental return for five years.
But if they fail to pay, you can take them to court and yes, you may even win the case. But if the company has no money (or claims to have no money), it will all be in vain. The court judgement will be just a paper judgement.

The bottom line is that you are still not getting your money.

What I’m trying to say here is that do not be impressed or swayed by people or companies giving the guarantees, because they can guarantee anything! Whether they can back up the guarantee is another story altogether.If a company has a poor track record of honoring its words, walk away. There are tens of thousands of properties in Malaysia. Just because you missed one or even ten does not mean that you have missed the boat. There will be plenty more opportunities to buy at least one property in the future.An investment should be weighed by its ability to generate income, and not about guarantees.

* HOT TIP *

Read “Retire Rich or Pesara Jutawan”
by Azizi Ali for tips on how to retire rich and happy.