A very interesting article that I read from the Star newspaper last Saturday on whether we can retire with RM1 million since it officially makes one a millionaire. But will one million enough for one to retire?
A MILLION ringgit is a lot of money. In the past, it was always considered “the benchmark” in terms of a person's success. After all, having RM1mil officially makes you a millionaire.
However, realistically, is RM1mil big enough to survive on today, especially once you retire?
According to official statistics, the average Malaysian male has a life expectancy of up to 75 years, while for females its up to 77 years. This means that a retiree aged 55 has to support hinself or herself for another 20 years or more.
But let's be a little bit conservative for the purpose of this article, let's put the average life expectancy at 80 years old. With RM1mil at 55 years old, you would need to divide that money to last you another 25 years, which comes to an average of RM3,333 a month.
“It really depends on your living standards,” says Whitman Independent Advisors Sdn Bhd managing director Yap Ming Hui.
“With rising inflation on an annual basis, that monthly sum (of RM3,333) will be worth a lot less as the months and years go by, so it's definitely not enough to sustain you for 25 years,” he tells StarBizWeek.
Yap nevertheless believes that a person is able to “make do” with RM1mil once he or she retires.
“You would definitely need to readjust your lifestyle,” he says, adding that a person without financial obligations, such as a pending house or car loan can still survive on RM3,333 a month.
“Of course, if you have a posh lifestyle, especially when you're living in Kuala Lumpur, then that amount won't be enough. But if you live outside Kuala Lumpur and live within your means, then it's still possible.”
MyFP Services Sdn Bhd managing director Robert Foo says living for 25 years with RM1mil in today's environment “would be tough.”
“If you're married and have a few children and ongoing commitments such as a loan, it's tough. If you're not generating any more money after 55, it will definitely run out.
“By the time most people are 55, their children are probably working but some of them might still depend on their parents. They could be living under the same roof or might need financial help to buy their first car, for instance.”
CTLA Financial Planners Sdn Bhd managing director Mike Lee also feels that RM1mil would only sustain a person for a limited period of time.
“RM1mil might be enough for the first few years. However, with the high cost of living and rising inflation on an annual basis, that sum won't be sufficient.”
Foo maintains that it is ultimately up to how the individual manages his or her lifestyle.
“It truly depends. For some people, RM1mil might not be enough to even last them 10 years.”
He says RM1mil might not be sufficient for a bachelor with no commitments to retire on.
“As a bachelor, you're probably going to want to go out with your friends and see the world. You're unlikely to be cooking your own food, staying at home everyday and living hand-to-mouth every month.
“That's not considered living, that's existing!”
How to retire with RM1mil
While RM1mil might not be enough to retire with, it's still a lot of money, which can be used for investment purposes and to grow your wealth even further.
Foo believes the best thing to do is to continue working well into your retirement years if health permits,.
“Don't retire! We advise our clients that if it's possible, they should continue working. At 55, you're still young enough to generate more income for yourself. Even if it's just half of the amount that you used to earn, it's still money coming in,” he says.
Yap says readjusting your living standards would also help, adding that an individual could further invest his or her money in shares, unit trust or even property.
In terms of shares, Lee says a retiree should put some of his money in stocks that provide good dividend returns.
“Real estate investment trusts also give good dividends. Have a mixture of investments and don't just leave everything in your fixed deposit account.
“Leaving all your money in the bank is not a good idea, as it won't generate good interest rates. With the inflation rate growing at an even faster rate, you'll just end up losing out.”
Foo says it's also a good idea to start your own business.
“By the time you retire, you would have acquired valuable skills that still make you marketable,” he says, adding however that starting your own business can be either a rewarding or risky endeavour.
“Starting your own business can generate high returns. But you can either make it or lose everything.”