3.0 Retirement Planning: Why You Should Start Early
Planning for retirement
Planning for it early makes a huge difference and allows you to save more over time and build a stronger financial cushion. The earlier you plan, the more secure you’ll be in the long run.
3.1 Why Do We Plan for Retirement?
The main goal of retirement planning is to ensure financial comfort after retirement. It means being able to live without depending on others, stressing over bills, or compromising your lifestyle.
Many people think they can wait until their 40s to start saving for retirement but this is a false assumption. When you start late, you lose the benefit of time, and you’ll need to save a much higher amount every month to catch up. Starting in your 20s, even with small amounts, gives your money more time to grow. Time is your biggest advantage in retirement planning.
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3.2 Financial Planning for Children
If you have children or plan to, it’s important to include them in your long-term financial goals. Many parents do financial planning to ensure they can support their child’s education, healthcare, and other needs without sacrificing their retirement savings.
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3.3 How Much Do You Need Monthly in Retirement?
The amount depends on your lifestyle, location, inflation, and health.
As a rule of thumb, most people aim to have 60%–70% of their current income to live comfortably after retirement.
So, if you currently earn RM1,000 a month, you may need more than RM600/month during retirement to sustain your basic needs.
Don’t assume you’ll need less in retirement as prices continue to rise over time due to inflation.
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3.4 When Should You Start Saving for Retirement?
You should start saving for retirement as early as possible. The earlier you begin, the more your money can grow through compounding interest. Compounding interest is generally defined as "interest earned on top of accumulated interest”.
The reason to plan early is to benefit from compounding interest.
A good strategy includes saving and investing in different financial instruments and not relying on just one source of income. Diversification is an investment strategy that lowers your portfolio's risk and helps you get more stable returns.