5 common financial mistakes made by retirees in Malaysia

"How to plan for retirement?" is a topic that resonates with people worldwide as they work diligently throughout their lives. Many envision retirement as a time of freedom and fulfilment, a period to indulge in hobbies, explore new interests, and cherish moments with friends and family.

However, it's crucial to be aware of the common retirement mistakes that can cause problems derail your plans, which we have detailed in this article:

1.  Having the wrong idea of income 

Many tend to rely on their EPF for their retirement funds and end up deprioritising financial planning for their retirement. While EPF is valuable, it may not provide sufficient support on its own¹. Inflation and market volatility can diminish the value of your investments, potentially leaving your pension savings inadequate to cover long-term expenses². Therefore, it's imperative to acknowledge these market dynamics and take proactive measures to safeguard your financial future.

As such, it is essential to account for market dynamics to ensure you will be covered:

• Anticipating future market trends over the next X number of years and plan accordingly to accommodate rising costs and potential investment losses.
• Diversifying your financial strategy and avoid relying solely on inheritance, as it's not a guaranteed source of significant funds.
• Preparing for unforeseen circumstances by evaluating your monthly expenses and ensuring you have sufficient funds to maintain financial stability

2.  Not accounting for medical expenses 

During financial planning for retirement, it's crucial to add medical expenses into the list. As you get older, medications, hospital visits, and treatments become significant components of your budget³.

A big part of accounting for all of these is to get yourself covered by retirement insurance. Here are the reasons why:

• Without adequate insurance, the financial burden of healthcare expenses can lead to high out-of-pocket costs. Therefore, do the necessary research on inflation trends in the healthcare industry and secure a comprehensive medical plan.
• Additionally, do consider ongoing care expenses, such as the potential need for nursing care. 
• Lastly, you should always prepare for potential surprises as there will be new ailments that may catch you off guard, with COVID-19 being the best example.

3.  Not investing to combat inflation 

Individuals who proactively plan and invest for their future from a young age set themselves up for greater financial stability and security⁴. Starting early allows your income and savings more time to compound and grow, providing a solid foundation for the future. Additionally, early planning affords you more flexibility to adjust your savings strategy in the event of unforeseen circumstances.

To ensure this, it is essential that you:

• Clearing all debt as early as possible to avoid the burden of carrying it forward.
• Establish a clear monthly budget and stick to it as closely as possible. This cultivates discipline and helps you build a substantial financial reserve.
• Make timely financial decisions, including obtaining insurance for retirement and making investments to safeguard against potential risks. Unsure where to begin or how to go about it? Get in touch with our life planning advisors today to get started.
• Stay agile and modify your plans to get the maximum value for your investments.

4.  Giving into impulsive expenditures 

Retirement can sometimes lead to impulsive spending, often driven by feelings of loneliness or a lack of purpose⁵. However, by adopting proactive strategies, you can enjoy a much more fulfilling retirement.

Here are some steps to consider:

• Cultivate a supportive social circle to combat isolation and foster meaningful relationships.
• Stay true to your financial goals and resist pressure to overspend, prioritising long-term financial security.
• Invest in financial education to enhance money management skills and make informed decisions.
• Prioritise mental well-being and seek support to manage financial stress and maintain overall wellness.

5. Being caught off guard by unexpected challenges 

Even the most carefully laid plans can encounter unexpected challenges, whether it's a natural disaster, a sudden family crisis, or a global pandemic. So, how can you plan for this well before your retirement years to ensure that you will be able to navigate any challenges and problems that may arise?

Here are a few things to keep in mind:

• Natural disasters can result in significant property loss and financial setbacks. Having sufficient funds set aside can help you rebuild and recover from such unforeseen circumstances.
• Family emergencies often come with unexpected expenses that can strain your finances. Planning ahead and setting aside funds for emergencies can ensure you're prepared to handle these situations without financial stress.
• Market fluctuations can impact the value of your investments unexpectedly. Diversifying your investment portfolio can help mitigate the impact of market volatility and safeguard your financial assets.

Financial planning is crucial for securing your future and ensuring peace of mind for yourself and your loved ones. It's an ongoing process that allows you to navigate life's uncertainties with confidence and stability. If you're unsure where to begin, explore our comprehensive wealth accumulation plans to kickstart your journey towards a financially secure retirement and a fulfilling life ahead.

References

1. https://www.ppa.my/prslive/wp-content/uploads/2020/10/What-to-Do-When-Your-Retirement-Funds-Are-Insufficient_compressed.pdf
2. https://www.investopedia.com/articles/investing/090715/how-inflation-affects-your-cash-savings.asp
3. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10313336/
4. https://www.forbes.com/sites/forbesfinancecouncil/2023/06/22/why-is-it-important-to-plan-early-for-your-retirement/?sh=5a77b5b64940
5. https://knepublishing.com/index.php/Kne-Social/article/view/5115/10201