Private Pension Funds

Malaysia is set to have private pension funds by the middle of 2010. This is part of the whole pension fund reform in the country and crucial for building the new high income-based economic model.

Several fund managers have shown keen interest in establishing private pension funds. Therefore, there could be a few, rather than just one.

At present, a relatively large proportion of the economically active population in the formal sector has pension coverage through the Employees Provident Fund (EPF), the public sector pension scheme and Lembaga Tabung Angkatan Tentera (LTAT).

As at the end of 2008, there were over two million self-employed Malaysians remaining outside any formal pension system.

The important issue is sustainability of financial security during retirement.

A survey by the EPF indicated that about 90 per cent of contributors have less than RM100,000 in their accounts. Over 70 per cent would have exhausted their total contributions within three years of withdrawing a lump sum on retirement at the age of 55. This means by 58, an average retiree would have depleted all his retirement savings with EPF.

This underlying trend reflects the sole dependence of retirees on their EPF savings as a safety net, and as such, the inadequacy of sustainable levels of income after retirement.

Mistakes Mistakes

Here are some commonly made money mistakes that everyone should avoid:

Mistake #1:
Failing to Plan
Not many of us plan our finances. The most common response that we can anticipate would be the classic excuse “We are just too busy with work and family that we hardly have any time left to do the planning”. As a result, most of us end up paying higher taxes, leave our savings sitting silently in lousy investments for years or overpaying for financial products. Since there are always deadlines to be met at work, we tend to let our finances run its own course, thinking that it is of lower priority as there are no deadlines to meet nor is there anyone to force us to look into our financial plans, unless of course we run into serious deficit.
However, the important point to note here is that PLANNING is typically found to be a strong habit among people who have successfully accumulated wealth, even with just a modest income.

Mistake #2:
Spending Beyond Our Means
We constantly overspend due to peer pressure and consumer temptation that surround us on a daily basis. We are exposed to mild brainwashing with TV commercials, newspaper ads, sale circulars, and flashy shopping malls promoting the lifestyles adopted by the rich and famous, which of course involves having the latest mobile phone models, the latest luxurious cars, latest fashion trend. All these tempt us into spending exorbitantly and unnecessarily. The signals we get from not jumping on the bandwagon are that we will be considered left out of today’s scene. However, in order to do so, we end up spending way beyond our means. We will find that at the end of each month, the net salaries that go into our bank account are usually meagre, after servicing our car loans, housing loans, credit card bills and other utility bills.

Mistake #3:
Spending Future Money
Buy now and pay later! This has become a norm and the credit card has become a must-have item in our wallet. In fact, a lot of us carry more than one in our wallets. No doubt it is a convenient item to have around; however, some of us misuse it and treat it like a vehicle to spend our future money at will. It has become a common phenomenon where, by just settling the minimum payment at the end of the month, you will buy more now. As a result, the credit card bad debt snow-balls to an extent beyond our control. According to the bankruptcy report, the percentage of people declared bankrupt due to default in credit card payment has increased in the last few years especially among the younger age group. Be wise when using credit card. Making minimum monthly payment on credit card debt allows you to buy more now, but it will cost you dearly in the future.

Mistake #4:
Delaying Saving for Retirement
Most of us aim to take up early retirement. In order to achieve this, we need to plan our finances to make sure that we have enough savings to sustain the life style that we desire even after retirement. However, many of us find that even when we approach retirement, we still struggle to meet the savings target that we have set for ourselves earlier. As our income grows, our savings are supposed to increase as well, instead, we more often than not, have big items to spend on, i.e. house upgrading, new car purchase, club membership to keep up with our peers, etc., that prevents us from depositing more into our savings.

Mistake # 5:
Investing in the Wrong Products
There are various kinds of financial products in the market. However, in order for us to identify the right product that suits our risk and return profile, we need to equip ourselves with some basic investment knowledge and do the homework ourselves. Instead, most of us end up investing in some products, simply because we rely too much on the financial advisers, who might have the agenda of pushing higher sales for their products and therefore providing misleading information to us. It is always important to study the product characteristics or the management team track record before investing.

Mistake #6:
Not Saving for a Rainy Day
Some of us think that purchasing insurance is a waste of money. However, we are vulnerable if we and our family do not have insurance to cater for any loss of income. In the event of some unfortunate incident, especially those affecting the family’s bread winner, without any cash reserve or insurance, it will be devastating to the whole family. By then, it would be too late to start thinking of income replacement.

Mistake #7:
Focusing Too Much on Money Matters
All the above tell us to focus on our finances. However, on the other extreme, we must also not be too engrossed in accumulating our wealth to the extent that we lose sight of other priorities in our lives. While we plan our financial health, we must not neglect our own health, family and friends, career satisfaction and fulfilling interests. Without these, even with tons of money, we will not be happy.
Lastly, we need to remind ourselves of the importance of planning our finances. If we are not fully, totally and truly committed to creating wealth, chances are wealth will remain estranged to us.

http://www.min.com.my/min/article.aspx?menu=4&menuAttch=377&sec=article

Baby Step To Financial Freedom - Comments

My mate, Kayage Class 88 commented on the article, Baby Step To Financial Freedom posted on Monday 4 May 2009. He has his points and thought it would be a waste if I did not share his thoughts. Here we go - lock stock barrel...

Whilst knowing how to invest is a good thing, I do not think it is a 'must'. Looking back at our parents' time, were there mutual funds schemes during that time? I dare say 'No' or very limited.. and even if/when there was some kind of funds being set-up, it was flawed with cheating cases where someone ends up absconding with a large portion of the investors' funds (eg. Kojadi at one point of time - my dad was part of the statistics as he invested some of his hard earned cash there)..

So, question - How in the world did our parents made it thru without needing to know how to invest, what more investing during their younger days?

BTW Chee Wee, i think your formulae lacked an important variable. I.e. our kids.. No, I am not saying that we should expect our kids to finance us when we are older. However, knowing our asian mentality, where family bonding is the root of being a family, that is the situation we, highly likely, would be in, in the future (this is provided we are married and have kids, ya?)

Anyway, sorry for the side track, yes, we need not know how to invest. However, if we do know how to invest, it would give us more buffer in our spending in our later days. Chee Wee, another factor that i think you might have missed out is the inflation factor. There is no point of placing one's cash somewhere to generate 3% while the inflation rate is above that. Thus, following your sample, if the current inflation is at 4% and the FD return is at 3%, the investor is actually losing $$$ in a long run. He is better of holding on to the cash or placing it where it can generate a higher returns.

A prudent investor does not place all his eggs in a basket and investment does not only mean FD, Shares and mutual funds alone... Properties, gold, collector's items should be considered too.

Let's take a look at gold, if you study the pricing trend, you would notice that gold is one commodity that had been steadily going up in price thru out the time, thus investment in gold makes a good option too.. Well, next question, where do I store all these gold that I had bought.will be buying? No fret.. These days, golds are sold w/o the need for physical transfer. Instead, the gold can be safeguarded in a bank with the bank issuing you a certificate. Thus, at any point of time you want to liquify your gold, all you need to do is bring along the certificate.

Price for strategically located properties will continue to appreciate. Thus, buying a bungalow for RM100k in PD hoping that the price would appreciate would be a wrong investment idea. Instead, a D-story in BU today might cost RM700k, but in 10 years time, it would probably cost more than RM1mil - Statistics had proven (from trend study), less tahan 5 years ago, the D-story house in BU only costed RM450-RM500k!. So, if you do the maths, RM300k (profit) divide by RM700k (cost of purchase) multiply by 100 gives you a return of about 40-50% for the 10 years investment - So much better than FD, no? and during that 10 years, you could possibly make some income via rental.

Lastly, collectors items (eg. proof coins, stamps, old coins & notes, antique items). These have high resale value as time goes by (provided you are collecting the 'right' set of items). Again, for that investment, you probably would make 5-10 times your cost. Again, this depends on what you foresee in the future as items in demand ;)

If you are not awared, these days there are these thing called. Collectable trading cards.. they come in the category of common, uncommon, rare and super-rare. I.e. you can collect them as a hobby, use them for leisure games or competitive games (yes, they even have world meet and superbly good price for the winners) then later on sell them off for a good price. A super-rate (out of print card) could possibly fetch USD2-3k these days.. So, imagine the opportunity for investment here.

I have a friend who collects comics (Marvel and DC).. and yes, I dare bet you read in the papers not too long ago how much an auction of the 1st ed. for Superman fetched the seller, ya?..

Chee Wee, sorry for being so long winded, and no intention to hijack your posts :P.. Just want to share other possible investment options besides the capital market :P

BTW, do keep away from HYIS (High Yield Investment Scheme). I do advice against this mainly for 2 reasons:

#1. your returns are from fellow family and friends you hoaxed into the scheme. So, this investment scheme are only for those w/o concious as you have to have the stomach to see your friends' losses at ur benefit.

#2. if you really ust enter into a HYIS, do so only if the scheme is less than 6 months old.. entering one which is about 1 year old is shaky. Most HYIS life line is 2 years. i.e. the initiator will chao-low (run-away) before the end of 2 years!!

Happy investing ;)

Planning To Retire!

"If you can't make decisions in life, you're a bloody menace. You'd be better becoming an MP!" Bill Shankly

Young parents Viveka and Ananda have been putting aside a fixed sum every month into their savings accounts as part of their retirement nest egg after deducting their household expenses. The ‘journey’ taken is lauded but perhaps they need to re-examine the mode of ‘vehicle’. The common belief is that keeping our money in the bank is the best way to preserve our capital. However this instrument may not be good enough given that interest rates of bank deposits can hardly outrun inflation.

The rising cost of living and medical expenses could be a major financial burden.
According to Great Eastern Life Assurance, only 34% of Malaysians are putting aside money regularly for their retirement funds. Longer life expectancy, delayed marriage and having children later would leave the retirees in a vulnerable position as they also need to set aside medical funds for themselves and education funds for their children.

Although Employees Provident Fund savings is one of the main channels to provide for retirement, 99.9% of the contributors would withdraw these savings in one lump sum once they reach 55 years of age and 70% would use up all these savings in just three years post-retirement.

Another alarming note is that those who do save do not have a concrete plan on how to build their retirement fund. They just save as much as they can and hope they will have enough to cover their retirement needs. They do not segregate their savings for retirement and lump everything as general savings. To make matters worse, they would use the money should other needs arise.

In addition, 73% do not seek advice from financial professionals – a behaviour that compounds Malaysians’ poor retirement planning ability further.

Instead of relying solely on EPF and personal savings, Malaysians should consider early financial planning, which would save them the stress of dealing with insufficient retirement funds or seeking prolonged employment to ensure financial stability.

There are a variety of choices available when it comes to building your retirement fund.

Depending on your risk appetite, investment horizons and affordability, you can invest in properties, equities, unit trusts and investment-linked insurance to name a few. The key is to have a sound investment strategy that is the ability to balance risks and returns effectively according to the desired investment tenure.

Nevertheless, it is always advisable to contact a professional financial advisor or a wealth planner who can provide advice on how to best go about securing your retirement based on your financial circumstances, priorities and needs.

Baby Step To Financial Freedom

Assume you start investing at the age of 25 and intend to retire at 55. By saving RM100 per month and invest the money into fixed deposits (FD), assuming the FD can provide about 3% return over the next 30 years, your investment portfolio will reach RM58,274 when you reach 55.

However, if you can generate 5%, 7% and 10% returns, your investment portfolio will achieve RM83,226, RM121,997 and RM226,049 respectively.

The EPF may be able to provide us about 5% whereas unit trust investments may be able to give us 7% to 10% returns over a very long-term period.

We treat the 3% FD return as our risk-free rate. Any extra returns above this rate will be the risk premium for the additional risk that we are prepared to face. Thus, we need to understand our risk tolerance level before considering any type of risky investment. We should know if we are willing to accept the uncertainty of return that is inherent in those investments. Besides, we need to understand if we can afford to have our savings tied up for a long period before we can achieve our investment targets.

When we earn more money, we should have more money for our investments. We should save and invest more. Unfortunately, the word should seem so far away as some investors just do not have the discipline to save even though they earn high salaries.

If we can cut down on our expenses and live below our means, we should have more money to save. We should always ask ourselves whether we want to spend money on unnecessary luxury items to keep up with the Jones or spend less to achieve financial freedom earlier.

However there is no straight-forward answer to how to generate high returns. For a start, we can equip ourselves with strong financial and investing knowledge. Read up investment books. Digest the financial information and do some research in investment.

Once we have built up the knowledge, start practicing. There will be some roller-coaster rides or wave riding. The important thing is to learn along the way. All these rides will help us in making better investment decision that will eventually translate into better returns.

Happy Investing.

Learn To Invest

DPM is asking the Bumiputra and Indian investors to take up the remaining two billion Amanah Saham Malaysia (ASM) units as the Chinese have already snapped up their quota of 999mil units.

He was quoted “This clearly shows the level of understanding among the Chinese when it comes to investment and financial planning for the future.” Susah dahulu, senang kemudian!

He also urged parents, teachers and the media to play their part in educating the public, especially the young, to save and invest from an early age. He added that while the Government encouraged domestic spending to boost the economy, it wanted the people to save by investing their money in proper financial instruments such as unit trusts.

He said the additional income would come in handy for future planning.

Some current statistics on the fund manager, Permodalan Nasional Berhad (PNB).

The net inflow of money into unit trusts has been healthy despite the current global uncertainties with RM5bil invested in PNB related funds as of this year. This was in stark contrast to the scenario during the 1998 financial crisis, which saw withdrawals of almost RM1bil every month from unit trust schemes.

PNB enjoyed a net inflow of more than RM10bil into its funds last year. PNB had a total of 9.3 million unit holders, with a total investment of RM87bil. PNB had invested in 281 companies, of which 230 were listed on Bursa Malaysia.

Cash is King?

It is not always easy to do what is no popular but that is where you make your money. Buy stocks that look bad to less careful investors and hang on until their real value is recognized.

Successful stocks don’t tell you when to sell. When you feel like bragging, it is probably time to sell. I have never bought a stock unless, in my view, it was on sale - John Neff on Investing.

Are you adopting a wait and see attitude and put on hold your investment decisions? For employees are you having sleepless night thinking about potential financial shock either through loss or reduced income? Therefore it is a must to have some cash reserve at these times. The rule of thumb is to have at least 6 months worth of cash reserve. Budgeting is useful to trim excess fats from monthly expenses.

If you have cash, you might want to consider :

1) Invest in real estate. There are people in need of cash and are desperate to sell. Prices will fall.

2) Buy businesses. Time to indulge in ventures that you enjoy doing and earning money at the same time.

3) Buy undervalued shares. Identify undervalued shares that have strong fundamentals with good prospects. Market operates in cycles. Invest with a long term perspective.

4) Invest in unit trust. Allows professional fund manager to manage your portfolio when you do not have the time or expertise to do your own research.

5) Other investing options like gold, currencies, antique collection etc.

There are many opportunities when the market is down and everyone feels the situation is hopeless. Do your homework well and not afraid of the perceived risk. Change the investment strategy bit not the fundamental principle, which is to search for value and make profit in the future.

In recession cash is king because it allows you to capitalize on these opportunities at attractive prices / bargain. If you are sitting in a pile of cash, strike it when the right opportunity comes along otherwise your wealth is diminished by inflationary pressure.

Don't You Cry!

“Acceptance does not mean being weak and allowing people to push us around. It means being strong enough to accept that we cannot alter everything to suit us and it does make our life easier by getting rid of those futile feelings of wanting to change everyone and everything” - Anonymous

When factory supervisor Anusia heard that all employees had to abide by drastic cost-cutting measures, she knew that her employer of 12 years had not been spared from the dreadful global financial crunch. Since December last year, the Japanese company manufacturing hard disk drives had sent 600 foreign workers back and cut the salaries of the local workers by 20%. This month, they work only 11 days. That has shrunk Anusia’s income by at least half.

“The situation is really bad. Orders have dropped by 50% and are still dipping. We are constantly reminded to be prepared as we have to leave if things get worse. If the company shuts down, more than 1,000 will lose their jobs”.
Anusia has indeed prepared well. She is ready to face the possible perilous days ahead.

“After paying off the monthly commitments like car and house instalments and insurance, I have only RM100 left. How can I ever survive with that?”
Instead of being a cry baby and feeling sorry, she took a bold step into an unchartered territory. She joined a direct-selling company. What started as just a source of extra revenue during her free time has become a financial cushion in trying times. She uses the extra days off to do more sales. She sees the impending retrenchment as a turning point in her life that would propel her into a more exciting and lucrative career in marketing.

“I am glad that I am mentally and physically prepared for the worst. You have to work something out. Everybody can do it. You just need the determination and enthusiasm. Your relatives may help when you are jobless for the first few weeks, but you can’t keep on asking help from them. You have to stand up to help yourself.”

Well done Anusia. Take a leaf from her. Those who are in the same predicament, just do it – Everybody can do it. Explore the alternative jobs like direct selling, selling unit trust, insurance etc (that are legal!). It could indeed be a lucrative career!

Investment Poser for Retirees

Case 1: Choong Mun Fook, 58, a retiree, intends to invest in unit trusts and investment-linked insurance using his savings. These investments now offer attractive opportunities as considerable value has emerged from the downward spiral in asset values.

He also plans to pick up some blue chips in the stock market which have been battered in terms of valuation. Although it is considered risky for his age, it is a good alternative over the medium term compared with FDs, which offer such low yields. The current market situation was a rare opportunity for investors to obtain better returns since the KL Composite Index had fallen by more than 40% since the beginning of last year.

Case 2: Grace Matthews, 62, a former civil servant, purchased unit trusts using her gratuity upon retirement. The unit trust market proved to be a profitable venture initially but her investments were badly affected last year. She also put some savings into the New Zealand and Australian foreign currency deposits but has made losses as well recently.

Her savings were now mainly placed in Amanah Saham Nasional Bhd’s fixed-priced equity-based unit trust funds namely Amanah Saham Wawasan 2020 and Amanah Saham Malaysia, which offer consistent average returns of about 7% yearly.

Case 3: Cheah Kay Eng, 78, believes that FDs still present the least amount of risk compared with other financial instruments in the market. Although they are not substantial, returns from FDs still give him a bit of pocket money every month.
From the above scenario, there are many choices but it depends on individual’s risk appetite. Higher returns come with higher risks compared with safe but low-yielding FDs.

However, the financial expert said the level of risk associated with financial products was relative. FDs and savings accounts in banks are no longer a sure bet, as Citibank, Lehman Brothers and Merrill Lynch either go bankrupt or bailed out by the government.

Additionally, many people had the wrong perception that savings entailed investing in just one particular product. The right way for a retiree would be to take a diversified approach to risk so that he is not too exposed to a particular risk sector. Then, he has to determine what is the combined risk taken and monitor the risk exposure over his investment time horizon so that it is reasonable to the returns he wishes to get.

Ideally, early financial planning would help retirees avoid the stress of dealing with insufficient retirement funds or seeking additional means to ensure financial stability. Plan ahead to counter the effects of inflation – many retirement plans are built with flexibility in mind, allowing you to decide and control how much to set aside each month.

Seek Wealth

Wealth to the foolish can become a trap to him,
Wealth to the wise is a way to free himself.

We can begin with an inspiration and with a proper aspiration. We shall perspire to work on it diligently. We wish to travel. This becomes an inspiration. Then we begin to plan (aspire) where we want to go. We make an effort (perspire) to make the dream comes true. Similar process if we are seeking wealth.

Wealth can be classified into ;
a. the tangible such as cash, properties, assets or intangible such as honour, recognition, health.
b. the spiritual such as virtue, wisdom, generosity, truthfulness.

Those in youth, while they are energetic, if they do not strive for wealth, when they grow old will be in trouble.

Once we acquire the wealth, how do we spend it? The manner of spending our earnings could be divided into followings:

i) Spend on the necessities for ourselves, family and people around us such as food, housing, clothing, education and charity. Life is full of obligations and responsibilities. We do not live alone. Therefore we have to spend on others for mutual benefits. Contribute back to the society!

ii) Spend and invest in spiritual development includes building places of worship and supporting those who strive for spiritual purity. Printing of books in memory of departed relatives is a noble way to spend for the deceased.

iii) Spend on investments includes retirement planning, children education, training to improve our own skill etc. Also spend to protect own wealth such as insurance, will etc.

iv) Spend or rather save for the rainy days. We do not know when the uncertainty in life would happen. Sickness, recession, accident, unemployment are some of the uncertainties in life. Give up a smaller happiness for the greater one.

The whole purpose of seeking wealth is to spend it in the manner that gives us happiness within the moral framework. Spend within our means and limits in the moral manner. If we happen to lose all our wealth, we should not be upset because we know we have put them into good use.

If we lose your wealth, we lose nothing,
If we lose your health, we lose something,
If we lose our character, we lose everything.

Be contented with wealth because there are other sources and ways of gaining happiness.

Live Hand To Mouth In 2020?

An independent survey commissioned by Prudential has found that a significant 48 per of the 1,024 Malaysian participants approaching retirement are fearful they will not have enough money to retire. Four out of five pointed to rising inflation as the main culprit, saying it has seriously affected their lifestyle. Four out of 10 see themselves working beyond the mandatory retirement age.

The survey was conducted in August, on the heels of inflation running up to a 27-year high of 8.5 per cent after massive fuel, food and transport price increases, and gave an insight into how pessimistic they are about their savings. The finding could have been even more negative if another survey is conducted today.

Although they have a high propensity to save - 72 per cent claim they do save for retirement - their current savings behaviour shows a lack of proper planning. Among those who save, 77 per cent invest in traditional but low-yielding vehicles such as bank fixed deposits and savings accounts. Yes, these are secured instrument but they would not give the yield needed to retire at 55 as in reality they are losing money due to the higher inflation rate.

Equity and investment-linked products tended to offer better returns over the longer term but the disastrous implosion of the US sub-prime and investment instruments packaged with it had eroded investor confidence.

Few Malaysians are focused on saving for retirement. Forty-one per cent put aside as much as they can, hoping it will suffice - but nine out of 10 do not have the discipline and would dip into retirement savings if they had to.

The lack of retirement reserves is a national concern as wages are not in keeping with inflation. Only a fifth think EPF money will meet their retirement needs. Worrying, EPF own survey found that its members' retirement funds last an average of three years. Given longer mortality rates and rising living costs, the problem is obviously challenging.

How To Lose Your Life Savings

The worst possible financial disaster is to lose our nest egg to a scam after having spent our life carefully saving and investing. There are so many financial scams to avoid. For every honest method of making money, there are dozens of ways to fleece people!

Many scams are a variant on what is known as advance-fee fraud. This involves taking money upfront, with a false promise of delivering far greater sums further down the line. E.g. bogus lotteries, Nigerian 419 scams and Ponzi schemes.

Many experienced investors have been taken to the cleaners by what are known as ‘boiler rooms’. Setting up a boiler room is remarkably simple. First, rent a cheap office space in a far-flung location with plenty of English speakers. Add a ‘virtual office’ with a half-decent website. Next, recruit a bunch of young salesmen.

Start cold-calling prospects; start sending millions of spam emails. The companies being promoted could either be genuine or entirely fictitious firms. It does not matter if the ‘incredible investment opportunity’ involves real or fake businesses. All that matters is that investors send lots of money.

The salesmen (‘opener’) should make hundreds of calls daily, sticking closely to an agreed script. Once a ‘mug punter’ shows an interest in the ‘hyper-growth share’, he has taken the bait. The ‘closer’ convinces victims to invest as much as they can, on the promise of making a guaranteed fortune.

By repeating this exercise, it is possible to amass millions before vanishing. Even after closing down, they can still continue the scam. Simply set up an identical outfit under a new name. Contact previous victims; convince them that they can recover their losses. All they need to do is to sell their shares to a reputable company which wants them for tax-avoidance reasons. Of course, this service involves payment of an upfront fee and the game continues...

The simple way to avoid being scammed is not to be overcome by greed. Be extremely skeptical of anyone contacting you to discuss investment opportunities. Do not be fooled by impressive-sounding names, plush addresses and impressive locations. In many cases, these bogus brokers work from squalid basement offices -- hence the boiler-room tag!

Watch the film Boiler Room. After watching this eye-opening movie, you may never answer your phone in quite the same way again!

Building Pipelines

Once upon a time there lived two ambitious men called Anwar and Abdullah in a Penang village. They wanted to be the richest men in the nation.

One day they got their big break after months of lobbying. The village chief gave them a contract to carry water in buckets from a nearby river to storage tank for the usage of the villagers. Both were overjoyed and started to work immediately. At the end of the day they were dead tired. That prompted Anwar to do some serious thinking to provide a better solution to transport the water. The next day he was excited to tell his friend about his new idea. Instead on lunging back and forth, they can build a pipeline from the river to the village. Abdullah was skeptical as it sounded new and there were no short term benefits. He rejected that idea outright and was happy with whatever he was earning.

Anwar did not give up and worked on building the pipeline during the evenings and weekends. He kept on reminding himself that “Tomorrow’s dreams are built on today’s sacrifices” and “Short-term pain equals long-term gains”.
Hours turned into days, days turned into months and months turned into years. Finally the project was completed. The pipeline transported water non stop to the village. The pipeline isn’t the end of a dream. It is only the beginning! He started to use the same system and build pipelines all over the world.

After his retirement he still has millions coming in from his pipelines. He continued to share the pipeline idea to many people. A few would jump at the opportunity but most would dismiss it with excuses like “I don’t have the time”, “My friend tried this and failed”, “I’ve done this all my life and would like to stick on with it”, “I know some people who lost money in this, I don’t want to take the risk”.

So are you “A BUCKET CARRIER” or “A PIPELINE BUILDER”?

Life Uncertainty - Any Financial Compensation?

Death is certain. Life is uncertain. Everyone in agreement? If yes, isn't it a sure bet to hedge our money on insurance protection? A sure win proposition? But why is this market still consider untapped?

Perhaps many shied away from buying insurance policies because they could not afford it and certain extent due to procrastination. Not because they felt they are immortal!

For those who could afford, many bought insurance policies on an ad-hoc or stand alone basis which does not provide much protection or benefit to them or their next of kin. Some spent quite significantly on various policies which in reality were not relevant or necessary, hence incurring additional expenses. So it is vital to prioritise your insurance needs to match your financial budget.

Take into account your budget and buy policies that provide comprehensive coverage. A suitable plan should cover income protection, children education needs, liabilities, post retirement health care and critical illness protection.

Employees should think beyond their retirement medical and health insurance coverage. They should look for independent medical plans apart from those provided by employers. Critical illness protection plans are important for better and affordable medical treatment. This protection could also provide a peace of mind.

Once a loved one is struck with critical illness and eventually kick the bucket, there is nothing in the world that could replace him / her. However at the very least, there is some financial compensation to sustain the lives of the dependent or to pay for the ever rising medical bills!

6 Ways To Protect Your Wealth

1) Dealing with death - make a will. You need to leave instructions on how to distribute your assets when you die! If you don't, you're condemning your loved ones to financial worries on top of grief!

2) Protect your life - Ever important if you have dependent children. The loss of your income (as a breadwinner)could be a huge blow to the family. Shop around for a life insurance that provides adequate protection.

3) Protect your partner - It's a grave mistake to insure yourself adequately while ignoring the financial havoc that the death of a partner could inflict. Imagine the surviving partner has to work and raise the kids alone, facing financial and emotional heartbreak.

4) Protect against life threatening illnesses - 1 in 4 Malaysians will suffer cancer. Then there are the other lifestyle diseases to worry about. Get critical illness insurance.

5) Safeguard your income - If you are out of action for,say, 6 months, your employer will cut your pay and eventually stop paying your salary altogether. Think about building pipeline and embark on passive income. No work but still get paid.

6) Take good care of your health - Health is wealth. Start watching your diet, do regular exercise and prolong your productive years!

Majority Neglect Retirement Plans

According to a recent survey, AXA Retirement Scope 2008, more than half of Malaysian workers have not prepared for retirement while those who have, only started planning after age 40. (Yeah, life begins at 40 but don’t you think it’s way too late to build our retirement fund?)

The survey, part of a global study conducted in 26 countries, involving 18,000 respondents, was undertaken from July 23 to Aug 27, 2007.

Among those who had planned for retirement, most began after they married, had children, fell into financial difficulties or had health problems.(Me - tick on all the above except health problem).

Their sources of retirement income included life insurance, Employees Provident Fund and personal savings.(Me - tick on all above plus real properties, shares and unit trusts).

The retired saved an average of RM478 a month and the working RM704, figures that were considered low compared with other countries. The retired feel that their retirement income is insufficient to cover household expenses. The average income is RM1,243 but the amount needed is RM1,568 – a deficit of RM325.

In comparison, Singapore’s average retirement income is RM3,690 and the amount needed RM3,465; while Thailand’s average income is RM1,276 and the amount needed RM903. (that's the way to count!)

The disparity between high and low income earners in Malaysia is wide, the high-income retirees having four times more than those with low income. (Yeah, rich become richer, poor become poorer?). Despite insufficient income, three-quarters of the retirees said their quality of life had improved if not remaining the same, while 83% of the working group expect their quality of life to improve or remain the same. (possible but be very wary of the inflation rate!).

10 Steps To Great Retirement

We will grow old and retire one day (provided we don’t do a ‘Heath Ledger’). As a senior citizen, we still need to eat and surf the net. Here are 10 steps to ensure we have the dough for our sustenance :

1. Face your future honestly. Retirement studies show that those who exercise control over when they retire live happier lives than those who wait to be put out to pasture by others. Malaysians generally still expect our children to look after us in retirement. It is not a good safety net as our children have their very own family to take care of. So be proactive, plan our own retirement.

2. Exercise delayed gratification. Don’t spend like there’s no tomorrow. ‘Delay’ some enjoyment in the short term for the great enjoyment in the long term

3. Start yesterday, failing which start today. The time value of money tells us money today is worth more than the same amount tomorrow. E.g. RM1,000 today will be worth RM1,030 one year later if it is deposited in a 3% fixed deposit account. This ability of money to snowball over time is termed compounding.

4. Save money. Two effective ways to save money 1) set aside savings before allowing any other outflows each time we receive our salary. Inflows – Savings = Outflow 2) manage our cash flow effectively. It’s obviously better to start saving early, it is never too late to start even if we’re already close to retirement.

5. Beef up net worth. Our net worth statement is the difference between assets and liabilities. We should boost our productive assets that generate passive income in the form of dividend, rental and interest.

6. Create own pension. Some public servants can look forward to a lifetime pension. Others include the private sector workers contribute to EPF. Retirees must have a pension. No pension, no retirement! So, those without a government pension must take personal responsibility for creating their own. The goal should be to proactively create multiple sources of income from investments and through a future pipeline of passive income.

7. Prepare for future inflation. A major factor in retirement funding calculations is future inflation. Saving money in the bank is unlikely to generate returns greater than inflation. So, start educating ourselves on the damaging effects of inflation and the need to accept some level of investment risk.

8. Enslave our money. Make our money works for us. Failing to plan is planning to fail! The wealth we accumulated throughout our working life will have to work for us too. The larger that pool of resources and the harder it works for the retiree, the better the quality of life in retirement.

9. Aim to be debt-free. While there is such a thing as good debt that ends up enriching us, most people are wired in such a way as to benefit from living a debt-free life. Work toward attaining zero gearing in as short a period as is practical. Certainly settle all credit card monthly dues promptly and in full! Remember, there is always a cost to borrowing.

10. Marry a Rich Spouse!

That’s The End!

Poverty After Retirement

According to an EPF survey - the average EPF contributor would have exhausted 70% of his retirement savings benefits from the fund in just 10 years. The recent survey on retirees found that at 65 years, many had exhausted all their funds and depend on their children for support for the rest of their remaining years.

If this is true, many Malaysians may face poverty in their old age. With the decline in the extended family support system and increasing life expectancy, concerns are being raised about the implications of old age security. Values are slowly eroding as some children choose not to take care of their parents although they can afford to do so!

Sad but true! Don't fret, there are still hope. Never too late. Let us start building our pipelines.