These unprecedented times pose uncertainties to our personal finances, which has the potential to affect our retirement savings too. If you had planned to retire by a certain date with a certain amount in your retirement nest, should the current crisis change your savings strategy?
Private Pension Administrator Malaysia (PPA), as the central administrator for the Private Retirement Schemes (PRS), has compiled a few pointers to keep in mind for you to stay on track of your retirement and savings goals.
Continue Making Regular Contributions
PRS was introduced especially for Malaysians to save for their retirement in a voluntary, structured and regulated scheme. For PRS Members, if you are gainfully employed and have been diligently contributing into your PRS account every month, then there is no reason to stop. Continue making these contributions and take advantage of the PRS Tax Relief.
During the Conditional Movement Control Order (CMCO) period or when working from home, you would have had added cost-savings from not having to commute to work and not eating out as frequently as before. Consider setting aside these extra savings into your retirement fund too.
“This is an opportune time to save more or at least maintain your usual contribution amount to benefit when the markets recover,” says Husaini Hussin, CEO of PPA. “You can maintain a ringgit-cost-averaging strategy to spread the risk of your entry into the market.
However, if you need to take another look at your expenses during these challenging times, don’t stop your contributions entirely but consider adjusting it proportionately and then revisiting it when your personal circumstances improve.
Keep Your Retirement Savings Intact
If you are facing a period of uncertainty, preserving your retirement savings should remain a priority. Avoid dipping into your retirement savings and review your budget or adjust your expenses accordingly.
There are various government assistance and reliefs to help you meet your monthly commitments. These include targeted moratoriums on mortgage and hire-purchase loans. Deferment on insurance premiums can also be arranged while your home or office rentals may be negotiated on a goodwill basis.
The general rule is to tap into your emergency funds and other non-retirement accounts first, because tapping your retirement savings today has consequences for the future.
Understand the Opportunity Cost of Pre-Retirement Withdrawals
In the event you need to dip into your retirement savings, there are a few options for you. Earlier this year, the government made pre-retirement withdrawals from PRS without tax penalty available until the end of the year. Besides that, pre-retirement withdrawals without tax penalty can also be made for housing and healthcare purposes.
These withdrawal features gives PRS Members more flexibility to use their savings to fund an immediate need.
However, just be mindful about the compounding returns you might forgo on the withdrawn amount. For example, assuming a 6% annual rate of return, a 25-year old withdrawing RM5,000 today is potentially giving up more than RM40,000 worth in future savings upon retirement at 60 years old.
Below is a summary of PRS funds’ performance since their inception. With more than RM4 billion in Net Asset Value (NAV) and close to half a million members as at 31 Oct 2020, the PRS industry remains vibrant and resilient despite the volatility witnessed this year.
|PRS Funds Category
*Returns are annualised since inception, as at 31 Oct 2020
The longer you keep your PRS contributions invested, the longer your retirement savings have to grow and compound over time. You can use PPA’s retirement calculator to simulate different projections and design an accumulation plan to reach your retirement savings goal.
If you haven’t started saving…
Consider starting now. With PPA’s PRS Online service, it can be as small as RM100, and you get to enjoy a ton of benefits:
“Ultimately, your retirement savings in PRS is for the long term,” Husaini explains. “Even after making a pre-retirement withdrawal, you are encouraged to continue saving on a regular basis once you are able to.”
“If nothing has changed in your professional circumstances, then there is no reason to change your savings behavior or retirement goals,” Husaini adds. “Stick to your current retirement plan because PRS is designed to help retirement savers stay the course to achieve their retirement goals.”