Tuesday, September 30, 2008
Saturday, September 6, 2008
Counting on the nest egg
By SHAHANAAZ HABIB
With people living longer, marrying and having children later and not saving enough, facing retirement is a challenge. While there is growing awareness about the need to plan, less than 5% are prepared for retirement and fail to take into consideration inflation rates and rising medical costs.
IN 1981, when Azman graduated, he got a job in KL which paid him RM1,800 a month. He bought an imported Mazda at RM17,000 and months later he put down money on a RM78,000 single-storey terrace house.
Today, 25 years later, Azman's daughter has just finished university. Her starting pay is RM1,800, just like her father's two and a half decades ago.
But unlike her father's time, imported cars cost over RM100,000 today. So Latifah has opted to buy a Proton for RM45,000 (more than double what her dad paid for his first car).
While her father could afford to buy a house early in his career, Latifah can't. Houses in KL these days cost at least RM200,000, so she has to work for a few years first before she can own one.
Compared to 25 years ago, the prices of goods, food, petrol and electricity have all gone up. Understandably, it's an uphill task for Latifah to save on her RM1,800 salary, since the purchasing power of her salary is much lower than her father's back in the 1980s.
It is a fact that wages have not moved in tandem with the rise of the cost of living and inflation. That trend is expected to continue.
And if people do not start planning early for their retirement, they are going to find themselves in a spot after they turn 55.
Today, three meals cost you RM20 but in 20 years time – with an inflation rate of 6% a year – you will need RM64 per day for the three meals, estimates financial consultant Hazel Ong Archibald of CIMB Wealth Advisors (see Chart 1). The government puts inflation rate at 3.2% to 4.8% but Ong says in urban areas, that figure is about 6%.
So while the RM500,000 in your EPF or bank account at retirement might look good on paper, she says, if you do not invest that money to make it grow at a rate higher than the inflation rate, 20 years later, it would be worth only RM145,053 in purchasing power!
While there is more awareness about retirement planning these days, particularly in the urban areas, in reality this does not often translate into preparedness.
Why?
“Because it is more pleasurable to spend than to save,” opines Ong.
People understand – at head level – the need to plan and save, she says, but at heart level, emotions rule and instant gratification wins the battle.
“I wanted to persuade a friend to save for the future but she kept saying she had no money but then later I saw she could sign up RM3,000 and RM5,000 for some slimming packages!”
Less than 5% are prepared for retirement,” estimates Life Insurance Association of Malaysia (LIAM) president Ng Lian Lau.
He says those in their 20s think they are too young to think about retirement, while those in their 30s and 40s tend to believe they are doing enough because they have
their EPF savings, and those who are 55 feel it is just too late for them.
And the truth is at 55, most people cannot afford to retire.
“People are living longer, life expectancy for women is 76 years. For men it's 72. With this kind of longevity, people have got more than 20 years after retirement. 60 would be a more ideal retirement age,” he says.
People are marrying later too, points out Ong.
Which means they are having children later in life. If a person has a kid at the age of 35 and retires at 55, the odds are that his child at 20 would probably still be at university or college and his education require financing.
On average, the Malaysian household spent 5.7% on education last year. With the cost of education rising by 6% each year, this is expected to climb steadily.
While parents might buy an education insurance plan for their children, Ong has found that 90% of the time the amount is insufficient. More often than not, parents are willing to give up “everything”, including their own retirement fund for the kids. Which leaves them in a vulnerable position in their old age, unless of course their children provide for them.
As for life insurance, only 40% of Malaysians are covered. Ng says this is a small number compared to 100% in Singapore , 80% in the United States and 400% in Japan (where one person has four policies on average).
And even if one has a life policy as well as savings from the EPF, people should still worry about retirement. This is because without a new source of income, that money would run out. This is especially so if one runs into health problems which is common when people grow older.
“Medical inflation is easily 15% each year. And this could really eat into the savings,” warns Prudential Assurance Malaysia Bhd CEO Tan Kar Hor.
Tan likens the medical bill as a “hole” which if not plugged would leak away one's entire retirement and savings.
“It's only a question of how the big the hole is,” he says.
So parliamentary secretary to the Finance Ministry Datuk Seri Dr Hilmi Yahaya's announcement on Thursday that amendments to the Employees Provident Fund Act would allow contributors to withdraw money to buy insurance for critical illness for themselves and their family is welcome news. The amendment Bill was passed in Dewan Negara that same day.
So how much would one need for retirement?
Experts say this depends on the individual and his lifestyle. And how much he is willing to reduce consumption – to eat out less often, buy fewer things, live in a smaller house, drive less, drive a smaller car and travel less.
The rule of the thumb, says Ng, is managing on 60% of your last drawn pay.
For Ong, it's 70% of one's current lifestyle. If a family in Kuala Lumpur with two kids and two cars needs RM5,000 today, at retirement, expenses should go down to RM3,500.
Even based on this calculation, one would need RM747,000 if one were to live for 25 years after retirement, and RM806,200 for the next 30 years, factoring in the inflation and interest rates.
Going by statistics revealed in EPF's 2005 annual report, about 90% of EPF contributors have less than RM100,000 in their accounts. So sole dependence on one's EPF savings as a safety net is not good enough.
Assuming that one can live on RM1,000 a month, to survive for 25 years, one would still need a substantial RM300,000 and for 35 years, RM420,000.
Bank Negara's Counselling and Debt Management Agency (AKPK) CEO Mohamed Akwal Sultan reckons a person should not start purchasing big assets like property or a house late in life as the danger is that once they have retired they may not be able to meet the instalment payment on it.
“When you are in your late 40s, you should be winding down and not committing to high expenses to buy big things,” he says.
AKPK has dealt with a number of cases where retirees have had banks auction off their houses because they could not meet the monthly loan payment.
There is also the problem of credit card temptation. Ng notes a worrying trend that more and more younger people are becoming bankrupt as they are spending “tomorrow's money”. Which basically means these people are not saving or building their retirement nest.
Ideally, Ong says, people should start saving from the time of conception; that way would be able to enjoy the magic of the compounding effect (see Chart 2).
Prudential's Tan says a noticeable trend is that while the younger generation is prepared to invest in new financial instruments, the older generation gravitates towards fixed deposits.
“That is very risky because you would not be able to accumulate enough because the interest rates can't meet the inflationary rate and your money is getting smaller,” he says.
He believes given the current life span, it would do retirees good to be more aggressive in their investment.
“In investing, you should not be looking at the date of retirement but rather the date of potential death which is probably still another 21 years away after retirement,” he says.
He recommends that people only keep about six months of their monthly expenses in the savings and FDs and put the rest in investment products that generate more income than the inflation rate.
Ng believes a good private pension would help people in their retirement years. In developed countries, money put into savings for retirement is not taxable, neither is the profit from that investment.
“When you retire, you can't take the money out in a lump sum either or you'd have to pay tax on it. This will force you to withdraw your money on a regular monthly basis for retirement because that's tax free,” he adds.
Singapore has such a scheme, the voluntary Supplementary Retirement Scheme, which complements the Central Provident Fund ( CPF ). Such a scheme has not taken off in Malaysia for a number of reasons, says Ng.
It would be a loss of revenue to the Government because people would not be paying taxes on money put aside for retirement. It would benefit only the rich and middle income group as the poor might not be able to afford it, he adds.
“Perhaps it hasn't taken off too because the Malaysian economy is pretty dependent on consumer spending. And the Government wants you to spend,” he adds.
Ng says there should also be an asset liquidation law in the country. It is puzzling that there are all sorts of incentives for asset accumulation, he says, but none for liquidation.
An example of asset liquidation would be to reverse mortgage your house to the bank in return for a guaranteed monthly income until you die.
The asset would at the end of the day belong to the bank or insurance company. But in the meantime, the person has the right to continue to live in the house until death and get a monthly income too.
“If they outlive the value of the house, the bank loses,” he says.
As our population ages and life expectancy increases, more thought must be given by both individuals and the Government on how to develop a culture of planning and saving for one's retirement.
With people living longer, marrying and having children later and not saving enough, facing retirement is a challenge. While there is growing awareness about the need to plan, less than 5% are prepared for retirement and fail to take into consideration inflation rates and rising medical costs.
IN 1981, when Azman graduated, he got a job in KL which paid him RM1,800 a month. He bought an imported Mazda at RM17,000 and months later he put down money on a RM78,000 single-storey terrace house.
Today, 25 years later, Azman's daughter has just finished university. Her starting pay is RM1,800, just like her father's two and a half decades ago.
But unlike her father's time, imported cars cost over RM100,000 today. So Latifah has opted to buy a Proton for RM45,000 (more than double what her dad paid for his first car).
While her father could afford to buy a house early in his career, Latifah can't. Houses in KL these days cost at least RM200,000, so she has to work for a few years first before she can own one.
Compared to 25 years ago, the prices of goods, food, petrol and electricity have all gone up. Understandably, it's an uphill task for Latifah to save on her RM1,800 salary, since the purchasing power of her salary is much lower than her father's back in the 1980s.
It is a fact that wages have not moved in tandem with the rise of the cost of living and inflation. That trend is expected to continue.
And if people do not start planning early for their retirement, they are going to find themselves in a spot after they turn 55.
Today, three meals cost you RM20 but in 20 years time – with an inflation rate of 6% a year – you will need RM64 per day for the three meals, estimates financial consultant Hazel Ong Archibald of CIMB Wealth Advisors (see Chart 1). The government puts inflation rate at 3.2% to 4.8% but Ong says in urban areas, that figure is about 6%.
So while the RM500,000 in your EPF or bank account at retirement might look good on paper, she says, if you do not invest that money to make it grow at a rate higher than the inflation rate, 20 years later, it would be worth only RM145,053 in purchasing power!
While there is more awareness about retirement planning these days, particularly in the urban areas, in reality this does not often translate into preparedness.
Why?
“Because it is more pleasurable to spend than to save,” opines Ong.
People understand – at head level – the need to plan and save, she says, but at heart level, emotions rule and instant gratification wins the battle.
“I wanted to persuade a friend to save for the future but she kept saying she had no money but then later I saw she could sign up RM3,000 and RM5,000 for some slimming packages!”
Reality hits when people find that they cannot afford to retire because they had not seriously put aside the money early on in life.
Less than 5% are prepared for retirement,” estimates Life Insurance Association of Malaysia (LIAM) president Ng Lian Lau.
He says those in their 20s think they are too young to think about retirement, while those in their 30s and 40s tend to believe they are doing enough because they have
And the truth is at 55, most people cannot afford to retire.
“People are living longer, life expectancy for women is 76 years. For men it's 72. With this kind of longevity, people have got more than 20 years after retirement. 60 would be a more ideal retirement age,” he says.
People are marrying later too, points out Ong.
Which means they are having children later in life. If a person has a kid at the age of 35 and retires at 55, the odds are that his child at 20 would probably still be at university or college and his education require financing.
On average, the Malaysian household spent 5.7% on education last year. With the cost of education rising by 6% each year, this is expected to climb steadily.
While parents might buy an education insurance plan for their children, Ong has found that 90% of the time the amount is insufficient. More often than not, parents are willing to give up “everything”, including their own retirement fund for the kids. Which leaves them in a vulnerable position in their old age, unless of course their children provide for them.
As for life insurance, only 40% of Malaysians are covered. Ng says this is a small number compared to 100% in Singapore , 80% in the United States and 400% in Japan (where one person has four policies on average).
And even if one has a life policy as well as savings from the EPF, people should still worry about retirement. This is because without a new source of income, that money would run out. This is especially so if one runs into health problems which is common when people grow older.
“Medical inflation is easily 15% each year. And this could really eat into the savings,” warns Prudential Assurance Malaysia Bhd CEO Tan Kar Hor.
Tan likens the medical bill as a “hole” which if not plugged would leak away one's entire retirement and savings.
“It's only a question of how the big the hole is,” he says.
So parliamentary secretary to the Finance Ministry Datuk Seri Dr Hilmi Yahaya's announcement on Thursday that amendments to the Employees Provident Fund Act would allow contributors to withdraw money to buy insurance for critical illness for themselves and their family is welcome news. The amendment Bill was passed in Dewan Negara that same day.
So how much would one need for retirement?
Experts say this depends on the individual and his lifestyle. And how much he is willing to reduce consumption – to eat out less often, buy fewer things, live in a smaller house, drive less, drive a smaller car and travel less.
The rule of the thumb, says Ng, is managing on 60% of your last drawn pay.
For Ong, it's 70% of one's current lifestyle. If a family in Kuala Lumpur with two kids and two cars needs RM5,000 today, at retirement, expenses should go down to RM3,500.
Even based on this calculation, one would need RM747,000 if one were to live for 25 years after retirement, and RM806,200 for the next 30 years, factoring in the inflation and interest rates.
Going by statistics revealed in EPF's 2005 annual report, about 90% of EPF contributors have less than RM100,000 in their accounts. So sole dependence on one's EPF savings as a safety net is not good enough.
Assuming that one can live on RM1,000 a month, to survive for 25 years, one would still need a substantial RM300,000 and for 35 years, RM420,000.
Bank Negara's Counselling and Debt Management Agency (AKPK) CEO Mohamed Akwal Sultan reckons a person should not start purchasing big assets like property or a house late in life as the danger is that once they have retired they may not be able to meet the instalment payment on it.
“When you are in your late 40s, you should be winding down and not committing to high expenses to buy big things,” he says.
AKPK has dealt with a number of cases where retirees have had banks auction off their houses because they could not meet the monthly loan payment.
There is also the problem of credit card temptation. Ng notes a worrying trend that more and more younger people are becoming bankrupt as they are spending “tomorrow's money”. Which basically means these people are not saving or building their retirement nest.
Ideally, Ong says, people should start saving from the time of conception; that way would be able to enjoy the magic of the compounding effect (see Chart 2).
Prudential's Tan says a noticeable trend is that while the younger generation is prepared to invest in new financial instruments, the older generation gravitates towards fixed deposits.
“That is very risky because you would not be able to accumulate enough because the interest rates can't meet the inflationary rate and your money is getting smaller,” he says.
He believes given the current life span, it would do retirees good to be more aggressive in their investment.
“In investing, you should not be looking at the date of retirement but rather the date of potential death which is probably still another 21 years away after retirement,” he says.
He recommends that people only keep about six months of their monthly expenses in the savings and FDs and put the rest in investment products that generate more income than the inflation rate.
Ng believes a good private pension would help people in their retirement years. In developed countries, money put into savings for retirement is not taxable, neither is the profit from that investment.
“When you retire, you can't take the money out in a lump sum either or you'd have to pay tax on it. This will force you to withdraw your money on a regular monthly basis for retirement because that's tax free,” he adds.
Singapore has such a scheme, the voluntary Supplementary Retirement Scheme, which complements the Central Provident Fund ( CPF ). Such a scheme has not taken off in Malaysia for a number of reasons, says Ng.
It would be a loss of revenue to the Government because people would not be paying taxes on money put aside for retirement. It would benefit only the rich and middle income group as the poor might not be able to afford it, he adds.
“Perhaps it hasn't taken off too because the Malaysian economy is pretty dependent on consumer spending. And the Government wants you to spend,” he adds.
Ng says there should also be an asset liquidation law in the country. It is puzzling that there are all sorts of incentives for asset accumulation, he says, but none for liquidation.
An example of asset liquidation would be to reverse mortgage your house to the bank in return for a guaranteed monthly income until you die.
The asset would at the end of the day belong to the bank or insurance company. But in the meantime, the person has the right to continue to live in the house until death and get a monthly income too.
“If they outlive the value of the house, the bank loses,” he says.
As our population ages and life expectancy increases, more thought must be given by both individuals and the Government on how to develop a culture of planning and saving for one's retirement.
Sunday, August 31, 2008
The Dangers of Plastic Bags
Data released by the United States Environmental Protection Agency shows that somewhere between 500 billion and a trillion plastic bags are consumed worldwide each year.Less than 1% of bags are recycled. It cost more to recycle a bag than to produce a new one.
“There's harsh economics behind bag recycling: It costs $4,000 to process and recycle 1 ton of plastic bags, which can then be sold on the commodities market for $32”
Then, where do they go?
A study in 1975, showed oceangoing vessels together dumped 8 million pounds of plastic annually. The real reason that the world's landfills weren't overflowing with plastic was because most of it ended up in an ocean-fill.
Bags get blown around…to different parts of our lands and to our seas, lakes and rivers. Bags find their way into the sea via drains and sewage pipes...Plastic bags have been found floating north of the Arctic Circle near Spitzbergen, and as far south as the Falkland Islands.
Plastic bags account for over 10 percent of the debris washed up on the U.S. coastline.
Plastic bags photodegrade. Over time they break down into smaller, more toxic petro-polymers which eventually contaminate soils and waterways. As a consequence microscopic particles can enter the food chain.
The effect on wildlife can be catastrophic. Birds become terminally entangled...Nearly 200 different species of sea life including whales, dolphins, seals and turtles die due to plastic bags. They die after ingesting plastic bags which they mistake for food.So…What do we do?
If we use a cloth bag, we can save 6 bags a week. That's 24 bags a month, That's 288 bags a year. That's 22,176 bags. in an average life time. If just 1 out of 5 people in our country did this we would save 1,330,560,000,000 bags over our life time.
Bangladesh has banned plastic bags, China has banned free plastic bags, Ireland took the lead in Europe, taxing plastic bags in 2002 and have now reduced plastic bag consumption by 90%.
In 2005 Rwanda banned plastic bags, Israel, Canada, western India, Botswana, Kenya, Tanzania, South Africa, Taiwan, and Singapore have also banned or are moving toward banning the plastic bag.
On March 27th 2007, San Francisco becomes first U.S. city to ban plastic bags. On March 27th 2007, San Francisco becomes first U.S. city to ban plastic bags Oakland and Boston are considering a ban.
Plastic shopping bags are made from polyethylene: a thermoplastic made from oil. Reducing plastic bags will decrease foreign oil dependency. China will save 37 million barrels of oil each year due to their ban of free plastic bags.
It is possible!
Sunday, August 24, 2008
Sunday, August 17, 2008
Breakfast at McDonald’s
This is a good story please read it all the way through until the end! (After the story, there are some very interesting facts!)
The last class I had to take was! Sociology.
The teacher was absolutely inspiring with the qualities that I wish every human being had been graced with.
Her last project of the term was called 'Smile.'
I am a very friendly person and always smile at everyone and say hello anyway, so, I thought this would be a piece of cake, literally.
Soon after we were assigned the project, my husband, youngest son, and I went out to McDonald's one crisp March morning.
It was just our way of sharing special playtime with our son.
We were! standing in line, waiting to be served, when all of a sudden everyone around us began to back away, and then even my husband did.
I did not move an inch... an overwhelming feeling of panic welled up inside of me as I turned to see why they had moved.
As I turned around I smelled a horrible 'dirty body' smell, and there standing behind me were two poor homeless men.
As I looked down at the short gentleman, close to me, he was 'smiling'.
His beautiful sky blue eyes were full of God's Light as he searched for acceptance.
He said, 'Good day' as he counted the few coins he had been clutching.
The second man fumbled with his hands as he stood behind his friend. I realized the second man was mentally challenged and the blue-eyed gentleman was his salvation.
I held my tears as I stood there with them.
The young lady at the counter asked him what they wanted.
He said, 'Coffee is all Miss' because that was all they could afford. (If they wanted to sit in the restaurant and warm up, they had to buy something. He just wanted to be warm).
Then I really felt it - the compulsion was so great I almost reached out and embraced the little man with the blue eyes.
That is when I noticed all eyes in the restaurant were set on me, judging my every action.
I smiled and asked the young lady behind the counter to give me two more breakfast meals on a separate tray.
I then walked around the corner to the table that the men had chosen as a resting spot. I put the tray on the table and laid my hand on the blue-eyed gentleman's cold hand.
He looked up at me, with tears in his eyes, and said, 'Thank you.'
I leaned over, began to pat his hand and said, 'I did not do this for you. God is here working through me to give you hope.'
I started to cry as I walked away to join my husband and son. When I sat down my husband smiled at me and said, 'That is why God gave you to me, Honey, to give me hope.'
We held hands for a moment and at that time, we knew that only because of the Grace that we had been given were we able to give.
We are not church goers, but we are believers.
That day showed me the pure Light of God's sweet love. I returned to college, on the last evening of class, with this story in hand.
I turned in 'my project' and the instructor read it.
Then she looked up at me and said, 'Can I share this?'
I slowly nodded as she got the attention of the class.
She began to read and that is when I knew that we as human beings and being part of God share this need to heal people and to be healed.
In my own way I had touched the people at McDonald's, my husband, son, instructor, and every soul that shared the classroom on the last night I spent as a college student.
I graduated with one of the biggest lessons I would ever learn: UNCONDITIONAL ACCEPTANCE!.
Much love and compassion is sent to each and every person who may read this and learn how to LOVE PEOPLE AND USE THINGS - NOT LOVE THINGS AND USE PEOPLE.
An Angel wrote:
Many people will walk in and out of your life, but only true friends will leave footprints in your heart.
To handle yourself, use your head.
God Gives every bird it's food, but He does not throw it into its nest.
Say I love You In Time
After 21 years of marriage, my wife wanted me to take another woman out to dinner and a movie.
She said I love you but I know this other woman loves you and would love to spend some time with you.
The other woman that my wife wanted me to visit was my MOTHER, who has been a widow for 19 years, but the demands of my work and my three children had made it possible to visit her only occasionally.
That night I called to invite her to go out for dinner and a movie. "What's wrong, are you well," she asked? My mother is the type of woman who suspects that a late night call or a surprise invitation is a sign of bad news.
"I thought that it would be pleasant to be with you," I responded. "Just the two of us."
She thought about it for a moment, and then said, "I would like that very much."
That Friday after work, as I drove over to pick her up. I was a bit nervous. When I arrived at her house, I noticed that she, too, seemed to be nervous about our date. She waited in the door with her coat on.
She had curled her hair and was wearing the dress that she had worn to celebrate her last wedding anniversary. She smiled from a face that was as radiant as an angel's.
"I told my friends that I was going to go out with my son, and they were impressed, "she said, as she got into the car. "They can't wait to hear about our meeting".
We went to a restaurant that, although not elegant, was very nice and cozy. My mother took my arm as if she were the First Lady. After we sat down, I had to read the menu.
Half way through the entries, I lifted my eyes and saw Mom sitting there staring at me. A nostalgic smile was on her lips
"It was I who used to have to read the menu when you were small," she said.
"Then it's time that you relax and let me return the favor," I responded.
During the dinner, we had an agreeable conversation nothing extraordinary, but catching up on recent events of each other's life. We talked so much that we missed the movie.
As we arrived at her house later, she said, "I'll go out with you
again, but only if you let me invite you." I agreed.
"How was your dinner date?" asked my wife when I got home.
"Very nice. Much more so than I could have imagined," I answered.
A few days later, my mother died of a massive heart attack. It happened so suddenly that I did to not get to do anything for her.
Some time later, I received an envelope with a copy of a restaurant receipt from the same place mother and I had dined.
An attached note said: "I paid this bill in advance.
I wasn't sure that I could be there; but nevertheless, I paid for two plates - one for you and the other for your wife. You will never know what that night meant for me. I love you, son."
At that moment, I understood the importance of saying in time: "I LOVE YOU!" and to give our loved ones the time that they deserve. Nothing in life is more important than God and your family.
Give them the time they deserve, because these things cannot be put off till "some other time."
"Life is not measured by the number of breaths we take, but by the moments that take our breath away!"
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