Start by looking at your current annual expenses. You will need to save at least as much for every year of retirement. On top of essential expenses, leave some room for future commitments. If you have dependents such as ageing parents, you need to consider what costs of care you may be responsible for. Budget for unexpected expenses like your own healthcare costs as you age.
Next, consider your ideal retirement lifestyle. A globe-trotting retirement will surely cost more than a retirement nestled at home. Or perhaps you envision a simple life in a quiet town away from the city, which could mean less expenses. Your retirement savings need to match your ideal lifestyle. In your estimate, include discretionary expenses. Be honest but reasonable about life’s little luxuries: how many trips would you like to take in a year and what hobbies would you like to pursue?
Then look at your income stream(s). Some of them may continue into retirement, such as rental income or investments. Make sure to adjust for inflation by multiplying your expected annual income by the average long-term inflation rate. Malaysia experienced an average inflation rate of 2.3% from 1999-2019, but if you want to be conservative, use a 3-4% inflation rate*.
Once you have planned your retirement expenses, you’re one step closer to knowing how much you need to retire and when you can actually retire.
