What gig workers and entrepreneurs need to know about retirement planning: It's not just about saving
Even as many industries and businesses have been hit hard by the COVID-19 pandemic, at least one segment of the economy is thriving: the gig economy.
Today, as many as four million people or 26 per cent of Malaysia’s workforce make up the growing gig economy, taking up on-demand jobs as part-timers, freelancers, independent contractors, and project-based workers.
Flexible hours and an extra source of income were cited as the top reasons why Malaysians participated in the gig economy, going by a recent survey. But many also face the challenge of not having a fixed monthly income – the number one stressor for gig workers globally. As they prioritise more pressing, day-to-day needs, many also end up putting retirement planning on the backburner.
Yet, taking a proactive approach to retirement planning that is backed by a flexible and sustainable strategy is perhaps more critical than ever. And this applies not just to gig workers but everyone, especially in these uncertain times.
A big part of retirement planning is about savings and investment. But what many Malaysians tend to overlook is the idea of distribution, which is just as important. Beyond just saving and accumulating, it’s about tapping your resources the smart way.
How can you fork out what you need for your expenses according to your needs and circumstances at any one point in your life and make sure you continue to have plenty left for the future? We look at some strategies:
- Before all else, start with a clear view of your money
Know what your current budget is, which includes your present-day income and expenses. From there, work out some projections to see how much you’ll need to save each month based on your retirement goals. Make use of digital tools like Maybank’s Financial Goal Simulator to help you with this part of the planning.
Put your saving strategy on autopilot mode by setting automatic transfers from your current/investment accounts into your retirement savings account. This ensures that you put aside money for retirement in a disciplined and consistent manner.
It’s also worth setting up a separate emergency fund that makes up three to six months of your current salary. This can come in handy for a rainy day without disrupting your retirement plans.
- A systematic withdrawal plan
Adopting retirement distribution strategies serve to preserve your nest egg by setting specific rules on when and how you can access your money. One such method is known as the systematic withdrawal plan, where you invest across a range of asset classes – from stocks to securities, mutual funds, and annuities – and withdraw only the income (such as dividends or interest) created by the underlying investments in your portfolio.
Why it works: This approach ensures that your principal remains intact, creating a safety net such that your funds will not be completely depleted, while still allowing your investments to grow over time.
But pay attention to this: The amount you can withdraw will vary according to market performance and you may not be able to keep pace with inflation.
- The “buckets” strategy
Another strategy involves categorising your assets into three “buckets” that are based on when you will draw down from them:
- Short-term – For money you intend to use very soon, in the next two years, for immediate purposes. Most times, this bucket is made up of cash that you use to fund your living expenses for the short term.
- Medium-term – For money you intend to use between two to 10 years in the future. This bucket can contain fixed income securities or bonds, and dividend-paying stocks.
- Long-term – For money you do not expect to touch for 10 years or more. This bucket should cover riskier assets or equities that can be volatile in the short term, but generate growth and reap high rates of return over the longer term.
For instance, if you choose to use funds from the first bucket, you have to replenish it with earnings from the second and third.
Why it works: This allows you to ride out short-term market dips so your investments to continue to grow. The third bucket, in particular, can help in mitigating inflation.
But pay attention to this: There are no guidelines to how you should allocate your investments across the buckets. You will also need to devote some time and planning for the (re)balancing act.
A retirement solution for modern times
The reality is that savers today are facing a very different set of challenges compared to previous generations as they deal with longer life expectancies, lower bond yields, the rising cost of living, and unexpected health crises like COVID-19.
Nearly one in two Malaysians rely on the Employees’ Provident Fund (EPF) as their main source of income for retirement. But even those with EPF struggle to meet the basic minimum retirement requirement. In fact, 70 per cent of those aged 54 and above have less than RM50,000 in their EPF savings. If they are to withdraw RM1,000 each month to support their retirement expenses, the money is just about enough to last them for four years.
Our lifestyles, needs, and goals will continue to shift over time, especially in an uncertain climate, and traditional instruments will have their own limitations. The key is to find a retirement solution that can be adaptable and flexible enough to cater to those changes. Learn more about how the Maybank Flexible Retirement Solution can help.
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