Retirement planning

Happy Chinese New Year. J

Everyone will be celebrating New Year annually. When New Year is approaching, it also indicates that we are one year older. No matter we like it or not, it is just a fact. Years past by until one point we will reach one stage which is known as retirement. At the retirement stage, I believe that most of the retirees have to depend on the savings or Employee Provident Fund (EPF) that they have. However, the question is the financial resources enough for them to spend at the retirement age?

Frankly, there are application software available in the internet that will help you to calculate the amount you need at the retirement age. You can find the application in Public Mutual website as well. I have seen that there are a lot of people trying to avoid calculating the amount for retirement because knowing the amount you need at retirement is very scary. You should remember that not much jobs are there for you to apply and sad to say that, you have to depend on yourself. Your kids might help you but they will have their financial worries as well. No doubt knowing the amount is very scary, that’s why you have to start doing your retirement planning as early as possible.

After working hard for the past 30 or even 40 years, you would prefer to have a more comfortable lifestyle. Maybe you would to prefer to do something that you have missed out during your young age. Doing community service? Reading? Travelling around? These activities will not generate any income for you yet you need to spend some money for these activities. How are you going to carry those activities if you even do not have enough financial resources for yourself?

Question might arise especially from those who are still far from retirement. To them, the financial resource should be used for buying car, property or even used for investment instead of retirement planning. However, the earlier you do your retirement planning, the better it is. I am not suggesting you put 100% of your financial resources into retirement planning but you should allocate a portion of it. How many percent you should allocate for retirement planning? It actually depends on you. Why there are a lot of financial planners encourage people to start retirement planning even when they are very young? When you are getting older, illness seems to become your best friends. No insurance company is willing to take the risk unless you are willing to pay more. I believe that many parents would not want to be another financial burden to their children. That is the main reason why many are urged to do retirement planning as early as possible.

Life Insurance Association of Malaysia (LIAM) president Ng Lian Lau had estimated that less than 5% are prepared for retirement. [1] According to him, those in 20s think that they are too young to think about retirement. When they are in 30s or 40s, they tend to believe they are doing enough because they have their EPF savings. For those in their 50s, they will feel that it is too late for them. If you are in the mentioned category age group, are you having the same thought?

We will usually regret after we face the problem. You will only regret when you do not have enough financial resource at your retirement age. To ensure that you will not be regretful at your retirement age, start doing your retirement planning now.

Reference

[1] Counting on the nest egg http://www.thestar.com.my/news/story.asp?file=/2007/5/27/nation/17754089&sec=nation&focus=1

Happy Chinese New Year

正财、偏财、横财，财源滚滚；

亲情、爱情、友情，情情如意；

官运、财运、桃花运，运运亨通；

新年快乐，恭喜发财，万事如意，虎年行大运；

Happy Chinese New Year

Have a wonderful and ferocious year of the Tiger

Tax planning

Now it’s time to discuss for the forth element in financial planning which is tax planning. Road tax, income tax and the proposed Goods and Services Tax (GST) are considered tax. No matter you are a kid, student, working adult, senior citizen, you just cannot run away from tax.

Why we have to pay tax? One of the reasons is tax is source of income for the government. According to our Second Finance Minister Husni Ahmad Hanadzlah, tax will reduce the fiscal deficit and will not burden the people and businesses. Of course, there are many other reasons such as the tax impose on the imported car is to encourage the nations to support local automotive industry.

If tax is imposed by the government and how can we do our tax planning? We cannot do anything unless we do it illegally. Well, this post is not going to teach you how to do it illegally but the intention is to let you know how you can do your tax planning.

Check out the yearly budget that has been tabled in the parliament. I will use Budget 2010 as an example for this post and I will show how you can actually do your tax planning base on the budget. Those sentence in bold are some of highlights of Budget 2010.

1. Government reduce the maximum individual income tax rate from 27% to 26%, personal relief increase from RM8,000 to RM9,000 in 2010. By knowing this news in advance, the tax payers can do their planning earlier. Maybe they can invest the extra money or even use the money for entertainment or self-improvement.
   
2. Imposing

   RM50 service tax on each principal credit card and charge card, including those issued free of charge and a service tax of RM25 a year on each supplementary card effective Jan 1, 2010. Imagine if you do not aware of this news and you are still thinking that the banks are issuing those credit cards for free, what will happen? You might be wasting your RM50 for nothing.

3. Individual

   taxpayers will be given tax relief on broadband subscription fee up to RM500 a year from 2010 to 2012. Those tax payers who depend heavily on the internet will be saving some money for subscribing broadband. Again, from the money that they save, they can use for other purposes.

4. Personal

   tax relief raised to RM7,000 from RM6,000 for EPF contribution and life insurance premiums. Why government decides to raise the tax relief for life insurance premiums? This is because it is essential for the nations to do risk management. You can refer to the post on risk management that has been posted earlier.

From the few examples that have been discussed earlier, we can see that it is possible for us to the tax planning. No doubt you need to pay some efforts in order to do the tax planning by reading the newspapers or internet to get the latest news on the country. There is no free lunch in the world so you should start doing your tax planning =)