THE NEED TO KEEP RAISING THE RETIREMENT AGE

PM Tun Mahathir, 93, has jokingly said the new retirement age in Malaysia will be 95 in 2020 when he hands over his premiership to Datuk Seri Anwar Ibrahim. He may have said it in jest but at the rate our demographics are changing, Malaysia will reach ageing nation status by 2030, and we will see more people working well into their 70s.

When the Employees Provident Fund (EPF) was established in 1951, life expectancy then, believe it or not, was 55! With the retirement age set at 55, lump sum EPF withdrawals would be more than sufficient to sustain contributors through the short retirement period. We now know those figures were way off the mark. Advances in science, medicine and technology have drastically extended life span. Life expectancy in Malaysia currently stands at 75, and is set to rise further in the years ahead. 60 is the new 40, and living to a ripe old age of 80 and beyond is fast becoming the norm.

This begs the question - do we have enough in our EPF savings to see us through an additional 15 to 20 years? For the majority the answer is No. The M40 (middle income group) is arguably the worst off as they are not eligible for welfare aid unlike the B40 (lower income group). They also have more financial commitments such as these below:

• loans to service (housing loan, car loan)
• their children's higher education 
• their healthcare expenses
• support for their elderly parents

Do check out what these senior citizens from M40 have to say about their financial status, and what we can learn from them at this link. Their profiles are typical of most retirees.

Upon reaching 55, most retirees would opt for lump sum withdrawals. They have worked hard and waited patiently for the day when they would have the means to turn their dreams and plans into reality, whether it is to pay off debts, renovate the house, take a well-deserved holiday abroad or start a business. Unfortunately, going by EPF data, most end up depleting their retirement savings within a few years mainly through mismanagement of their money.

How much should the average retiree have in order to avoid getting into debt? EPF puts it at RM228,000. More than half of their members have way less than this amount (see infographic below). EPF has come up with some good advice on how to live a simple and sensible life in retirement to stretch savings. If a retiree finds himself unable to cope financially, he should pay a visit to AKPK (Agensi Kaunseling dan Pengurusan Kredit) for some free advice on how to manage his limited financial resources. Or refer to AKPK's special presentation for SeniorsAloud members at this link.

Read the full article at this link.

To reduce the risk of retired contributors using up all their EPF savings within a few years, EPF introduced several withdrawal packages (see below). There is also the option of leaving the entire sum with EPF until age 100 and still enjoy dividends. At dividend rates of 6% and above since 2011, it makes sense for retirees to let their savings remain for as long as possible with EPF. The dividend for 2017 was 6.9%.

Read the full article at this link.

Many of my friends who were teaching in public schools back in the 1980s opted for early retirement when they reached their 40s. As long as they had served a minimum of 10 years, they were eligible for a gratuity and pension benefits as stipulated under Section 12A Act 227/239. Today early retirement at 40+ would be unthinkable for most people. Given the rising cost of living and a host of financial commitments, few can afford to enjoy full retirement. The mantra is work, work, work for as long as possible.

Acknowledging the plight of retirees and those nearing retirement age, the Pakatan Harapan government has sought to increase job opportunities by proposing tax incentives for employers hiring older Malaysians. It's a long shot from proposal to implementation. Whether this will make a significant difference remains to be seen.

Source: Budget 2019

One thing is for certain - we can expect the retirement age to continue going up. In developed countries such as Germany and Japan, the retirement age is moving towards 70. Former PM of Singapore, Lee Kuan Yew, famously said that 'retirement means death', and was in favour of doing away with the retirement age.

As the country's biggest employer, the government finds it a challenge to fund pension payouts to a growing pool of retired civil servants and beneficiaries that is expected to reach 836,000 in 2019 and would cost KWAP (Kumpulan Wang Persaraan) a whopping RM26.56 billion. This is one of the main reasons for raising the retirement age - to enable both retirees and pensioners to work longer and accumulate sufficient savings to be self-supporting in old age.

Read the full article at this link.

Older Malaysians too want to work for as long as they are able. The family structure has changed so drastically that parents can no longer expect their adult children to support them in their old age. Family size has shrunk, and with the grown children moving out to work or settle elsewhere, retired couples are often left to fend for themselves.

The falling fertility rate at 1.9 is the lowest on record and below the replacement rate of 2.1. This means a shrinking of the young work force. This shortage of young workers will have to be met by an increase in technology, in the recruitment of foreign workers and in opening jobs to people in the 60 to 65 age group.

So, whichever way we look at the situation, there is definitely a need for older workers to return to the work force, and for the retirement age to be raised. The likelihood of doing away with a retirement age will gain traction in the years ahead. Let's just hope it won't reach a situation where we have to work till we drop dead!

TO WORK TILL 60 OR RETIRE EARLY? YOU DECIDE

Still active and able to carry on working at 60+.
(Front page article of New Straits Times Dec 8, 2012)

So it's confirmed. The Minimum Retirement Age 2012 Act comes into effect on July 1, 2013. Under this Act which was passed in August last year, it is mandatory for employers in the private sector to retain their staff till they reach the new retirement age of 60. This move will affect close to 11 million workers.

Good news or bad news?

That depends on who you pose this question to. Employers in the private sector aren't exactly celebrating the news. Retaining older workers for another five years means higher pay-outs compared to hiring new and younger workers at a lower starting pay. Even among workers, not everyone is jumping for joy. Some have already made plans to retire at 55 and pursue other interests. Others can't wait to clock out for the last time and enjoy their golden years.

Dwindling value: RM1m won’t be sufficient
to retire for long.

Frankly, except for the few who have wisely planned ahead for a financially secure retirement, most people have little choice but to carry on working for as long as they are physically and mentally able to do so. Their EPF savings and pensions are simply not enough to see them through the next 20+ years given the average life expectancy of 75. Financial experts say that we would need to have at least RM1 million in retirement savings to enjoy the level of lifestyle we were accustomed to before retirement. How many of us have that much money saved up?

As it is, we are already complaining about escalating prices and soaring expenses. With inflation eating into our nest egg, we just have to keep on bringing home the bacon, especially if we have college-going children and elderly parents to support.

The impact of inflation (Source: The Star)

The younger generation of workers lament the loss of job opportunities and promotions when older workers stay on longer in their jobs. My response to them:

• Be glad that your parents are self-supporting. It means you get to spend more of your salary on yourself.
• Be glad that your parents have a job to keep them physically and mentally active. Would you rather have them bored and depressed at home?
• Not all younger workers have the wealth of experience that older workers have. How can they even think of replacing these older workers?
• Older workers can stay on to mentor younger, less experienced workers.
• The birth rate is declining while life expectancy is increasing. There will be fewer young people supporting the elderly. So the longer older workers remain employed, the lesser the pressure on the young to support them. 

Former Singapore PM Lee Kuan Yew, 86, advocates removing the retirement age. "You work as long as you can work and you will be healthier and happier for it. If you ask me to stop working all of a sudden, I think I'll just shrivel up, face the wall and just that."..."Many of our workers have a preferred retirement, and then they die early! It won't be long before the message sinks home that if you keep doing what you're doing for almost the whole of your life, the chances are you will stay interested and engaged in life, there's something to do tomorrow and you keep going. If you start saying,'oh! I'm old!' And you start reading novels and playing golf or playing chess, well, you're on the way down." (Source: Channelnewsasia)

Ultimately, it's the individual worker's choice

Well, I am for options. Employers should offer older workers the option of early retirement at 55, or continue working till 60. I recall in the 1990s (or was it 1980s?) teachers were given an option to retire at 45 (for women) and 50 (for men). 

Not all retirees want to work till they drop dead. They may want to opt out and have more time for the family, and more time to smell the roses. We should let the individual worker decide. It's his life after all.

AN EXTRA FIVE YEARS TO GROW OUR GOLDEN NEST EGG

Front page of the Malay Mail today (14 June 2012)

A bit too late for me, but good news for those about to reach the current retirement age of 55 for the private sector. An extra five years can mean additional money for our golden nest. With the ever spiraling cost of living eating into our limited retirement savings, every ringgit counts.

Our generation of baby boomers (those born between 1946-1964) are enjoying longer life expectancy, with 76 years the average for Malaysians. It is ridiculous to retire employees when they reach 55. How are they going to support themselves for the next 20 years or more? How many of us would have at least RM1 million in our EPF at age 55? That's the minimum we would need to continue maintaining our current lifestyle after retirement. Those who withdraw all their EPF savings in one lump sum will use it all up within three years. These are statistics released by EPF based on surveys they have conducted.

From a slide presentation given in June 2010 by EPF's general manager. The figures have probably gone up since then given the escalating cost of living.

Older workers, both professionals and blue collar employees face age discrimination. If you are retrenched or retired, the odds are against you when it comes to re-employment. That is why many use their retirement savings to start their own business and become self-employed.

However, not everyone is in favour of raising the retirement age. There are older folks who can't wait to withdraw all their EPF money for whatever personal reasons. After all, it is their hard-earned money and they have a right to do whatever they want with it. They don't want to wait another five years to be able to do so.

There are also the younger work force who argue that retaining older staff means depriving them of career advancement opportunities. Think of it this way. Wouldn't they want their parents to be financially independent for as long as possible?

We can look at the issue from all angles, but in the end, the pros of raising the retirement age far outweigh the cons. This issue has been covered numerous times on this blog. Here is a sampling - click on the links to read.

Related articles:

A Daily Struggle To Survive
Can We Afford To Retire?
Not Ready To Be Put Out To Pasture
In Praise of Older Workers

IN PRAISE OF OLDER WORKERS

Prof Tommy Koh's article in the Straits Times (7 Jan)

Reading Malaysia's DPM's tribute to retired servicemen in The Star (30 Jan) reminds me of an article Singapore's Ambassador-at-Large, Professor Tommy Koh, 74, wrote in the Straits Times recently. In the article, Prof Koh argued the case for paying re-employed older workers a fair salary based on their performance and experience.

The current practice is for companies rehiring workers after they have reached the retirement age of 62 to pay them only a fraction of their last-drawn salary and offer them fewer medical benefits. The CPF contributions from these workers and their employers are also reduced. This makes re-employment unattractive for older workers. When they opt out of the work force, Singapore loses invaluable manpower.

Dr Choo Teck Chuan, 80

These unfair practices, says Prof Koh, is based on the common assumption that when workers reach the retirement age, they are no longer able to perform as efficiently as before. Not true, and to prove his point, he cites three octogenarians who still put in a full day's work six days a week. They are his dentist Dr Choo Teck Chuan, 80, his tailor Mr Edward Kwan, 80, and his optician Mr Leow Hock Chin, 83. "Their eyes are still sharp, and their hands steady," says Prof Koh.


Mr Edward Kwan, 80

"I don't think Dr Choo, Mr Kwan and Mr Leow are unique cases. Singaporeans now live much longer than they did a generation ago. If they are blessed with good health and are of sound mind and body, there is no reason to stop them from working or to downgrade them to a lower job or to reduce their pay and benefits. Given our manpower shortage, we should have a radical rethink about older workers and see them as assets and not liabilities.

Mr Leow Hock Chin, 83

People should be judged on the basis of their ability and performance and not on age. Those who wish to retire and can afford to do so, should, of course, be entitled to do so. But for others, who are fit and wish to continue to work, they should also be entitled to carry on," comments Prof Koh in the article.

Prof Tommy Koh, 74

"Work gives meaning to life. Work gives a person dignity and self-esteem. It is time for a mindset change. It is time to see our older workers in a new light. It is time for Singapore to recognise people like Dr Choo, Mr Kwan and Mr Leow as assets to our nation."

A round of applause to you, Prof Koh, for standing up for older workers. We may be past the retirement age, but life is certainly not slowing down for us, and we are keeping pace with it. The fact that the Singapore government has raised the retirement from 55 to the present 62, with a view to extending it to 67, proves the point that older people can still contribute much to the work force and to the development of the country.

(Except for lead photo, all photos from Straits Times.)

NOT READY TO BE PUT OUT TO PASTURE

At long last, the government has agreed to raise the retirement age. But it will take many more months of waiting before we can pop the champagne bottle. The new retirement age has yet to be fixed, and the Bill has yet to be debated in Parliament. Still, it's heartening news.

However, not everyone is in favour of a higher retirement age.

Young working professionals are concerned that it would be harder for them to rise through the ranks if the seniors are still occupying the top positions in the company. Their fears are understandable.

But they should look at the big picture. One day they too will reach 55. With the mandatory new retirement age, they will have several working years ahead of them to remain financially independent. They will have more years to build a bigger retirement nest. Another plus point is adult children can delay having to support their elderly parents for at least a few more years.

Click here to read the original letter.

There are also protests from soon-to-be retirees who have been waiting to punch out for good at the work-place. Some have saved enough for their retirement, others are impatient to start their own business venture. Whatever the reason, they can't wait to say bye-bye to the daily grind of working for others.

A government pension does not necessarily translate into lifelong financial security. (Source: The Sun 29 Sept)

Let's face reality. How many among us can honestly say we have sufficient funds to last us till our final years, given the longer life span we now enjoy, and the escalating healthcare expenses?

Here are some figures to put the issue into perspective. The EPF was first set up in 1951. At the time life expectancy of the average Malaysian was 55 - the same as the retirement age then. Now, 60 years later, the average life expectancy has gone up to 75, but the retirement age has remained at 55. That means we have to save enough to live on for another 20 years.

Source: The Star

In an EPF survey conducted in 2003, 50% of retirees had depleted their savings within five years of retiring, and 70% within 10 years. These figures should sober up anyone thinking of retiring in a hurry.

Related posts:

NOT QUITE READY TO RETIRE 

AT 55, ARE YOU READY TO RETIRE?

NOT QUITE READY TO RETIRE

The Sunday Star: 24 April 2011

The letter above highlights the predicament many Malaysians face upon reaching their 55th birthday. They start to worry about their impending retirement. While there may be some who eagerly await their last day at work so they can be boss of their own time, there are others who dread receiving their retirement letter.

With the average life span at 76, you need to have at least RM1m saved up to see you through the next 20-25 years of retirement if you plan to maintain your current lifestyle. Inflation will push the figure even higher. It's a scary thought, especially if you have a retired spouse and elderly parents to support. The healthcare expenses alone can strain and drain your limited financial resources. Most retirees would want to remain on the company pay-roll as long as possible. Not everyone has the means or the aptitude to start their own business.


The Star: Sat 30 April 2011

The retirement age for civil servants has been raised from 55 to 58. For the private sector it remains at a young 55. The government wants stakeholders in the private sector to consider upping this to 60. In Singapore, by 2012 it will be mandatory for companies to retain older workers till aged 62. France recently raised the retirement age to 62, and in Australia, there's no official retirement age. Raising the retirement age will give older workers more time to accumulate sufficient savings to see them through their non-working years.


Straits Times 29 April 2011

The World Bank's 2011 fact-book on migration shows that for every ten skilled Malaysians born in the country, one of them elects to leave the country. This is double the world average. With the massive brain drain and exodus of talent from the country, re-hiring older workers is one way to stem the haemorrhage. Other countries suffer loss of home-grown talent too. However, as in Singapore, this is compensated by a large inflow of skilled workers and professional experts. This is not the case in Malaysia.

For more, read the special coverage on Malaysia's brain drain in today's Star.

CAN WE AFFORD TO RETIRE?

The world is ageing. This shouldn't come as a surprise, with birth rates falling and life span increasing in countries across the globe. By 2018, there will be more 65-year-olds than those under 5. Think for a minute the profound changes an ageing population will have on the economy, for example. With the exception of a few, most countries don't seem terribly alarmed by the global ageing phenomenon. That is cause for serious concern.

Governments need to be spurred into action. They need to put in place policies that will sustain the needs of a rapidly growing older population without over-taxing the contributions of the young people. It's a delicate balancing act.

Baby boomers are probably the last generation to have it good. It's the Generation X, Y and Z that will end up with the heavy burden of supporting not only their children but their parents on both sides and two sets of grandparents as well.

Do the maths:

• 2 children (minimum)
• 2 (the married couple)
• 2 + 2 (the couple's parents on both sides)
• 2 + 2 (the couple's grandparents on both sides)

That makes a grand total of 12 family members to support! This should scare the living daylights out of young people today, and get them started on retirement planning right away.

The alarm bells have sounded. The message is loud and clear. It's not only our adult children who will have to start planning early for their retirement, but we too. It's never too late. We can no longer take it for granted that our children will look after us in our old age. They may not be able to. We must be prepared to fend for ourselves.

Work as long as we can, and save as much as we can. Have enough put aside to see us through the next 20-30 years. And how much is enough? A retired couple living in KL or PJ would require an average of RM2000+ a month to live decently. And pray for good health too. Medical expenses will kill us faster than old age. 

The French should be rejoicing, not protesting against their government's decision to raise the retirement age from 60 to 62. In Malaysia it's still 55 for the private sector, and 58 for the public sector.

The Centre for Strategic and International Studies (CSIS) launched the Global Aging Preparedness (GAP) Index yesterday. You can download a copy of the report here.