How Much is Enough?


Image result for image on retirement fund

How much is your retirement fund? Is your retirement fund enough for you to retire comfortably? These are few of the popped-up messages in my daily news reading. There are numerous online articles discussing retirement plan. Suggestions for saving target of retirement fund are given ranging from an amount 10 times more than your salary to millions in order to make you retirement comfortably.

How much is enough for an employee to retire comfortably when the time comes? This indeed is a very simple question, but no one finds it easy to answer. The answer involves what type of retirement lifestyle a person is looking for, thrifty lifestyle or a lavishly generous one? It also entails a personal sting on how much he can save on regularly basis now. It will also become very complex when we must consider future inflation and living condition changes. And worst of all, we are not sure how long we are going to live. We might die out of accident or deadly sickness half way through. What is the purpose of saving painfully if we only find out we could not enjoy our hard saving wealth?  

Professional Advices

Most professional financial planner can mathematically calculate a figure to show how much we need when we retire. And the figure normally would end up uselessly unattainable to most clients. In a country like Malaysia where financial education is generally poor, very few, if not no professional would encourage client to compound their saving through investment. Because stock investment is generally resembled to gambling. That’s the reason I wrote an article for readers to evaluate whether they are involving with investment or gambling. The risks of stock investment are normally being exaggerated, making most people reluctant to factor investment in as part of the process to accumulate retirement benefit.  

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Investors need to discern whether they are investing or gambling.

In the absent of investment element, very few would be able to attain a comfortable retirement plan. A million-ringgit saving target plan through employment is not only unattainable to most but even if we have that amount of wealth, it can be easily consumed within 15 to 20 years if there is an absence of investment return plan. 

Without investment return, if a retiree just consumes his saving, he is like going to slaughter the goose that lay golden egg instead of utilizing its daily produced golden egg. Though professional financial planner would use average national life span to estimate our life span after our retirement, but no one really knows how long we are going to live after our retirement. Making us feel neither cases whether we live a longer life beyond average life span of the country or a shortened than average life span wouldn’t make any sense.

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Consuming your hard earn retirement fund is like slaughtering your goose instead of just taking its daily golden egg.

It is only through investment that can make our retirement workable and enjoyable. If we have learned a good investment strategy that can constantly give us positive return no matter how small the percentage may be, we can see our saving capital grow with compounding effect through the years down.  

Compounding Effect on the Negative Side

Most people think of the positive exponential compounding effect, but very few notice its negative exponential compounding effect on us. For example, a 50% loss of RM 1,000 means a loss of RM 500.00. It will need a double increase effort which is 100% from RM 500 to return to the previous level of RM 1,000. Similarly, a 50% loss of RM 100,000 is RM 50,000. But this RM 50,000 is much larger than RM 500 in previous example even though they both loss 50%. And it is much harder to earn another RM 50,000 which is 100% to back up to previous level as compare to previous example if ever possible.

A person can earn investment starting from 1,000 capital and increase up to 100,000 slowly through the years. But it can drop drastically if some unfortunate events happen along the way, losses can be huge and devastating.

This kind of scenario can happen to anyone who does not have a consistent strategy that produces positive annual return in investment. This phenomenon can normally happen to stock investment, options or other risky investment instruments. While the annual return can be thrilling for years, but once it is hit with something unusual like the black swan event, the loss can be unrecoverable. For specific detail and example, you may consider the recent case of James Cordier with his investment’s long time success and failure. This is what I mean negative exponential compounding effect. It makes cumulative effect for retirement fund harder if not nearly impossible.

Though investing through mutual fund does involve with the stock market, but the downside risk is not as drastic as direct investment on the stock market. That’s the reason I also wrote an article on why investing through mutual fund is better than stock. Because it is in mutual fund you can make positive compounding effect relatively more possible on a consistent basis.

Under such context, retirement plan under mutual fund investment strategy will come much easily attainable if we have learned the right art. Just like what I wrote in previous post, How to Beat Investment Mammoth, if we aim at 7% consistent annual return, our retirement would be able to keep our goose alive and enjoy its golden egg produced consistently.

This annual return of 7% looks insignificantly small if our investment is still in infancy stage. But it will be meaningful at the time when we are about to retire after allowing it to compound consistently over several decades. This low rate of annual return is easily achievable even through bear market or economic recession because there are investment tools available for us to use when market turns bearish. This is true with investment platform such as Fundsupermart. Besides, market sometimes can be better than current condition. An annual return of 15 – 20% can be easily achievable especially during bull market.

Importance of the “Know How”

As a reason, we as mutual fund investors, are not just looking at the target of how much we should have when we retire. We are looking at the “know how” rather than the “how much”. If we acquire the skill of the “know how”, all future factors such as inflation, currency depreciation, living condition changes and others will all be taken care of.

We would not only enjoy the time when we retire, but we enjoy seeing our saving capital grow through time even now. This aspect alone will give us a sense of accomplishment and fulfillment even before we retire. The process itself is enjoyable. For example, with such a low rate of annual return, I am now seeing my portfolio garnering thousands of profits consistently on a monthly basis. If I am discipline enough, I can project precisely how much my portfolio profit will arrive at the end of this year.

Shall we die half way through before we retire, we have absolutely no regret because we have been enjoying the process of compounding our retirement fund. If we are blessed enough, when we enter retirement age, we would know how to enjoy golden eggs that is laid annually by our goose we have nurtured in our life time.  

Would you not agree?    

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Disclaimer

This author does not have any business link with Fundsupermart. He recommends Fundsupermart as the preferred mutual Fund investment platform out of his own initiative. He does not own any official tie, nor will he pursue any future benefit with Fundsupermart.com.my.

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