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Malaysia and global market summary for May 2024.


World Updates:


  • Japanese equities led the rally, followed by gains in semiconductor-related stocks. The stocks are down nearly 1,000 points

  • Bank of Japan may have spent more than trillion yen (58.4 billion USD) to pull the yen back from near 34-year lows

  • The US economy remained robust despite concerns about sticky inflation while the Federal Reserve maintained its stance on 1 potential rate cuts.

  • Mild economic growth is expected in the US, with cyclical showing lackluster guidance. Overweighting quality and defensive sectors are advised.

  • China may implement potential quantitative easing (QE) and fiscal spending to boost its economy.

  • European Central Bank expected to cut interest rates in the near term while monitoring oil prices very closely amid spillover conflict in the Middle East.

 

Malaysia Updates:


  • Bursa Malaysia's main index broke the 1,600 points as market capitalisation of the local stocks breezed past the RM2 trillion mark.

  • Members of the Employees Provident Fund (EPF) who are below 55 years old will have an Account 3 starting from May 11, allowing them to      make withdrawals at any time for any purpose.


US Updates:


  • Earnings growth continued to support the tech rally, with chipmakers expected to see robust earnings growth in the coming years.

  • With growing concerns about US inflation, some investors are preparing for the 10-year US Treasury yield to breach a 16-year high of 5% hit last October.  


China Updates:


  • China’s consumer price index rose below consensus.

  • China’s exports fell more than expected in March, shrinking by -7.5 year-on-year attributed to soft overseas demand and tight global monetary policy.

  • The 1Q GDP growth rate year-on-year is forecasted to be 5%, down from 5.2% in 4Q2023. 


Alternative Investments:


  • Gold prices rose in late April, buoyed by a weaker dollar and continued central banks buying

  • Oil prices rose as US stockpiles fell for a second week and inflation eased.

  • On April 19th, Bitcoin underwent its fourth scheduled halving, reducing the mining reward from 6.25 Bitcoins to 3.125 Bitcoins per block.

 

2024 May Market Outlook Update

Inflation remains stubborn, keeping central bankers cautious about easing policy too soon. As a higher interest rate environment continues, still growing asset classes such as equities and alternatives to be considered, while for those looking to reduce volatility can consider fixed income and non-tech equities.

Not sure how to start planning your retirement? Having a checklist certainly helps you to get started .

The idea of retirement brings a mix of emotions. Some, who have planned and prepared in advance, look forward to it. Others view it as a dreaded deadline, like a fast-approaching dark cloud on the horizon.


Regardless of which camp you are in, if retirement is in the near future for you (whether due to age, health, or by choice), this article explains the things you need to pay attention to immediately to ensure the next handful of years provide you with a smooth transition into your retirement.

#1. Decide When to Retire


Have you decided when to retire? Or is this already determined for you for example having to adhere to the mandatory retirement age of 60? For some, they want to accumulate enough wealth much earlier, say at 45 years old, and then move on with other things in life. Some others, still feel that there is so much energy left, and want to continue earning a salary even after 60 years old. And then for others, such as business owners, just want to get out of active management of the enterprise and move on to other important things in life.


In any case, you must have a clear goal on when you intend to retire. At 55? 61? 63? 75? By having a date in mind, it helps with more accurate calculations as you plan out the details.

#2. Pare Down Your Debts


If you plan to retire soon, immediately work on reducing your debt, or better still if you can pay them all off before retirement. Else, paying off debt can have a big impact on your retirement savings as you won’t be drawing an active salary to compensate then.


Tackle high-interest debt quickly, such as personal loans and credit card debt. Credit cards typically charge 18% per year on outstanding balances. Unless you can find an investment that pays a guaranteed return higher than this, it makes sense to quickly settle your outstanding balance on this high-interest debt.


Common outstanding big debts are your residence home mortgage (not your investment properties, in which the rental can offset the loan) and car hire purchases. For example, according to a study, 50% of retirees still have their house mortgages unsettled at retirement. How is this a concern? Let’s elaborate.


  • If the interest rates on your loan are less than your ongoing investment returns, this is called a positive interest rate differential, and it means you can afford to continue paying off your debt using your investment income.

  • If however the interest rates are higher than your ongoing investment returns, this is negative interest rate differential. In such cases, it is urgent for retirees to pay off their mortgage before it gobbles up their in-retirement savings.


Being debt-free at retirement provides a huge psychological relief. Do what you can now to set a clear path to settle your debts over the next few years to prepare for a more enjoyable retirement.


#3. After Retirement Expenses


Have you thought of what your monthly expenses might look like in-retirement? Being 3 to 5 years away, in-retirement expenses can be estimated reliably based on your current expenses.


If you haven’t already, start to create a monthly expense budget now to understand what your expenses are. Then, start thinking where each expense item will stand during retirement. Some expense items will for sure become lower in retirement (e.g. transportation), whilst others will become higher (e.g. healthcare costs).


Be sure to include your annual expenses as well, such as your quit rent and assessment charges, auto and home insurance etc. Also be sure to include big ticket items that you plan to do, for instance going for that dream holiday to the Patagonia highlands in four years; your daughter’s wedding reception in six years etc.


With the numbers in hand, you can better extrapolate how much you need to save and invest now to fund your X number of retirement years.


#4. Post-Retirement Activities


Once the initial holiday period is over, how will you be keeping busy during retirement? Put some thought into this as filling up your days with productive activities can keep you physically and mentally healthy in the long term.


Options include but are not limited to:

  • Semi-retirement; join a consultancy, work freelance. Use your skills for some income.

  • Contribute to society through volunteer work.

  • Take up an active hobby that requires physical and mental use.

  • Get involved with religious activities.

  • Start a social enterprise.


All these are important, as it improves a retiree’s overall well-being thus your longevity. Another study has revealed that social inclusion greatly impacts retirees’ well-being too.

In any case, be sure to include the above’s planned work or activity’s associated costs in your expected monthly budget.

#5. Downsizing


Your kids have probably grown up by then or are about to leave the nest. With your trimmed down income, you might also be considering downsizing to a smaller home or even moving to a town with a lower cost of living to trim your household expenses.

Whichever your choice, do check out our article on 5 Tips To Choose the Right Home. It would be sensible to prioritize a home that has good accessibility features (e.g. less stairs), and has convenient facilities such as medical centers, public parks, and supermarkets close by.


Do also consider the social aspect of your new home. Does it feel like you can meet new friends easily? Are there activities you can pursue in the area?


Of course, an alternative would be to initially rent a place in that area for a year or two, and see if you can blend in. If it doesn’t work out, you can always retreat back to your old home.

#6. Insurance Review


It would be wise to review your insurance coverage prior to going into retirement as your needs may have changed and some adjustments should be made such as increasing surgical and hospitalization coverage.


Make sure to get the coverage reviewed and get the additional cover if it is found to be inadequate. Remember, it is best to get high coverage now when you still do not have any pre-existing health conditions. Otherwise, you might end up paying high monthly premiums or worse, find your insurance proposal rejected by the insurance company.


Another coverage that should be considered is Long Term Care. For some insurance policies, it is included as a Rider. Find out about long-term care coverage here.


#7. Healthcare Cost as Retirees


With age, comes wisdom. Unfortunately, aches and pains also enter the picture along with various health issues.


Insurance does not cover everything so your monthly expenses ought to consider covering supplements and medication. Talk to seniors you know to get an idea of what you may be facing. For more serious issues that you may potentially face as our bodies wear out, you can get more details of costs for physiotherapy, dialysis, home nursing, retirement communities, etc.


For sure these costs will become a big chunk of your monthly expenses as your age increases so it is best to figure this out now rather than worry later.


#8. Settle Your Paperwork


Nearing retirement, have you done your Will? What about a Testamentary Trust? a Power of Attorney? If you are a business owner, plan your exit well with your business partners and make sure you have a Business Continuity document in place. If unsure about these things, talk to a licensed financial professional.

#9. Determine Your Retirement Numbers


After considering all the above, and including them in your monthly and annual budget, have you determined what is your Retirement Number? Have you considered how long will you be in retirement? What about the effects of inflation? Have you included it? Since you’re only a few years away from retirement, does your projected savings and investment surpass this number? Or are you projected to have a shortfall?

Conclusion


It can get tough figuring out what to prepare for, working out the numbers, and figuring out how to get what done when between now and retirement. Consider working with a licensed financial planner, who can facilitate all the above discussions with you and spouse.


A licensed financial planner can help prepare the annual financial budgets for you, determine if you have a shortfall or surplus, and develop strategies that are within your means to cover any financial gaps. Take action now for a better future for you and your spouse.






By Kean Seng Lim


Find out if you are ready for and suited to FIRE your life with this useful introduction to FIRE.



Economic uncertainties and the fast-paced nature of today's world have made the traditional retirement age seem increasingly unattainable for many, sparking interest in the Financial Independence, Retire Early (FIRE) movement as a beacon of hope. Like its very name, it is a movement for doing your best in advance to enable an early retirement.


At its core, FIRE champions a lifestyle of frugality, aggressive savings, and astute investment strategies, aiming to provide individuals the freedom to retire well before the conventional age of 65.


In Malaysia, where economic growth and digital transformation have reshaped the financial landscape, the FIRE movement is gaining traction among professionals and individuals seeking financial freedom and a more profound sense of life fulfillment. The appeal of retiring early and a desire to escape the grind of 9-to-5 jobs have prompted Malaysians from diverse backgrounds to explore this financial strategy.


However, as with any financial strategy, FIRE has challenges and is not a one-size-fits-all solution. Let's walk through the different kinds of FIRE and what their differences are.




#1. Characteristics of FIRE

The allure of the FIRE movement is underpinned by a few core principles that set it apart from traditional financial planning. These characteristics are strategies and embody a philosophy towards money, savings, and life.


  • Frugality

Living below one's means is the cornerstone of the FIRE movement, emphasizing the importance of differentiating needs from wants to prioritize savings over consumerism.

Frugality here doesn't mean austerity but a mindful approach to spending, focusing on value maximization across all life aspects. This approach involves choosing modest living, public transport, and home-cooked meals, enabling a higher savings rate and faster progress toward financial independence.


  • Aggressive Savings

Where typical financial advice recommends saving 10% to 20% of your income, the FIRE movement advocates for a savings rate of 50% to 70% of your income.

Achieving such a high rate demands frugal living and meticulous budgeting. This approach is crucial for fast-tracking wealth accumulation and instilling a discipline in spending and saving, which is vital for long-term financial independence.


  • Investment Strategies

Achieving FIRE (Financial Independence, Retire Early) requires more than saving money; it necessitates actively investing those savings. Followers typically diversify their investments across stocks, bonds, real estate, and other assets to generate passive income sufficient to cover living expenses, eliminating the need for traditional employment. The community often favours low-cost index funds and real estate for their long-term return potential. Nonetheless, a deep understanding of investment principles and risk management is crucial, highlighting the role of financial education in the FIRE journey.


Embarking on the FIRE journey requires more than a whim—it demands deep financial education and planning. Mastery of personal finance, investment strategies, tax nuances, and retirement planning is essential. Such knowledge equips FIRE enthusiasts to make savvy financial choices, from enhancing savings rates to tailoring investment portfolios that match their risk appetite and goals. Financial literacy also empowers them to adeptly navigate financial market complexities and economic fluctuations, making their FIRE strategy resilient and flexible.



#2. Types of FIRE


Within the broad church of the FIRE movement, several distinct paths have emerged, each catering to different lifestyles, financial goals, and personal preferences. Understanding these variants is crucial for anyone considering the FIRE journey, as it highlights the movement's flexibility and adaptability to individual circumstances.


  • Lean FIRE

Lean FIRE emphasizes rapid financial independence through minimal living expenses. Adherents drastically cut costs—living below their area's average lifestyle—to decrease the annual money needed, thereby reducing the total savings required for FIRE.

This approach often involves choosing smaller homes, limiting dining out, and opting for free or low-cost entertainment. It's suited for those who find joy outside of material possessions and embrace minimalism.


  • Fat FIRE

Fat FIRE is ideal for those seeking financial independence without sacrificing a luxurious lifestyle. It demands more significant savings due to increased annual expenditures, making it attractive to high-income individuals who prefer to sustain their standard of living through early retirement.

This approach might involve frequent travel, dining at fine restaurants, and residing in a spacious home while remaining financially independent.


  • Barista FIRE

Barista FIRE combines working and retirement, letting individuals leave full-time jobs but work part-time for income and benefits, like health insurance. The term "Barista" suggests a low-stress job, like in a coffee shop, but it applies to any fulfilling, flexible role.

This approach slows down investment withdrawals, preserving savings longer. It's ideal for those wanting a mix of work and leisure, maintaining some work structure while enjoying early retirement benefits.



#3. What Are The Alternatives?


While the FIRE movement offers a compelling pathway to financial independence and early retirement, other routes are available. Although FIRE may not resonate with everyone's economic goals, risk tolerance, or life circumstances, several alternative strategies can lead to financial well-being and freedom.


  • Slow FIRE

Slow FIRE offers an alternative path to financial independence, emphasizing steady saving and investing without traditional FIRE's extreme frugality or aggressive saving rates.

It champions a balanced lifestyle, allowing for present enjoyment while securing future stability, making it ideal for those who seek both current pleasures and financial security.


  • Coast FIRE

Coast FIRE is for those who've saved and invested aggressively early on, reaching a point where their savings will grow to support retirement without further contributions.

This allows them to pursue fulfilling work with potentially lower income as their retirement savings grow, offering a balance between financial security and career satisfaction.


  • Traditional Retirement Planning

For those who find the FIRE movement's principles too extreme or impractical, traditional retirement planning offers a dependable option. This strategy usually entails working until the conventional retirement age of 60 or 65, saving part of one's income in employer-sponsored retirement schemes, and depending on social security or pensions. It allows for a gentler savings rate and aligns better with typical career and life expectations.



Conclusion


Preparing for retirement helps us get our finances in order for the golden years when we want to take things slow. There are several conventional and unconventional ways to get from now to retirement. Among them, know that FIRE is a flexible framework that can be tailored to various life goals and financial situations. Did any of them resonate with you?


Irrespective of the path chosen, the foundations of financial planning—budgeting, saving, investing, and planning for the future—remain universally important. Engaging with a licensed financial advisor, leveraging financial planning tools, and continuously educating oneself on financial matters can provide guidance and clarity, helping to navigate the complexities of personal finance and retirement planning.

 

Do you think FIRE is for you? If yes, which kind of FIRE? Do share with us in the comments section.


About The Author


Lim Kean Seng is a Licensed Financial Planner at Wealth Vantage Advisory. He is a dedicated advisor with an eye for guiding individuals through comprehensive retirement planning and estate management. He is also committed to ensuring clients' financial security and familial harmony through strategic wealth management solutions. He can be contacted at keanseng@wealthvantage.com.my

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