There are tons of books and gurus out there, explaining in detail the works of compounding interest. It is well documented how from a small amount compounded over a number of years returns a handsome sum. Warrent Buffet did it by compounding at about 20.8% a year for 49 years....How good is that? Well When he took over his company in 1965, it was $16 per share..now it is $168,210 (28/1/2014)! if you have invested with him $1000 and had forgotten about it, you would have $10.5 million today.
Equally important is to know this, "on one hand compounding can help you make a lot of money, it can make you poorer as well". How? .....Inflation.
If the same $1000, instead investing with uncle Warren, you have kept it under your pillow for 49 years, today it can only buy things worth $80. (if termites don't get to it first!) The money you kept has the same face value, but what has changed is buying power. Things has become more expensive.
If the same $1000, instead investing with uncle Warren, you have kept it under your pillow for 49 years, today it can only buy things worth $80. (if termites don't get to it first!) The money you kept has the same face value, but what has changed is buying power. Things has become more expensive.
But, you may say I keep them in FD..Well if you ever notice, FD rates are almost never higher then real inflation rate, which is normally 2-3% below, your money still losses value over time.
But what about EPF..they pay 5-6%. True, EPF can somewhat preserve your money till you retire, but how much can it last you after you retire? Remember, it can preserve but not grow.
The above shows a typical wage earner, from a starting salary of RM2000, works hard, Gets a increment on average 6% each year and 1 month bonus. At the age of 55, in the EPF account there is RM429K! We will reduce RM100K as housing repayment. Leaving RM329K. Enough for the next 20 years? (Assuming one survives till the age of 75) On average, One can afford to spend $1370 per month for the next 20 years after retirement. Ask your self, Is this amount enough for the retirement life style you want?
Consider this, Your last drawn income is RM11k..can you switch spending RM11k to RM1k? Can it take care of the medical bill? (Knowing, medical insurance can take care only that much) What if one stays alive after 75?...and by the way, can you get a 6% increment consistently with 1 month bonus every year?
The truth is this, as reported in the papers, most people will finish up EPF money in 5 years time. Why? Among others:...Starting a new business, starting to "invest" in a big way, supporting children's dreams, trying to maintain life style as when still making RM11K salary (last drawn salary).... unfortunately, most business would fail, most "investment" are speculative.
It would be difficult to manage this money if you have never trained your self. Surviving with it is difficult enough. managing it, is a another ball game.
Note:
The edge weekly reported on 3/3/2014, on average, at 54 years old, EPF members has only RM149K,out of this, 72% has less then RM50K! This is much lower then our estimate of RM429K...The number of years to spent it all....5 years.
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| As reported on The edge Weekly on 3/3/2014 |
