Financial Planning Chapter 7: Retirement Planning
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Questions and Answers

Which of the following is NOT a misconception about retirement?

  • My retirement will only last 15 years.
  • Social Security and my company pension will pay for my basic living expenses.
  • I must start saving for retirement now to ensure a comfortable retirement later. (correct)
  • My expenses will increase when I retire.

    • What is a common pitfall in retirement planning?

  • Starting to save too early
  • Starting too late (correct)
  • Investing too aggressively
  • Spending too little on current expenses

    • What is the primary goal of retirement planning?

  • To reduce current liabilities
  • To increase current spending
  • To increase retirement income
  • To ensure a comfortable retirement (correct)

    • What should you consider when estimating your retirement spending needs?

    <p>Future expenses</p> Signup and view all the answers

    Why is it important to recognize the importance of retirement planning?

    <p>To ensure a comfortable retirement</p> Signup and view all the answers

    What is a key trade-off in retirement planning?

    <p>Between current expenses and future savings</p> Signup and view all the answers

    What is the total value of the cash and savings accounts?

    <p>$8,300</p> Signup and view all the answers

    What is the purpose of a Qualified Domestic Relations Order in divorce?

    <p>To divide retirement benefits between spouses</p> Signup and view all the answers

    What type of expenses may decrease or stop after retirement?

    <p>Work expenses and clothing expenses</p> Signup and view all the answers

    What is the total value of the investments, including U.S. savings bonds and stocks, mutual funds?

    <p>$9,500</p> Signup and view all the answers

    What is the net worth of the individual, calculated by subtracting total liabilities from gross assets?

    <p>$16,300</p> Signup and view all the answers

    What is the purpose of reviewing assets, liabilities, and net worth?

    <p>To assess one's financial situation and make informed decisions</p> Signup and view all the answers

    What is the minimum savings amount recommended for EPF members to have by age 55?

    <p>RM240,000.</p> Signup and view all the answers

    What is the average annual growth rate of mean monthly household consumption expenditure in Malaysia?

    <p>3.9% per annum.</p> Signup and view all the answers

    What percentage of EPF members have the minimum savings target of RM240,000 in their account by age 55?

    <p>18%.</p> Signup and view all the answers

    Which of the following is a suggested way to increase the overall index value for the Malaysian retirement system?

    <p>Increasing the minimum level of support for the poorest aged individuals.</p> Signup and view all the answers

    What is the recommended withdrawal period for the basic savings amount of RM240,000?

    <p>20 years.</p> Signup and view all the answers

    What is the suggested age range for increasing the pension age in Malaysia?

    <p>60 to 65 years.</p> Signup and view all the answers

    What is the primary requirement for workers to qualify for Social Security retirement benefits?

    <p>Being at least 62 years old and having paid into the system for 10 years or more</p> Signup and view all the answers

    How is the amount of Social Security retirement benefits calculated?

    <p>Based on the average indexed monthly earnings during the 35 highest-earning years</p> Signup and view all the answers

    Who is eligible for benefits under the Railroad Retirement System?

    <p>Only railroad employees</p> Signup and view all the answers

    What is the main difference between a defined-contribution plan and a defined-benefit plan?

    <p>The individual account setup</p> Signup and view all the answers

    Who is not covered by Social Security?

    <p>All of the above</p> Signup and view all the answers

    What is the benefit of waiting to collect Social Security until age 70?

    <p>Higher monthly benefits</p> Signup and view all the answers

    What is the primary purpose of the Pension Scheme under JPA?

    <p>To acknowledge and appreciate the excellent service rendered to the Government by a personnel</p> Signup and view all the answers

    What is the type of pension that is applicable when a government agency is privatised?

    <p>Retirement due to Privatisation of a Government Agency Under Sections 10(5)(b), 12 and 12A/13 Act 227/239</p> Signup and view all the answers

    What is the basis for determining the rate of gratuity and pension to be paid?

    <p>Both period of reckonable service and the last drawn salary (substantive) by the officer</p> Signup and view all the answers

    What is the Cash Award in lieu of Leave?

    <p>A lump sum payment</p> Signup and view all the answers

    What is the purpose of the Service Gratuity?

    <p>To provide a lump sum payment</p> Signup and view all the answers

    What is the type of pension that is applicable when a personnel is required to retire due to an injury or disease?

    <p>Retirement due to injury or disease under the Compensation Scheme</p> Signup and view all the answers

    Study Notes

    Planning Your Retirement Income

    • Determine your planned retirement income by considering your pension benefits, including monthly pension, gratuity (lump sum), and cash award in lieu of leave (lump sum).
    • The Pension Scheme – JPA (Jabatan Perkhidmatan Awam) aims to acknowledge and appreciate the excellent service of personnel, provide life subsistence for dependants, and develop a compensation scheme for personnel who retire or pass away due to injuries or diseases.

    Types of Pensions

    • Compulsory Pension under Section 10 Act 227/239
    • Compulsory Retirement at the Instance of the Government under Section 11 Act 227/239
    • Optional Retirement under Section 12 Act 227/239
    • Retirement due to Privatisation of a Government Agency under Sections 10(5)(b), 12 and 12A/13 Act 227/239

    Pension Benefits

    • Service Pension (monthly payment)
    • Service Gratuity (lump sum payment)
    • Cash Award in lieu of Leave, when applicable (lump sum payment)

    Importance of Retirement Planning

    • Recognize the importance of retirement planning to ensure a comfortable retirement
    • Misconceptions about retirement include:
      • Expenses will decrease in retirement
      • Social Security and company pension will cover basic living expenses
      • Pension benefits will increase with inflation
      • Employer's health insurance plan and Medicare will cover medical expenses

    Why Retirement Planning?

    • Set your retirement goals, including the age you want to retire and the amount of money you need
    • Pitfalls in retirement planning include starting too late, putting away too little, and investing too conservatively
    • Consider taking income from investments or receiving dividends rather than reinvesting them

    Reviewing Your Assets and Liabilities

    • Sample figures for assets include cash, investments, life insurance, company pension rights, property, and other assets
    • Liabilities include current unpaid bills, home mortgage, auto loan, property taxes, and home improvement loan
    • Net worth is the difference between gross assets and total liabilities

    Retirement Living Expenses

    • Estimate your retirement spending needs, considering changes in spending patterns and expenses
    • Some expenses may go down or stop, such as work expenses, clothing expenses, and others
    • Investing in retirement accounts, such as EPF, can help keep up with inflation

    Malaysian Situation

    • The minimum savings EPF members should have at age 55 is RM240,000, which equates to a monthly withdrawal of RM950 to cover basic needs for 20 years
    • The mean monthly household consumption expenditure for Malaysia increased from RM4,033 in 2016 to RM4,534 in 2019
    • Only 18% of EPF members have the minimum savings target of RM240,000 in their account by 55

    Tips to Manage Retirement Planning

    • Select a target date for retirement
    • Consider Social Security benefits, which are calculated based on average indexed monthly earnings during 35 highest-earning years
    • Other public pension plans include federal government and railroad retirement plans, Veterans Administration pensions, and state, county, and city government retirement plans

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    Test your knowledge on retirement planning, including recognizing its importance, analyzing assets and liabilities, and determining retirement spending needs and housing needs.

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