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How Much Do You Need For Retirement (Part 2)

8:00 AM  Pisstol Aer   Labels:
For employees, it is a must to have EPF contribution. That is, 11% from employee (direct deduct from your monthly basic salary) and 12% from employer (12% on top of your monthly basic salary). I would like to put it as an important fund to support our retirement years.


On our calculation of retirement need, we need to how much will our EPF will be in order to get the whole picture. Shall we continue?

Step 8: Get the opening balance for your EPF account of the year (hereinafter called H)

Step 9: Estimate expected rate of return of EPF (hereinafter called I)

Step 10: Calculate the future value of your current EPF balance (hereinafter called J)

Follow this formula: H * ( 1 + I ) ^ A

Step 11: Get the current annual contribution to EPF (employee + employer) (hereinafter called K)

Step 12: Get your expected annual salary increment rate (hereinafter called L)

Step 13: Get the future value of annual contribution to EPF (hereinafter called M)

Follow this formula: K * z where z is (Vn-1*(1+I))+(1*(1+L))*(1+I)). Sound complicated, let us take an example.

Assume in Year 0 we have $1, annual salary increment is 4% and annual EPF return is 5%. By the end of year 1, the value will be (0*(1.05))+(1*(1.04))*(1.05)) = 1.092. Go on to year 2 and you will get (1.092*(1.05))+(1*(1.04))*(1.05)) = 2.2386. The calculation continues until the number of years to retire. Say the year to retire is 5, the calculation shall continue to Year 5.

Step 14: Sum up J and M and you will get total future value of EPF (hereinafter called N)

Step 15: By deducting G from N and you will get balance of capital required at retirement (hereinafter called P)

Step 16: Estimate rate of return on investment until retirement (hereinafter called Q)

Step 17: Get your current investment value for your retirement (shares, unit trust, etc) (hereinafter called R)

Step 18: Calculate the future value of your current investment (hereinafter called S)

Follow this formula: R * ( 1 + Q ) ^ A

Step 19: Get capital shortfall by deducting P from S (hereinafter called T)

Now, you should know how much you need to accumulate for retirement. Your next task shall be having action plan (investment planning) to get the amount.

Good luck.
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How Much Do You Need For Retirement (Part 2)
How Much Do You Need For Retirement (Part 2)
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