Retirement, Retirement fund
Anyone can dream of living an enjoyable retirement. One of the surest ways to do this is to have enough in retirement funds to live out the rest of your life comfortably.
A retirement fund is a type of current asset prepared in advance and paid out after someone retires. It is intended to help us to be financially independent. But how do you get started? What is the ideal size of the retirement fund that you should have? And what do you need to do to prepare for an ideal retirement life?
Imagine this scenario: you celebrate your retirement age knowing that you don't have to work again. However, this also means you no longer get a monthly salary from your employer. At that time, your children might have settled down and built their own family, and because of this commitment, they might not be able to support your daily needs and expenses like before. You still have expenses on basic necessities to sustain your retirement life.
This is a common phenomenon for many people. Many who might not have planned or saved up enough for their retirement may end up leading a lower quality retirement life. There are several considerations and risks that you might face before and during your retirement stage. Therefore, before you reach retirement age, consider the following risks you might face and plan ahead for uncertainties
Warren Buffett, a renowned investor magnate and one of the richest person on earth, once said, "If you can't find a way to make money when you are asleep, then you will keep working until you die". This is especially true for older people who decide to or need to work even after their retirement. Many may no longer be as efficient and productive as their former younger self, with their body and mind less resilient to the stress and burden from their job.
According to Statistics Indonesia (BPS), the number of elderly people in Indonesia is growing every year; in 2019 alone, the number exceeded 25 million people. Almost half of the elderly population (49.39%) were still active in the workforce. This data shows that one out of two elderly in Indonesia still works to earn their living, some not by choice.
As you age, your body gradually becomes weaker, and you become more susceptible to various health issues – both physically and mentally.
Statistics Indonesia found out that a tough financial situation may worsen a person's mental health and well-being. They are often more vulnerable to stress, depression, anxiety, and sometimes even more serious mental disorder such as Schizophrenia.
From Cancer to broken bones, physical ill-being often requires medical attention. According to a 2020 research by Willis Towers Watson, it shows us that the medical fees in Indonesia rose 11% in 2017, 10.9% in 2018 and 10.8% in 2019, indicating an increasing annual average medical cost
Many people in their golden years may often find themselves living alone. This can be attributed to various reasons, such as other familial commitment of their children, migration of their offspring to pursue job opportunities, abuse, neglect or abandonment, among others. Elderlies may find it difficult to fulfil their basic needs due to lower or no income from their family or not having enough savings themselves.
According to a report in 2018 by the Social Ministry Regulation of Indonesia (Permensos), these people are entitled to the Government's Minimum Service Standard on public services. The minimum services they are entitled to are bread and butter, dormitory, assistive devices for elderly, medical assistance, mental health and spiritual services, basic daily skills, and funeral service. While the support is helpful, many retired individuals may still dream to live a better quality retirement life without money worries.
Death is inevitable, and you will never know when you will pass away.
If you live longer than the average Indonesian, you will need more money when you reach retirement stage. On the other hand, if you passed away at a younger and more productive age, you would still need to prepare enough money for your family and loved ones, so they do not suffer from the loss of income with you passing away.
Statistics Indonesia (BPS) data shows us that the average of Indonesia's life expectancy is around 71.38 years. That means, if you are 35 years old now, then you have almost 36 years to get your financial situation in check – whether it is to achieve financial stability through your latter years or to provide financial protection for your family after you passed away.
With the risks and uncertainties that comes with retirement, it speaks to the importance of preparing for your retirement as early as possible. As you get older, you might have less of a mean to save and invest in your retirement. Family commitments, children's education, rent and expenses might take up a big chunk of your salary. You will still need to pay for basic needs and other expenses during the retirement stage. You will also need adequate health and insurance protection to support you through challenging times.
A retirement fund is a smart way to ensure you have the financial stability you seek when you get older. The fund also has the flexibility to invest in various investment instruments. As you plan for the coming years and look ahead towards your future, consider the risks and uncertainty that life might throw at you before and during your retirement age.
This article is written by Aulia Akbar CFP®, Lifepal's Financial Educator & Researcher, as part of collaboration with Lifepal.co.id.