RD: Many people confuse financial planning with retirement planning. But FP, as it is commonly abbreviated, is much more than mere retirement planning. How would you personally define FP or financial planning?

AS: I think it is a process of really looking at arranging your financial affairs to meet your lifetime goals. By this, I mean everything including retirement planning. In Malaysia, people are still very family-oriented, so some of their major goals would include putting their children through higher education and looking after their parents. Therefore, it [FP] is definitely more than just retirement planning.

KS: I agree with Alex, that lifetime goals are important, but I would prefer to take a more holistic approach, considering wealth accumulation and preservation factors that have to be taken into account. You also have to consider financial instruments like insurance and unit trusts.

BD: It is really a statement that says you should plan your finances. There is nothing mystical about it. The state of your finances will affect the achievement of your goals. Therefore, FP is the process of establishing goals and developing a plan to deploy your limited financial resources to achieving as many lifetime goals as possible. You have to plan your finances!

RD: Although FP is not exclusively about retirement planning, the truth is that planning intelligently for that period of life is still an important part of the process. Focusing for a moment on retirement, a recent study in the U.S., 'The 1999 Retirement Confidence Survey', showed that 70 percent of the American work force was confident it had enough savings for retirement. But, when the actual situation of each respondent was probed, it was discovered that only 49 percent had bothered to calculate how much would be needed in retirement. Worse still, just 39 percent of the entire sample size was deemed to be doing either a 'good' or 'very good' job of preparing for retirement. That means almost two-thirds of Americans aren't doing a good job. Is the situation in Malaysia better or worse? Why?

MT: I remember reading an article in The Star newspaper recently. It was a report by the Employees Provident Fund (EPF) which stated that 80 percent of people retiring at age 55 next year will have less than RM30,000 in their kitty to retire with. I am just trying to imagine how these people are going to be able to retire on this kind of savings. This is probably a very good example of the fact that Malaysians don't think about the amount they need to retire with. Besides, our demographics show that with our maturing population, there will be many more retirees in proportion to the population.

AS: I agree with Mark. EPF actually has a web site where you can track EPF withdrawals. When I first came back from Malaysia [from the U.S.], the first thing I looked at was the EPF annual report. At that time, the average lump sum withdrawal for retirees at age 55 was about RM20,000. From January to September this year, the amount had increased to RM27,000. So this is a good improvement, but it is still half the cost of a Proton Wira! If you look at the U.S., they have a big problem even though they have a social security system in place. According to surveys done on working people in the U.S., which can also apply in the Malaysian context, was that you will need approximately 80 percent of your last drawn salary to maintain lifestyle into retirement years. Looking at the Malaysian 30-year inflation rate of four percent and the average age of 78 years old for Malaysians, it means that you will have 23 years of headache after retirement! It's a big question mark how the average Malaysian, with an EPF withdrawal of RM30,000 will be able to make it.

KS: The situation here is really no better than that in the U.S. If you ask the average Malaysian on the street whether they are doing anything for retirement, almost everyone will say yes they are, because they have EPF. However, I believe the correct question to ask is really what are your financial goals and what is your lifestyle costs going to be? I don't think the average Malaysian asks himself or herself these hard questions. We have this belief that EPF will take care of us in our old age. I believe if you actually take people through those numbers, quite frequently, those numbers [costs] are far larger than what has been anticipated and what has been planned.

RD: In terms of the post IUTA (institutional unit trust agents) approval sponsoring of your client base, what kind of conclusions can you draw in terms of latent interest?

KS: It has been a pleasant surprise in the sense that we thought we would have a big role to play in educating investors about unit trusts. But the understanding levels are already there. Local unit trust companies have been in the game a lot longer than we have and they have done a good job in educating investors. How we believe we have benefited customers is that we have given them choices and have been objective in our recommendations. We brought these two elements into the process. There is a high degree of disclosure, performance and risk. So it's been an eye-opener for the customer.

BD: The thing about the Malaysian situation is that EPF is something like a combined social security scheme and a corporate retirement plan. The social security aspect of it comes from the law where the 12 to 19 percent contribution from the employer is given an income tax deduction. In the corporate retirement plan, the 12 percent comes from the employer. However, the replacement of pre-retirement income cannot be achieved with this contribution alone. It is very clear that the average RM30,000 EPF withdrawal will not be sufficient. Therefore, the percentage of people who don't calculate their retirement needs are clearly in the range of 90 percent. Actually, it's not surprising given that there aren't many people who can perform the necessary calculations in the first place. There are also not enough people who have been trained to be financial planners. In the U.S., social security takes care of about 20 percent of their pre-retirement income and their corporate plan takes care of about 40 to 60 percent of their income. So they are shooting for a target of 60 percent via compulsory plans, with private savings making up another 20 percent. Overall, they are aiming for a target of 80 to 90 percent replacement of pre-income. The other point I want to bring up is the need to hedge against inflation. You are saving your 20 to 30 percent of income at today's level of spending. But by the time you reach retirement, all these savings would have been at a predetermined level that is not hedged for inflation, unless your salary has been really moving along with inflation. So you will be taking the money, which you have been saving into an environment where you have lost your purchasing power! Therefore, there has to be an increase in the amount of contribution.

RD: It gets difficult to accelerate later payments because your commitments also rise. It is very hard to justify a jump in savings when you also have a child to bring up.

BD: The other thing we have to factor in is how do we take out from our retirement fund. You see the other problem is that our fixed income market is very limited. So they don't even have a way that it will just produce income that is safe and adequate. That's why, when interest rates went down, a lot of retirees realized that they just weren't earning enough income. We don't have enough vehicles to handle retirement living. We need to develop fixed income securities.