The next step is to ascertain how much money you will need when you retire, and are no longer working. This is difficult to predict but it is not impossible. You can estimate this by considering changes you plan to make to your spending patterns and how (and where) you plan to live after you retire. Some of your expenses will probably be lower, for example, work-related expenses (like fuel or bus fare), clothing expenses and housing expenses. On the other hand, some other expenses may increase: for example, your travel expenses, since you may have more free time. At the same time, your medical expenses may also increase, as you get older and become more susceptible to illnesses. It is often suggested that you will need about 60% to 70% of your last drawn annual income after you retire.

In our example, let’s assume that James’ last drawn income is RM200,000 per year. As such, his desired annual income upon retirement would be RM120,000 (that is, 60% of RM200,000), calculated as:
0.6 X RM200, 000 = RM120,000

Once we have done this, we need to estimate how long he would need this retirement income. The number of years this income is required is a function of how long he is expected to live. In Malaysia, according to the latest information from the Statistics Department, the average life expectancy is 70 years for males, and 75 for females.

Let’s assume that James expects to live till 80 years old, and as such, he would need 25 years of retirement income (from age 55 onwards).