HUSNIYAH BT. ABD. RAHIM BILIK A2-14 Jabatan Pengurusan Sumber & Pengajian Pengguna

1. FEM 3204 : 3 (2+1)Perancangan Kewangan Dalam Pasaran GlobalFinancial Planning in a Global Market HUSNIYAH BT. ABD. RAHIM BILIK A2-14 Jabatan Pengurusan Sumber & Pengajian Pengguna Fakulti Ekologi Manusia

2. Chapter 2 Issues and the Relationship Between Financial Planning and the Social Security

3. Consumption • Considering current consumption and future consumption • Should have trade-off benefits between the two consumptions • Sacrifice current consumption for future consumption • Financial planning over the life-cycle tends to smooth consumption over the years • Smoothing consumption in order to obtain consistent standard of living

4. Consumption (cont.) • Delayed gratification in sacrificing current consumption for future consumption • However, current standard of living may not be jeopardized if there are surplus of income • Increase of income should be critical for those with no surplus of income

5. Planning For Old Age (cont.) • During old age, most have retire and no or less income • Need to plan financially for the income to be sufficient for life during old age, the earlier the better (related to time value of money) • One have to identify financial needs during old age or during retirement • And also have to identify ways to achieve financial goals after retirement or during old age 

6. Planning For Old Age (cont.) Several aspect need to be considered in planning for old age • The life-cycle during old age or retirement – whether there are children need to be supported or otherwise they may be sources of income  • Life expectancy – estimate the duration to live after retire • Health condition – have severe/critical illness or in good health  

7. Planning For Old Age (cont.) Several aspect need to be considered in planning for old age (cont.) • Income tax - most probably the tax is low due to lower income unless having other types of income such as investment, or rentals  • Investment flexibility – invest for a longer duration (20-30 years) may create problems to liquidify; adjust the duration of investment  • Goals during retirement – prioritize physiological needs and medical treatment; holiday and asset accumulation less prioritized 

8. Planning For Old Age (cont.) Calculating the Amount Needed for Old Age/Retirement 1. Determine the basic living expenses • Identify the life style during old age and the cost needed. The basic monthly expenses for food, clothing, and housing and medical treatment are determined by life style. • Refer to expenditure records however need to adjust according to financial goals during old age – maybe there is no monthly payment for housing loan, or no dependents or less, medical treatment may be supported by employer or insurance company, car maintenance 

9. Planning For Old Age (cont.) 2. Determine other monthly expenses , other than the basic needs • There may be other new activities during old age – fee for clubs  3. Obtain the amount of annual living expenses • The monthly amount (1 + 2) times 12 4. Estimate the duration to live after retirement – estimate more, this is to obtain the total cost of living for the duration after retirement. • The amount in 3 times the number of years living after retirement

10. Planning For Old Age (cont.) 5. Add irregular expenses – holiday, hajj, to obtain amount of expenses for the whole duration after retirement  • Consider inflation factor: • Determine the duration from now until retirement – minus the retirement age with the current age • Determine the inflation rate Bank Negara) and obtain the inflation factor using the table of future values for a single sum • The amount of expenses during retirement/old age after considering inflation rate:- the value of inflation factor x total expenses

11. Planning For Old Age (cont.) Sources of Income During Old Age/retirement • Pension • Retirement fund by employer – EPF, Military fund • Financial institution’s retirement plan • Your own retirement plan 

12. Planning For Old Age (cont.) Steps to achieve financial goals for retirement 1. Obtain the total expenses adjusted for inflation 2. Identify gratuity, bonus, or any disbursement obtain when retire 3. Total 2 minus total 1; to get the amount needed to save from now. 4. If there are monthly pension or any monthly payment from the retirement plan, calculate the total income for the duration of retirement 5. Total 3 minus total 4 ; to get the actual amount that needs to save

13. Social Security and Financial Planning • In financial planning, one aspect covered is the risk faced by individuals • One may have health or life insurance to protect them from financial crisis due to the risks faced • In Malaysia, one organisation was set-up to provide social security protection by social insurance, namely the Social Security Organisation (SOCSO) or PERKESO • it includes medical and cash benefits, provision of artificial aids and rehabilitation to employees

14. Social Security and Financial Planning (cont.) • In the view of the financial planning for individuals, the services provided is part of the financial planning. • Those protected under these services would have other things to be financially prepared • Certain injuries and accidents or disability due to their work or workplace would be covered financially • Those not protected under this scheme would have to have other ways to get protected or to be financially prepared for any disaster during work.