The following story is based on an actual series of events, with some names and circumstances fictionalised. Any similarity to any person’s name, character, or history is coincidental and unintentional. It is about how to convert highly illiquid assets to more liquid and easily realisable.

Bob and Leonard were the best of buddies. They did everything together in school and through university, including courting the same girl until she decided on Leonard, whereupon Bob graciously withdrew.

After graduation, Bob worked as a lawyer while Leonard became an engineer. After several years, Bob made a name for himself in law practice, while Leonard decided to leave his job and strike out as an entrepreneur.

With some inheritance capital and savings, Leonard bought a small but profitable boutique hotel in Kuala Lumpur. At the same time, he embarked on some small development projects building shophouses, small industrial lots and housing schemes in the Klang Valley.

Five years later, he had the opportunity to purchase a piece of land to build a 200-room resort hotel in Penang, and as this needed a substantial amount of money, he approached Bob to help arrange to finance. Bob recognised the project’s viability and managed to help him secure financing, as well as personally putting up 40% of the capital required by Leonard.

The hotel was completed and began making money consistently. The company that developed the hotel soon embarked on the construction of an adjoining tower of 150 apartment suites, which units were slowly released for sale.

No dividends were paid as profits generated from the hotel were ploughed back into the company to finance the apartment tower. Sales of the units had been strong, reaching 70% until the pandemic hit.

By this time, Bob was in his 50’s and thinking of retirement. During the pandemic, he started thinking a lot about succession. What if he passed on suddenly? How would his family access his assets?

Read: How A Buy-Sell Agreement Can Help Business Partners In The Future

Estate Planning Is Crucial: Learn How To Convert Highly Illiquid Assets To More Liquid

He reached out to me and got an estate plan worked out for when he was not around – some assets to be distributed through his will while some substantial ones were put into a living trust to be distributed in stages to avoid overspending by the beneficiaries. We didn’t discuss yet on the topic of how to convert highly illiquid assets to more liquid.

But what niggled him was the 40% stake he had in Leonard’s company. His family was unfamiliar with Leonard or his business. Bob realised that after his demise, the close relationship, trust and understanding between the two shareholders would be gone. Which was like saying the two shareholders would be strangers to each other.

He was worried that his stake, which was now substantial in value, may become worthless after his death in that his family, as minority shareholders, would not be able to influence dividend pay-out, if any, and the company’s direction. And no one other than Leonard would buy a 40% stake at a fair price.

He felt it would be difficult to impose on Leonard to buy his stake at a time when he needed to fund his business expansion. Hence he felt the need to convert highly illiquid assets to more liquid.

Read: Money Caused Breakup Among Four Close Friends, That’s Why it Is Important To Plan For The Succession Of A Business

Convert Highly Illiquid Assets To More Liquid And Easily Realisable

He talked to me about his dilemma and wondered whether I had a solution. I inquired about the details of the company assets and realised that his solution lay on how to convert highly illiquid assets to more liquid.

So, I suggested that he propose to Leonard to swap his shareholding with unsold units that Leonard held. He gave a bit of a stunned reaction and said: “I should have thought of that.” And we both worked out what we thought was a fair exchange ratio, using cost instead of profit element (avoiding the need to revalue the hotel and apartment suites).

We then brought the idea to Leonard, who liked the idea of being free from pesky shareholders if Bob was no longer around, and at the same time, getting rid of unsold stocks. A buy-sell with a trust was set up with our trust company based on the transaction carried out according to the agreed exchange ratio upon Bob’s death or mental incapacity.

As it turned out, the solution worked after Bob had multiple strokes last year and had to be taken care of by his family, using proceeds from the sale of the apartment suites. Sometimes, I think the best solution is the simplest one.

In this case, it is about how to convert highly illiquid assets to more liquid and easily realisable.

Read: Hard Facts About The Executor Of A Will In Malaysia

About Rockwills International Group

Rockwills International Group, now in its 28th year, pioneered professional will writing in 1995 and has since evolved into the leading estate planning specialist in the country. It is today the largest provider of solutions and support services in trusts, succession, management and distribution of wealth. It has shareholders’ funds exceeding RM50 million. It has done over 280,000 wills and 15,000 trusts and holds more than RM25 billion in assets under trust.

Retirement. The “R” word that many would prefer to delay thinking about until it’s inevitable. I recently had the opportunity to discuss the meaning
of retirement planning success with a client. Much of the thought process that she had undergone prior to our discussion was focused on the accumulation phase – making sure that there’s enough saved in the retirement nest egg.

Want to know more about the drawdown strategy? OK, let’s go.

But as one inches closer to the finishing line, the focus will need to shift towards the more interesting, albeit daunting, task of ensuring that whatever has been accumulated is sufficient to last the rest of our ever-increasing post retirement years.

Looking at the environment that we’re facing today, where the cost of living seems to be escalating to worrying levels, one can’t help but to check and recheck their financial numbers before the income tap is finally switched off with retirement.

If we want to increase the chances of our retirement planning success, a well thought-through drawdown strategy should be considered, at least 2-3 years before D-Day comes along. Here are some thoughts to get you going.

Know Your Retirement Resources

Before we’re able to effectively plan our retirement drawdown strategy, we will first need to be clear on what assets we have that can be earmarked for this purpose. As such, an asset listing and tagging exercise is the first step.

Common assets that have been squirrelled away over many working years for retirement would include savings and investments in one’s Employee Provident Fund (EPF) account, bank deposits, properties, stocks, Amanah Saham, unit trust funds, endowment insurance policies and the like. A growing number of people are also investing in alternative assets like cryptocurrencies, private equity and peer-to-peer lending too.

Having a complete listing of available assets and tagging them by financial goals will help us better understand the likelihood of achieving those desired objectives. Otherwise, there’s a chance that we might end up achieving certain goals at the expense of others.

Read: Retirement Planning, Why It Is Important From An Islamic Point Of View

Know Your Retirement Expenses

To ensure what we have is enough to cover our expenses in retirement, we will fi rst need to know how much we incur today. If you haven’t already worked out your current expenses, this will be a good time to do so. In retirement, certain expenses will go up while others will decrease.

You might spend less on work related travel or attire, but you might spend more on health supplements, holidays and social activities. If you find working this out a daunting task, then a simple rule of thumb is to budget 70% of your current expenses in retirement.

Read: How a Trust Can Help You in Times of Need During Retirement

Financial Goals In Retirement

It’s not all downhill upon retirement, especially for those among us who aspire to retire early. We may have a bucket list of places to go and things to do with all the time that we will have in retirement.

Do you wish travel extensively or take up new hobbies? Do you have some long overdue home renovations or even a plan to relocate to a smaller home?

Some of us might like to make some provisions to partially assist with the tertiary education funding for our grandchildren or help with some
charitable causes. Add these goals to your list and put a fi nancial number and expected timeline to them.

Read: Retirement Is No Joke, Here’s Why We Need Private Retirement Scheme

Consider Potential Curve Balls

A major concern for retirees is unexpected expenses. Some of these can be planned (with funding set aside accordingly), while others might need to be considered more carefully and risk mitigation steps may need to be put in place.

Top of mind for most retirees would be medical funding, especially on the backdrop of the continuously high medical cost inflation these days. Do you have a comprehensive medical card in place with the appropriate daily room and board, annual and lifetime limits?

If this is no longer an option (due to high premium cost or pre-existing medical conditions), you may need to be realistic and rely on government healthcare services as your primary medical provider.

Another factor that is of concern to retirees is inflation. It’s unfortunate that inflation is rearing its ugly head the world over nowadays. Hence, the cost of living for retirees is going up quite drastically. As such, some adjustments to your retirement living expenses might be required to minimise this impact on your lifestyle where possible.

Read: Debt-Free vs Retirement Savings: Which to Prioritise?

Create Your Financial Buffer

Once retired, you will need a buffer to ensure that the ups and downs associated with investments will not affect your lifestyle or ability to meet other short-term goals.

Commonly termed as the cash reserve, these are funds set aside in stable assets such as bank deposits, capital protected accounts or short-term
money market instruments. Ideally one should have between 2-3 years of annual expenses and the cost of any financial goals due during this period as cash reserves.

Investing In Retirement

Now that you’ve considered your financial goals, funding needs and potential risks, how do you continue to make the most of the assets you’ve
accumulated to help you achieve your desired retirement?

During retirement, most people tend to focus on income generated by the assets held. For example, an investment property can provide rental income while EPF savings will provide annual dividends. Similarly, stocks may be able to pay good dividends and bank fixed deposits will provide an interest income over the placement period.

While income generation is important, it’s equally important to allow your investable assets the opportunity for capital growth to keep pace with inflation as well.

Otherwise, you might end up relying heavily on the drawdown strategy of capital if income generated is insufficient. An accelerated drawdown strategy of principal, especially in your early retirement years, will have a long-term negative impact on your funding sustainability.

When investing for retirement, you should continue to have a combination of different asset classes to help you ride out the different investment market cycles. Although it’s not the intention of this article to discuss safe withdrawal rates, it’s worth mentioning that commonly used assumptions include the 4% rule – ie one should invest equally in equities and bonds and can withdraw 4% of your investable amount yearly while adjusting for inflation.

Do take note that these assumptions are US centric and might need to be adjusted to the local environment. As investment returns fluctuate, it’s worth to consider the retirement bucket approach to investing. In simple terms, you can think of investing in three buckets.

Read: 5 Best Thing To Do When Your Retirement Funds Are Insufficient

Drawdown Strategy: It’s About These 3 Buckets

Bucket One in the drawdown strategy represents your cash reserves for the immediate 2-3 years of living expenses and funding of any short-term financial goals. Funds here are placed in safer assets with minimal price fluctuations.

Bucket Two in the drawdown strategy will comprise of assets that can be held longer to cover the next 7-10 years of expenses, while generating income and capital growth that can be used to replenish Bucket One as you go along. Investments here would include EPF, stocks and high yield bonds, among others.

Lastly, Bucket Three in the drawdown strategy comprises of long-term assets that can be held beyond 10 years and have good capital growth potential (think property assets, alternative assets and your own business). Income and capital growth from Bucket Three can then be utilised to replenish Bucket Two in the same way that Bucket Two replenishes Bucket One. In conclusion, most of us will spend anywhere between 20-30 years in retirement.

As such, planning for this long journey should be given more attention. The sooner you start the process, the more time you have to make the necessary adjustments for the transition to be as smooth as possible.

Remember that retirement is not a checkpoint but rather a lifestyle. As such, consider having something to retire into, rather than to retire from. That’s why it is important to plan for your retirement, and to know how the drawdown strategy is able to help you.

Read: The Future of Retirement?

About the Author

Felix Neoh CFP CERT TM is Director of Financial Planning at Finwealth Management Sdn Bhd and can be contacted at felixneoh@finwealth.com.my

We at Smart Investor and Finwealth is committed to help you better manage your financials. Get a free consultation from an expert by filling in your details here: https://www.smartinvestor.com.my/SIxFinwealth

When we are young, saving for retirement might not seem urgent. It feels like something that we can focus on later, especially since there are other more pressing and immediate financial commitments. However, we want to emphasise the hard truth: Retirement Is No Joke! That’s why we have the Private Retirement Scheme to help us all out.

Why Should You Save For Retirement?

We Malaysians are expected to live until we reach 75 years old. However, we retire at 60 years old. That means, we can expect to live at least 15 more years without receiving regular salaries.

Some of us may be fortunate enough to receive monthly pensions or be able to rely on our EPF savings. Nonetheless, research has shown that merely having pensions or EPF savings may not be enough.

Some of us may have children who are working and earning salaries. Although they can provide for us, do we really want to burden them, especially if they have children of their own to care for?

Growing Your Retirement Savings 

We don’t just want to save our money. We want it to grow. The way to do that is by investing our savings. A viable option is to invest in Unit Trust Schemes (UTS) or Private Retirement Schemes (PRS).

Investing in UTS and PRS is one of the simplest forms of investing. It doesn’t require large amounts of money, time, or expertise.

All you need to do is approach a UTS/PRS Consultant or Distributor. They will assist you to invest your savings into a UTS/PRS fund that is suitable for you. That fund’s investment will then be managed by a licensed professional fund manager.

Read: Getting To Know Unit Trust Schemes

Saving For Retirement 

A Long-Term Activity 

Remember that life is a marathon, not a sprint. If your retirement is still some time away, it will give you a lot more time to prepare for it. This means that your retirement fund can grow substantially simply by you putting aside some money consistently and invest them over a long period of time.

To maximise your savings, the key is to start early. Just like in a marathon, every now and then, you should keep track of your progress and ‘refresh’ yourself. As your salary increases, revisit your periodic contributions, and adjust accordingly.

After retirement, most of us will not have a fixed salary anymore. However, expenses remain. As such, your target savings should be one which can sustain your desired future lifestyle.

How much should you save?

You can refer to a retirement calculator. All you have to do is key in the requested details. Then, the retirement calculator will calculate for you the amount of savings you will need as well as the projected savings you will have based on your current savings amount.

From there, you can calculate the shortfall and determine how much you should be saving on a regular basis.

Consistency Is Key

Remember to pay yourself first! Most of the time, once people receive their salary, they will save whatever remains after paying their bills, taxes, loans, groceries, and other expenses. However, this practice can lead to inconsistent savings. It is best that you allocate a fixed amount for your retirement savings first, before spending on your other commitments.

Likewise, do NOT take ‘savings holidays’ or defer your savings contributions. You must be consistent!

It would be ideal if you can consider signing up for a regular savings plan when investing in a UTS/PRS. This plan will, on a regular basis, automatically deduct money from your bank account and channel them towards investing in UTS/PRS. Hence, you can ensure that you will be consistent in your savings.

Name A Nominee For Your Private Retirement Scheme

Essentially, a nominee is the person who will inherit your savings/investments in the event something happens to you. Hence, it is essential that you elect a nominee.

Even if you don’t name a nominee, your next-of-kin can still receive your monies from the Private Retirement Scheme. However, the process is a lot more difficult and expensive because he/she will need to prove his/her entitlement. By naming a nominee, the process is a lot easier and more cost effective.

If you have not yet named a nominee, you can contact your authorised UTS/PRS Consultant and he/she will help you with the process of smoothening out the process of taking out the money from your Private Retirement Scheme.

Read: Who Are Unit Trust Consultants?

The Final Word

Retirement is no joke! We want to enjoy our retirement comfortably and without any financial worries. As such, we must start saving for retirement early and doing so in a safe and disciplined way. Now you know why the Private Retirement Scheme is necessary to supplement your retirement funds.

This article is in collaboration with The Federation of Investment Managers Malaysia (FIMM), a self-regulatory organization (SRO) that regulates the marketing and distribution of Unit Trust Schemes (UTS) and Private Retirement Schemes (PRS).

Visit www.fimm.com.my for more information on PRS, Unit Trusts, and UTS & PRS Consultants.

Debt, in essence, is all about borrowing money from a third party, and having the means to pay it back. Debt is not always bad news; it really depends on the kind of debt you currently have and your ability to pay it back. Let’s take a closer look at ‘good debt vs bad debt’.

Therefore, let’s start off with a self-assessment on debt. Referring to Table 1, kindly answer the statements with a “yes” or “no”. The more “no” in your replies, the higher your stress level in debt management.

1	My monthly loan servicing ratio over my monthly income is about 38% or below.
2	I am only investing my free money and never borrow to invest.
3	I have consistently (monthly) and/or fully paid my credit card debts.
4	I keep a track of my total debts annually and it is decreasing over the years.
5	I know the difference between good and bad debt, and only utilise the good debt to acquire appreciating assets like property.
6	I pay all my household bills on time.
7	I am current on all my debt payments.
8	I know who to look for help if any of my family members r I are in deep debt.
9	I know the risks of becoming a guarantor, co-loan owner and supplementary credit card owner.
10	I know the interest rate of each loan that I borrowed, and how the interest is charged on the loan amount.
11	I know how to restructure my debt wisely if needed, and clear the loan with the highest interest rate first.

Good Devt VS Bad Debt?

Did you know that debts can be categorised as “good” or “bad”? Good debts refer to the ones with low-interest rates (below 8%), and your borrowing is used to purchase appreciating assets such as residential or commercial properties, or investing in a business.

A study on Malaysian property valuation between 1991 and 2014 showed that the compound annual growth rate (CAGR) for overall property in Malaysia is around 5.97%。No doubt that property is an appreciating asset, still location is key for greater return.

Bad debt, on the other hand, is akin to borrowing money to buy a car, which is a depreciating asset, although the loan interest rate is considerably not high (around 4-6%). Every year, the car value will drop at an average of 10%.

From Table 2, it is crystal clear that we shouldn’t borrow if the interest rate is more than 8%.

Debt Type	Average Interest Rate (Annual)
Illegal Shark Loan	60%
Credit Card	15-18%
Personal Loan	10-12% (Promotional 8.88%-9.99%)
Education Loan	8-10%
House Loan	4.5-6.5%
Car Loan	4-6%
PTPTN	1% (3% is the old rate)

Words Of Advice

Healthy Debt Ratio – A key indicator on whether you have a healthy debt ratio is the Monthly Debt Servicing Over Monthly Income Ratio. It simply totals up your monthly debt repayment amount over your monthly income.

This ratio should always be kept below 40% at all times, though a temporary spike is still acceptable. For those far below 40%, you have more room to gear on appreciating assets resulting in easier loan approvals.

Never Borrow to Invest – The first rule of financial planning is not borrowing to invest, even in share margin investment, where the interest rate is low at about 4%.

We should only invest free money. Don’t borrow money even from family members, relatives or friends to invest. Otherwise, it could cost you both money and relationship.

Get the Longest Loan Period (if possible) – Forget affordability, will you apply for a 25-year loan (instalment: RM2,400) or 35-year loan (instalment: RM1,200) for a property purchase?

Choosing 35 is a wiser strategy to deal with loan and cash flow. Even if you opt to pay RM2,400 (instead of RM1,200) monthly and consistently, the loan will end in 25 years.

However, if you select the 25-year package, there is no way you can reduce your monthly repayment if you have cash flow problems in certain months.

In the event you don’t pay consistently, banks will increase the interest rate causing the repayment amount to rise, lesser free cash in hand, and a whole lot more stress!

If non-repayment continues for two months or more, you will be seen as failing to service your home loan, and worse, the bank might even auction your house. Therefore, why risk your financial position with a shorter period of loan which offers lesser flexibility?

The longer the tenure of your home loan, you would have more cash in hand to actively invest into an investment instrument that can give you an annual return of more than 6%. This is smart financial planning.

About the Author

This article is written by Yong Chu Eu. He is the Founder, Principal, MFPC Shariah RFP, CPD/CPE, HRDF Certified Corporate Trainer of Money & Life, Financial Book Author, Licensed Financial Planner, E2E Financial Literacy Principal Coach & Local Media Guest.