Are You A Freelancer? Here’s How To Save And Plan Your Retirement


Many Malaysians are opting to become freelancers instead of holding a full-time job as it offers, and not limited to, flexibility, opportunity to learn new skills and it also doesn’t hurt that some projects offer lucrative payment.

So much so, Malaysia is currently the third largest freelancing market in the region with Employees Provident Fund (EPF) reporting that the Malaysian freelance economy has grown by 31 per cent.

However, not everything is a bed of roses as some would say that the downside to freelancing is that freelancers are not covered by any mandatory retirement savings schemes such as the public pension scheme for civil service staff and the EPF scheme for private sector employees.

As such, a survey commissioned by INTI International University & Colleges involving 300 full-time freelancers found that 66 per cent of the respondents do not have a retirement plan and 33 per cent do not even have a personal savings plan.

This is alarming because 70 per cent of EPF members who withdraw their funds at age 55 use up their savings less than a decade after retiring. Therefore, this illustrates that even having EPF savings is not enough to keep poverty away, let alone for a freelancer who does not have a retirement plan.

Because of this, Malaysian Digest decided to explore how freelancers are preparing for retirement and sought to find out what retirement schemes are available for them.

How Are Freelancers Managing Their Income To Prepare For Retirement?

Having been doing freelance work since 1982 when he was in college by helping his friends’ parents with branding and copywriting, Damian Yeoh, in his 50s, enjoys the flexibility that freelancing offers and likes how he is able to keep moving.

As a seasoned freelancer, Damian shared that while his income is not steady, he has reached a level where he is able to demand a reasonable and justifiable fee, and a huge part of it goes into his retirement/emergency funds.

“I would say it is 60:40,” shared the freelancer, who does jobs in brand consultation, copywriting and advertising consultation.

Although it is not exactly a retirement plan, he has a target amount that he would like to have in his account by the time he decides to retire. And with no specific retirement plan in place, Damian admits he is very careful with his financial planning, moreover takes lots of projects, that he sometimes overworks himself.

This however, is also the reason why he is preparing to launch his own business to help himself be more financially stable when he decides to slow down.

“I’m in the midst of starting my own business because I know my current plan is not sustainable.

“Also, I can’t always be a freelancer. Eventually, I have to figure something out especially when I’m over 60,” he shared.

Though he might feel that it is a bit too late for him since he is nearing retirement age, his advised to all freelancers out there, especially those who are young and starting out, is to immediately have a retirement plan.

“How are we going to survive without one? Once our freelancing gig runs out, there goes our sustenance.

“Start planning from a young age. I made the mistake of thinking to start my own business when I was in my 40s,” he lamented.

Meanwhile, 24-year-old Danial Hussain, a freelancer in data entry, event consultation and graphic designing, chose to become a freelancer because he does not know what kind of office work would fit him.

With his current freelancing venture, he tries to earn at least RM2,800 a month but on average, he can earn between RM2,500 and RM3,000 depending on how many projects he can take on.

Despite the amount that he earns, he admitted that he has never thought about having a retirement scheme or even planning his retirement.

“I think it’s because it’s still too early for me to think about that. And yes, I’ve been repeatedly told that it’s immature and unwise,” he said, while adding that he would like to continue freelancing even if he has a steady job as it will be his additional income.

And while he admitted not knowing about any retirement schemes available for freelancers to look into, he is interested to learn more about them, as he might consider having one in the near future.

“It would save me the hassle of doing my own research, figuring out how to allocate money and all that stuff,” he confessed.

As for this former full-time social media strategist, she turned her prior career into a freelancing gig and is currently doing jobs in social media content development and planning, brand consultation, and copywriting (social media).

With her current gig as a freelancer, Athena Zul, 27, shared that she sometimes earns over RM4,000 but on bad months, the least she has earned was RM2,800, and from that amount she allocated 30 per cent to her retirement funds.

“I’m married with no kids and people say it’s convenient for me to not have a retirement plan, especially when my husband works in a Government-Linked Company (GLC).

“But the truth is, I am worried because we’ll never know. So that’s why I purposely set a sum to my retirement funds,” she confided.

Athena however eventually plans to expand her freelancing gig into a full-time career where she would become her own boss, and basically turn it into something that qualifies her siblings and her to earn a retirement scheme.

Similar to Danial, though she is unaware of any retirement schemes that are available for freelancers, she is enthusiastic about having one for the sake of her well-being when she is older.

“It’s also not fair that I depend solely in my husband. Sure, I can save up to a million — but it’s certainly not sustainable because we never know what can happen.

“Our current economic situation is enough to encourage freelancers to think and plan about retirement,” she opined.

Having The Same Mindset As Wage Earners Would Level The Financial Playing Field

Contrary to popular belief, the EPF is not only available to regular wage earners as RinggitPlus CEO Liew Ooi Hann said that freelancers can also be voluntary EPF contributors and receive all the benefits defined under the EPF act.

RinggitPlus CEO Liew Ooi Hann RinggitPlus CEO Liew Ooi Hann “If you’re looking to invest for your retirement and you want to have similar returns to wage earners, who are mandated to contribute to EPF, you can actually do it voluntarily,” he said, while stressing that planning for retirement is important for freelancers to prepare for the future.

Seeing that EPF accepts voluntary contribution, Hann said that it is what freelancers should strongly consider to get on the same level playing field financially with wage earners.

“Just because you are freelancing, it does not mean you don’t behave in your financial life like a salary employee,” he quipped.

However, if you are still unsure of what you need to do, Hann said that being as diversified as possible in your investment is the best route to go and EPF is the most diversified, and it is mandated to produce steady and minimum level of returns to its contributors that ensures strong and stable returns.

And looking beyond EPF, he notes freelancers should also look into the 1Malaysia Retirement Savings Scheme or Private Retirement Schemes (PRS) to supplement it. He explained that the PRS is usually for people who want specific investment allocation outside of a fully diversified portfolio such as the EPF.

“I don’t think PRS is more risky; I would say it is less diversified in a lot of cases but it allows you to tailor your specific investments and be creative in what sector that you choose to invest in.

“In short, PRS is when you look for more specific risks where equity funds equal to higher risk and higher returns, while bond funds have lower risk and lower returns.

“But both of them in general are higher risk on its own than a fully diversified like the EPF,” he said.

Aside from determining where to park your money, a frequently asked question is: “How much should I save monthly for my retirement?” and it is more concerning for freelancers since they tend to earn uneven monthly income.

“The best thing I could say to that is, if you are unsure about something, think about what a working person would go through.

“For example, as a freelancer, you may make RM1,000 for one month and zero for the next month, and then RM10,000 and then zero again.

“The best way to look at it is how much do you make over the course of a year and ask yourself how much you can afford to save from the amount if you are a wage earner,” he said.

Pic: TransferWisePic: TransferWise

This means that if you earn RM50,000 in a year, think of how much you would be comfortable saving a month from that amount if you are working a full-time job.

Another option he suggested is to start thinking of your savings as a yearly savings.

“Let’s say you can save RM5,000 per year. The challenge for freelancers is to reach that target regardless of how much you make for a specific month, and the quicker you get to the target, the better,” he adds.

“The other option is to do what the wage earner does and save 10 per cent of your income a month but the amount would differ each month according to how much you earn in that month. For example if you earn RM10,000 then you save RM1,000, if you earn zero then you save zero, but you should end up with the same amount at the end of the year.

“That is how you frame your mindset when you have uneven income,” Hann elaborated.

Before ending the interview, Hann left a few words of advice to all freelancers out there, especially those who do not have a retirement plan in place yet.

“The minute you stop treating freelancing as a hobby or something you can do on the side and start thinking that this is your career, then you are required to behave like how any other wage earner would.

“More discipline is also required than wage earners because they are mandated to contribute to their retirement fund, whereas you have to take control of your own financial destiny.

“And at the very least, your frame of mind needs to be on the same par as a wage earner,” he advised.

Everyone Can Have A Private Retirement Scheme

Not having enough when you retire is not a light matter as a 2013 report by HSBC found that 85 per cent of retirees regret not saving when they were younger.

But before the report came out, the government established PRS in 2012, open for everyone whether they are working, unemployed, self-employed or retired, to improve living standards for Malaysians at retirement through additional savings.

Encouragingly, Husaini Hussin, CEO of Private Pension Administrator Malaysia (PPA), which administers PRS and is regulated by the Securities Commission, said that in the five years since they were established, they have reached a total of 275,000 members.

Private Pension Administrator Malaysia (PPA) CEO Husaini HussinPrivate Pension Administrator Malaysia (PPA) CEO Husaini Hussin“We are happy to note that youths below the age of 30 make up 27 per cent of that number.

“Also, while 72.6 per cent of the total members are employed, the rest are made up of those who are unemployed or self-employed,” he detailed.

As freelancers are not covered by any mandatory schemes, they are therefore covered by voluntary schemes such as PRS, and since it is voluntary, it is totally up to individuals to open an account. But for those who plan to do so, do it now rather than later, Husaini advised.

“In any saving schemes, you have to make time your friend. This means that if you start now, you have more time for it to grow and to accumulate.

“And you need to do it regularly, like what you would do with EPF where you do it monthly,” he points out.

A simple way to think of PRS is that it is like EPF and unit trust, since it shares several features, but differ in other areas. The most striking is the fact that PRS has up to 56 funds made up of conventional and shariah funds to choose from compared to the conventional and shariah funds offered by EPF.

He also cautioned that because PRS is voluntary, without enough financial literacy or financial discipline, individuals would not be able to save enough for their retirement.

As such, he shared the big rule in saving where “you have to deduct or set aside before you spend, otherwise it would not be enough,” especially when you want to make unconscious saving or forced saving.

“When you do retirement saving, start now, set aside money before you spend and make it regular.”

He also urged youths aged between 20 to 30 to take advantage of the Youth Incentive scheme.

“Under this scheme those who save RM1,000 in PRS will receive a one-off RM1,000 from the government,” he said, reminding youths to be quick as the scheme will end at the end of 2018.

But as with all investments, the returns from contributions made to PRS are not guaranteed and will depend on the performance of the PRS providers, which consists of Affin Hwang Capital, AIA, AmInvest, CIMB Principal, Kenanga Investors, Manulife, Public Mutual and RHB Asset Management.

Despite this disclaimer, Husaini said that because of the widespread of options available to us, there are funds that are capable of reaching 15 per cent of returns, which is more than double what EPF can offer.

And although it is never too late to start a retirement scheme, freelancers should start worrying about their retirement now because there is no time to waste.

“When you are actively earning, that is when you should save. Otherwise, by the time you are near your retirement age, there is not much you can do if you find that you do not have enough,” he alerted.

How much is needed for when we retire is wholly dependent on the lifestyle that we want to maintain. But generally, Husaini underlined that we need 2/3 of our last drawn salary to support our lifestyle.

“So you need to save 1/3 of your salary now. This would be quite difficult for freelancers but for regular wage earners, it’s not much because EPF already covers 23 per cent and you just need to supplement another 10 per cent,” he said while encouraging all Malaysians to utilise the calculator on PPA’s website to obtain a rough estimation of the amount.

He also added that we need to plan at least 20 years beyond the age of 60 to be sufficient, as life expectancy of Malaysians is currently around 75 years old and is projected to rise beyond 80 years old by 2050.

“There is also the issue of sustainability where the fund you have set aside must be strong to weather or ride out the impact of inflation because you can spend 2/3 of your last drawn salary in the first year but the following year and beyond that, you need to withdraw more in order to maintain your lifestyle,” he said.

Seeing that Malaysians are increasingly venturing into freelancing, Husaini concluded by saying that in the end, it is about retiring comfortably, and that entails you to start now when you are actively earning.

“Review your retirement plan when you have a higher income, make it regular and do not withdraw money from your funds until you retire,” he stressed.

As the Credit Counselling and Debt Management Agency (AKPK) aptly puts it, “You are never too young or too old to plan for retirement. The earlier the better, but it is also better late than never.”




Please enter your comment!
Please enter your name here