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Investing for retirement

WITH rising inflation and stagnant household incomes, having money left over every month to stow away for old age is increasingly becoming a luxury for many of us. If relying on your EPF savings is your only plan to prepare for retirement, then you may be in for a disappointment. For most of us, our EPF savings would simply not be enough to retire comfortably on. The Employees Provident Fund, which manages our EPF savings, estimates that the average Malaysian should have at least RM120,000 for retirement. This would provide an income of RM500 a month for 20 years of post-retirement living.


But the reality is that on average, Malaysians retire with less than that amount in their EPF account. Like it or not, we need to play a more active role to ensure that we have enough money for retirement. And this means we need to start actively planning and saving to build a comfortable nest egg for our golden years.


However in these testing times, as higher food and petrol bills take a bigger bite into of our monthly paycheck, whatever money that's left over for investment would probably not give you many choices. When it comes to growing your money through investing, the conventional wisdom is that you should invest small sums regularly, and to start early. This way, you would be investing for the long term and have a better chance of riding out the short term volatilities inherent to most types of investments. Also, through the power of compound interest, the longer you save, your money multiplies faster to generate more wealth for you.


If you've been looking for an investment plan designed to help you build your retirement nest egg, you would probably have come to the conclusion that you need serious amounts of money to start. This is to enjoy the potential of getting much better returns than the typical 3.5 per cent interest paid on a 12-month fixed deposit account. Structured products, for example, are becoming increasingly popular in Malaysia because they offer potentially better returns than that of a fixed deposit account, with capital protection thrown in if held until maturity. Many people think it is a sweet deal, but the entry requirement is hefty with minimum investment of over RM100,000 being common - beyond the reach of many of us. For those who can afford it, in order to to enjoy the higher returns, you will have to tie down your money for a number of years. Early withdrawals also usually attract penalties and other charges that could eat into your capital, and leave you with less than what you began with.


If you're looking for a similar deal that is friendlier to your budget, you may want to find out more about CIMB Islamic's latest retail offering. If you want to invest in something that won't tie down a significant amount of your cash, you may also want to check it out. Launched recently, the Max InvestSave PSSIA-i basically has features of a structured product but operates more like a normal savings account. It also aims to give you better returns that a fixed deposit account.


What got our attention was the low minimum investment of only RM50. You can put in more money whenever you like, as long as it's in multiples of RM50, and you can withdraw anytime at the prevailing market value at practically no cost.


Each time you put money into the account during the promotion period, which ends late-2009, CIMB will also give you a bonus of up to a 30 per cent on your deposit. However, these bonus investment units must be kept to maturity; if you withdraw your funds early, a certain amount of the bonus will be deducted from the withdrawal proceeds. The Max InvestSave account is shariah-compliant and also capital-protected if you keep your money for the entire tenure of your choice. Balances of up to RM60,000 in the account are guaranteed by Perbadanan Insurans Deposit Malaysia.


You also get to choose how long you want to keep money in the account for - 15, 20, 25 or 30 years. At the end of your chosen period when the account matures, you will get a 95 per cent share of the profit payout. How profit is calculated is a kicker to what makes this product, to use CIMB's own words, "revolutionary".


So how is profit calculated?

Every time you put money in the Max InvestSave account, you are effectively buying investment units in the CIMB InvestSave Index, which tracks the CIMB Evergreen Index. The Evergreen Index, launched in 2002, tracks the performance of various types of assets around the world, and historically has provided higher and more stable returns than major indices such as as the Dow Jones, Nikkei 225 and the DJ Eurostoxx. The value of each Max InvestSave unit will be published weekly.


CIMB promises that the amount of profit paid will be based on the highest value of the CIMB InvestSave Index achieved up to the point of the maturity of your account.


Let's say you bought 50 units valued at RM1 each and you have opted for the 20-year account. Even if the index had peaked at RM2 two years prior to your joining and never surpasses it during your 20-year holding, the profit paid will be based on RM2 for every unit you own at the end of your 20 years.


This brings up many interesting possibilities. For example, even if you bought into the account when the CIMB InvestSave index was at its peak, you could load up on additional units every time the index drops below the level as you are guaranteed of the highest price achieved (refer to graph).


Using historical market data in a simulation conducted by CIMB on the product, the Max Invest Save returned over RM200,000 on a monthly RM50 investment amounting to RM15,000 over 30 years. On an annual basis, this translates into 13 per cent returns a year.


Certainly you can't judge how well it will perform in the future based on past data, but according to CIMB, the impact of the current financial and economic turbulence has not been as severe on the Evergreen Index compared to the other major indices.


If you want to find out more information about this product, visit any CIMB Islamic branches, co-located at CIMB Bank branches nationwide, or www.cimbislamic.com online.


What's to like:

* Affordable with low minimum investment of RM50.


* Long dated maturity of between 15 and 30 years, making it suitable for long term wealth and retirement planning

* Potential to earn high returns

* Capital protected and highest profit protected at maturity

* Flexibility of withdrawal

* Bonus units of up to 30% during the promotion period

* Shariah-compliant

You may want to look at other options if:

* You have less than 10 years to retirement. But even so, its only RM50 and you can still access your money when you want.


* You want something that provides a regular income stream
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