General services tax soon?

Tuesday June 9, 2009
Tax Insights - A column by Kang Beng Hoe

With revenue collection substantially reduced, bringing in goods and services tax is likely to be sooner rather than later.

I WAS present when Professor Glen Jenkins, as guest of the Harvard Club, spoke on value-added tax (VAT) some months ago.

This is the consumption tax which the Government had announced some years ago and was to be initially implemented in 2007 but was subsequently deferred.

The title of his talk, Controversies, Heresies and Challenges of a VAT, warned me to expect something different from the usual good things to be said of the tax.

Dr Jenkins is an eminent Canadian economist with a distinguished career, which included advising governments on the design and implementation of the VAT system.

The VAT is also known as the goods and services tax (GST) and the Malaysian Government decided to use this terminology probably because consumers at large, who will be the target of the tax, will find it easier to identify with what the tax is about.

The main question that Dr Jenkins addressed is whether the incidence of a VAT is regressive. The widely held view is that the VAT is regressive since the poor pay tax on a higher proportion of their income than the rich.

Put simply, a person who earns say RM3,000 a month has to spend a greater portion of it on living expenses, leaving less for savings and investments than someone who earns say RM30,000 a month.

Since VAT is imposed on consumer items, the impact of the tax as a proportion of income earned is greater on the low-income earner than the high-income earner.

Dr Jenkins disagrees on two counts. The first is premised on the fact that “high income people live longer in retirement than do poor people, hence they consume more and continue paying VAT after they stop earning income. On a life time basis, the VAT may appear not as regressive as it is measured as a share of current income.”

On the second, Dr Jenkins made the following points:

l The share of consumption subjected to tax as a percentage of wealth for wealthy households is much larger than for poor households.

l Due to the existence of a large informal sector that caters to the poor, the burden of the VAT in developing countries is progressive.

l The types of goods consumed by the poor (basic food, local transportation and housing) are often not cost effective for the tax administration to tax.

l Hence the burden of VAT is reduced.

In the Malaysian context, what he is saying is that the low income earner tends to do marketing at the stalls and pasar tani rather than the super or hypermarkets, to eat at stalls and the various hawker food outlets as well as shop at corner shops selling household wares.

These represent the “informal sector” and are outside or should be made to fall outside the tax net. This could be done by setting a high threshold for the tax i.e. by making only those with annual sales of, say RM1.5mil, being required to collect the tax.

Thus the higher the threshold is set, the larger the informal sector becomes and more poor people will be spared the burden of the tax. Dr Jenkins cites evidence from a survey carried out in the Dominican Republic.

The audience at the talk included senior technocrats charged with designing and bringing on board the GST and one can be sure that this message will be conveyed to the policy makers.

Having been sold on the fact that we need both more tax revenue and better revenue systems and GST is the best form of general consumption tax available, these decision makers remain concerned over the often held view that the poor would suffer most under this tax.

All this is well and good but should we be worrying about tax in these difficult times when there are other priorities? Malaysia’s budget deficit for 2009 was initially projected to reach 4.8% of gross domestic product (GDP), the highest since 2003 when it was at 5%.

With the second stimulus package of RM60bil, the deficit is expected to amount to 7.6% of GDP. The Finance Minister, when he was Deputy Prime Minister, was quoted as saying “a deficit of more than 5% is tolerable as long as it is only one or two years.”

Does this not give us a clue that the GST has to be brought in within such a time frame if we are to reduce our deficit?

The need to enhance the Government’s revenue base has become crucial with the economic slowdown being broad-based and the petroleum and palm oil sectors no longer contributing at past levels – GST is the inevitable choice.

·Kang Beng Hoe is executive director of TAXAND MALAYSIA Sdn Bhd, a member firm of the TAXAND Network of independent tax firms worldwide. The views expressed do not necessarily represent those of the firm.

Bored, Let's Try This Riddle

The riddle reads: A 6-foot tall Magician had a water glass and was holding the glass above his head. He let it drop to the carpet without spilling a single drop of water. How could he manage to drop the glass from a height of six feet and not spill a drop of water?

Hint: This is technical riddle which based on grammar understanding.

Malaysia Eyes the Sharia Oil Dollar

Excerpt from Playing The REITs Game. If you are interested to read the whole book, please buy it from a bookstore, or read it from Google book.

Malaysia led the Asian move to embrace REITs in the early 1990s, but the fledgling market of three small "property trust funds" that listed at that time was marred by a lack of tax incentives for investors, relatively low yields and capital gains and asset overvaluation.

A property market crash during the 1997-98 Asian economic crisis, which still left vacancy rates of 18% at Kuala Lumpur offices and 16% at the city's shopping malls eight years later, worsened matters.

But with one look over the shoulder at neighboring Singapore, Malaysia decided in 2004 to try again to foster a REIT market, allowing local investors in trusts to be taxed on dividends at their personal tax rate rather than the previously uniform 28% REITs were also allowed to buy buildings abroad to enhance returns.

Authorities hoped a rush of property trusts would draw money from the Middle East to the market. But analysts said Malaysia, which is trying to carve out a niche for Islamic finance, would have to do away with the 28% withholding tax it charged on dividends paid to foreign investors before that would happen.

"For Arabs, tax is taboo," said Fazlur Rahman Kamsani, head of regional Islamic finance at property consultants DTZ. "They'll just come and say, `I don't pay tax in my country.' They love Malaysia, but the tax regime would have to be tailor-made to be competitive."

In late 2006, the Malaysian government reconsidered the tax issue, and was proposing to cut withholding tax to 15% for individual investors and domestic institutions and to 20% for foreign institutional investors.

With oil profits and much investment pulled from the US in recent years, analysts were saying in 2005 that the Middle East had around $750 billion of private assets scouring the world for new ideas. The Institute of International Finance estimated that Saudi Arabia, the United Arab Emirates, Kuwait, Oman, Qatar and Bahrain would export at least $450 billion of capital just in 2006 and 2007.

REITs, because they essentially pay rent to investors, are an attractive option because the listed securities are a natural fit for sharia, or Islamic law, which shuns interest payments and speculation. Trusts that want to be sharia compliant cannot have tenants involved in manufacturing and handling pork products, banking and insurance, alcohol, tobacco, weapons or pornography. As a result, serviced apartments or industrial trusts tend to present fewer problems than shopping malls and offices.

In Malaysia, the first trust to list after the 2004 rule changes was Axis REIT, which originally owned five commercial industrial buildings in Petaling Jaya and Shah Alam, housing multinational companies such as Fuji Xerox, Johnson & Johnson and Electrolux. Unlike previous Malaysian trusts, Axis set out from the beginning to be an active REIT, promising to increase its assets rapidly after listing on the stock market by buying up warehouses yielding 7-8%.

By September 2006, Axis had seen its share price increase 42% from its IPO in early 2005, with the addition of four buildings to bring its net asset value to 400 million ringgit ($109 million). At that time, the trust was trading at a 7% Yield, about 280 basis points above 10-year bonds.

Stewart LaBrooy, executive director of Axis REIT's management firm, said the trust planned to double its assets by the end of 2007 to about one billion ringgit.

“We've consistently bought below market prices, around 10% below,” LaBrooy said, “ Our directors are well linked and are always finding nuggets.”

Axis would concentrate its acquisition efforts on Malaysia, where business and logistic park properties were yielding about 7%. But Indonesia, where some buildings are giving 15% yields, was also enticing, La Brooy added.

"There are some nice properties in Jakarta and the yields are phenomenal,” he said, "But there's a huge currency risk issue."

Although the Malaysian market is small, worth about $650 million in later 2006, it had some of the most interesting issuance.

The Al 'Aqar KPJ REIT owns hospitals and Boustead Holdings, and its property arm was planning in late 2006 to sell 500 million ringgit worth of palm oil plantation assets into an Islamic REIT. Hotel owner Tradewinds Corp. Bhd. and YTL Land, which owns shopping Centers and the JW Marriot hotel, were both mulling spinning off trusts.

In December 2006 Singapore's CapitaLand also stepped into the fray, saying it planned to raise as much as $42.2 million in a Kuala Lumpur REIT listing of Malaysian commercial buildings The developer had teamed up with Malaysian real estate firm Quill Group to form the Quill Capita Trust, which was expected to generate an initial distribution yield of 7.14%.

“It’s getting to be a reall potpourri,” LaBrooy said.

Maybank, PNB Launch Online Facility for ASB Investors

Tuesday April 21, 2009

PETALING JAYA: Malayan Banking Bhd (Maybank) and Permodalan Nasional Bhd (PNB) have jointly launched the country’s first online facility for making additional investments in Amanah Saham Bumiputra (ASB) units.

With this facility, ASB investors can top up their ASB account online via Maybank2u.com, without the need to visit a Maybank branch or Amanah Saham Nasional Bhd office.

The new service was launched by Prime Minister Datuk Seri Najib Tun Razak, after the official opening of the Minggu Saham Amanah Malaysia in Johor Baru yesterday.

A unique feature of this service is that it accepts additional investments to third party ASB accounts, thus allowing family members or guardians to invest for their loved ones.

PNB chairman Tun Ahmad Sarji said in a statement that the new service underscored PNB’s commitment towards making unit trust investment accessible to all. “The digital generation is comfortable with using the Internet for all manner of transactions, so this step is timely in capturing the evolving needs of a new generation of Malaysians,” he added.

Investors who wish to use the online service must register as a Maybank2u.com customer and have an active ASB membership number.

The investor is only required to enter the ASB membership number, a security Transaction Authorisation Code and select his savings or current account to pay for the additional purchases.

The minimum investment amount is RM1 and the maximum is RM200,000.

First Batch of Sukuk Bonds Open for Sale

Tuesday April 14, 2009


PETALING JAYA: The first batch of the dual-series RM2.5bil Islamic bonds, which offer returns of 5% per year, is open for sale today.

Applications can be made at any commercial or Islamic bank, or development financial institution in the country from today to May 13. Allocation is on a first-come, first-served basis.

The minimal allocation is RM1,000, while the maximum value is capped at RM50,000.

The first series of this Islamic bond, called Sukuk Simpanan Rakyat (SSR) 01/2009, is part of the Government’s RM60bil stimulus package announced on March 10, where up to RM5bil in saving bonds will be issued this year for people aged 21 and above, and with a maturity period of three years.

This programme is designed for Malaysian citizens as an alternative savings vehicle providing double the current fixed deposit rates, with option for account holders to withdraw their money any time.

Features include flexibility for holders to redeem as early as the first quarterly profit payment, including profits, and without an early exit penalty.

EPF Aims to Recover Foreign Investments when Dow Hits 9,000

Monday March 23, 2009

By YAP LENG KUEN

THE Employees Provident Fund (EPF), the country’s largest investment fund, is targeting to break even on its overseas investments possibly by next year when it can write back the bulk of its provisions.

“The Dow Jones was 14,000 at its highest. Today, it is around 7,000. We expect to recover the bulk of our investments when the Dow Jones goes to 9,000,” said EPF CEO Datuk Azlan Zainol.

The EPF has, so far, invested RM16bil overseas on a staggered basis in the five major financial markets – the US, Britain, Australia, Singapore and Japan.

Datuk Azlan Zainol

However, he expects the markets to possibly recover only next year. Yields for Malaysian Government Securities (MGS) have also come off. In 2009, about RM16bil to RM17bil of MGS will mature and be replaced at today’s rate.

Last year, in July-August, it was possible to get 4%-5% for 10-year money, but that has dropped to 3.5%. Companies are also scaling back on dividends.

This year, he said, would continue to be difficult and the fund hopes to be able to maintain its dividend payment of between 4% and 4.5%. “Our policy is to give out everything we earn in the form of dividends. We do not have any reserves,’’ he said.

As far as gross income is concerned, the EPF, which manages RM340bil of funds, performed better than 2007 – gross income was RM19.96bil compared with RM18.24bil.

The big increase is in provisions which was RM515mil in 2007 compared with RM4.69bil last year.

Out of that amount, about RM3bil is provided for overseas investments. “Our policy is to provide in full for every diminution in value in our investments overseas,’’ Azlan said in response to queries from StarBiz.

In Malaysia, if there is a stock with more than 50% loss, the EPF will provide for 25% of it, spread over a four-year period.

“We are more conservative abroad because that is everybody’s market ... anything can happen. Locally, we roughly know (the local conditions),’’ said Azlan.

He expressed disappointment at some of suggestions posted on the blogs. “There is a blog that says the RM4.6bil provision that we made was because we lent to ValueCap Sdn Bhd. That is a gross accusation ... very, very unfair. That is not the truth,’’ he said.

Last year, the EPF had provided a RM5bil loan to government-controlled ValueCap which was set up to undertake investments on the stock exchange.

“As far as our investments are concerned, we are strong internally. What happens outside is a global issue. Our risk management and people are in place. There will be no major changes this year or the next,’’ he said.

In terms of EPF’s asset allocation, it is based on advice from its consultants and its proportion of investments in equity to fixed income is, according to Azlan, a proven formula.

Currently, Azlan as the CEO, assumes direct oversight of the fund’s investments. He is looking for a new head of investments who would probably be an outsider. The former deputy chief executive of investments, Johari Abdul Muid, has moved on to head the strategic planning unit.

“Johari will be responsible for looking into the second phase of transformation for the EPF,’’ said Azlan. The division also looks into retirement benefits and pension fund reforms in the country.

“The retirement money for Malaysians will not be enough. It has been three weeks since he is at the new position and he has done a very good job,’’ Azlan said in response to queries from StarBiz regarding Johari’s move to strategic planning.

Insiders added that it was part of a reorganisation to strengthen certain divisions that also saw new heads for property, withdrawals and call centre.

The dividend of 5.8% for 2007 has come down to 4.5% for last year.

Due to the large provision made, net income has slipped from RM16.87bil in 2007 to RM14.3bil last year. Costs have also gone up – to pay 1% dividend cost RM2.89bil in 2007 compared with RM3.18bil currently.

Gross income from investments in MGS and equivalents was higher by 5% at RM5.75bil last year. Investments in private debt securities and loans yielded a higher gross income of RM5.59bil or 13%.

With the lowering of fixed deposit rates, gross income from the money market went down by 25% to RM694mil.

Gross income from external managers for both domestic and global equities dropped by 43% to RM767mil and by 254% to a loss of RM194mil respectively. External managers were more prepared to cut loss.

However, income from internal managers showed an increase of 33% to RM6.27bil and 123% to RM439mil respectively.

The EPF is heavily invested in local banks with stakes ranging from 13.6% (Malayan Banking Bhd) to 2.8% (Affin Holdings Bhd).

“In Malaysia, big caps like Sime Darby, IOI Corp and Public Bank have all experienced huge drops in market cap. Tell me, how do we pay 7% or 8% dividend?’’ he asked.

Forbes Global 2000 (Year 2008) - Malaysian Companies

RANK	COMPANY	COUNTRY	INDUSTRY	SALES ($BIL)	PROFITS ($BIL)	ASSETS ($BIL)	MARKET VALUE ($BIL)
623	Malayan Banking	Malaysia	Banking	4.16	0.92	74.12	13.90
625	Tenaga Nasional	Malaysia	Utilities	6.66	1.16	19.34	12.27
691	Sime Darby	Malaysia	Conglomerates	7.94	0.74	9.68	21.82
704	Bumiputra-Commerce	Malaysia	Banking	3.82	0.84	54.90	11.07
780	Telekom Malaysia	Malaysia	Telecommunications Services	5.35	0.76	13.21	12.28
822	Public Bank	Malaysia	Banking	2.79	0.64	52.14	11.08
1038	MISC	Malaysia	Transportation	3.24	0.83	8.09	10.48
1198	Genting	Malaysia	Hotels, Restaurants & Leisure	2.54	0.60	9.04	7.94
1326	IOI Corp	Malaysia	Food Drink & Tobacco	2.60	0.43	3.94	15.40
1518	PPB Group	Malaysia	Food Drink & Tobacco	0.89	2.08	3.60	4.01
1648	RHB Capital	Malaysia	Banking	1.83	0.21	31.47	3.34
1679	Cahya Mata Sarawak	Malaysia	Banking	1.75	0.00	29.21	0.21
1771	AMMB Holdings	Malaysia	Banking	1.60	-0.06	22.50	2.91
1780	Hong Leong Financial Group	Malaysia	Banking	1.07	0.14	22.33	1.54
1791	Petronas Gas	Malaysia	Oil & Gas Operations	0.86	0.36	2.75	6.2

Note: The two bold companies' names are ones that I have interest and invested into.

Don't blame the NEP, says EPU

The New Economic Policy (NEP), which sought to achieve growth while addressing socio-economic imbalances, is being wrongfully blamed for only benefiting certain people and contributing towards poor economic growth, a top policymaker said.

Economic Planning Unit (EPU) director-general Tan Sri Sulaiman Mahbob, who was directly involved in formulating the NEP in the 1970s, said critics have confused the policy itself with procedural issues such as the procurement system for projects.

And on that particular issue, the government is addressing the matter, where since March last year all projects must go through the tender process, except those that involve national security.

"So, it's not the NEP which is wrong here. Don't blame the policy. I believe in open competition and transparency. I don't believe in a few individuals getting the projects," he said in an interview.

Sulaiman said the NEP, which ended in 1990, and the subsequent growth distribution policies have contributed towards rapid economic growth, employment creation, narrower income disparity, higher income level and poverty reduction.

The NEP (1970-1990) is also not unilateral, he added, because it was implemented in consultation with other stakeholders through the National Economic Consultative Council (Mapen).

Sulaiman said when government projects are implemented, they benefit everybody in terms of higher production and greater pool of skilled manpower. The projects also generate direct benefits to construction material and hardware suppliers, as well as service providers.

"The non-Bumiputeras, who control this supply chain, are also benefiting from the government projects," he said, adding that about 60 per cent of the project cost is the supply of construction materials and hardware.

Sulaiman said some people, without the correct perspective of the policy, are saying that it creates cronyism and dampens foreign investments.

"This is a baseless allegation because hundreds of thousands of wholesalers and small traders exist through the policy. People have also forgotten that many farmers have been freed of poverty through Felda, Felcra, Mada and other programmes," he said.

As for attracting foreign investment, he said, this should be done through greater efficiency, lower cost of doing business, faster decision-making and higher productivity of workforce, and not by doing away with the growth distribution policy.

Sulaiman acknowledged that there were some mega projects such as independent power producers and privatisation of highways that were awarded to only a few Bumiputera and non-Bumiputera companies. This was because at the time, Malaysia's capital market wasn't that strong and not many in the private sector were capable to estimate the risks for such large and long-term projects.

"Since the government needed to upgrade the public infrastructure and utilities, we've had to help those who were involved in the construction of those projects," he said.

Sulaiman said it should be noted that similar growth distribution programmes are being implemented by other countries under different names. In the US, the policy is called Affirmative Programme, it is Regional Development in Thailand, Development of South in Italy and Trans-Migrasi in Indonesia.

The 30 per cent Bumiputera share ownership and the Foreign Investment Committee (FIC) ruling are the only two instruments under the NEP which still exist. The shareholding ruling is only applicable when the company wants to access capital from the public.

"It doesn't cause poor shareholder value. If the stock is not good, even non-Bumiputeras won't buy it. So it has got nothing to do with the 30 per cent Bumiputera shareholding, it's the value of the stock," he stressed.

Sulaiman said the FIC ruling, which was drawn out when foreign ownership in the 1970s was about 70 per cent, is now being liberalised because foreign shareholding has dropped to about 30 per cent.

Sulaiman said the NEP ended in 1990 and through consultation (Mapen 1), the National Development Policy (NDPP) was launched covering the 1990-2000 period. The NDP has given way to the National Vision Policy (2000-2010), which was the resulting consensus of Mapen 2.

Vision 2020 and National Vision Policy also address the same issues that recognise the need to continue to eradicate poverty irrespective of race, and restructure the society.

"The 30 per cent Bumiputera shareholding target has now become a long-term target, until 2020," he said.

The real cost of credit cards

A QUESTION OF BUSINESS

By P.GUNASEGARAM

LET’S say you have an outstanding balance on your credit card of say RM100. And you just forgot to pay your bill on time. What do you think your charge will be on an annual basis? Would you believe 10,000%?

The answer is very illuminating but you have to read the fine print to find out. I just did when I saw a late payment charge of RM40 on my bill because a payment of RM4,000 was late by a few days.

First, you have to pay up to 18% a year on the outstanding amount. Second you pay a charge of 1% or RM10 on the outstanding amount the moment you go beyond the repayment deadline. You have 20 days free credit but only if you pay on time. Otherwise, it is 18% from the date of purchase even if you choose to pay in instalments plus your penalty charge if you are late.

Let’s say you are late by a week, which is very normal for a lot of people – in other words, by a week you failed to pay a minimum 5% of your outstanding amount or RM5 in our example of RM100.

For that one-week delay on that RM100 outstanding you pay the minimum charge of RM10. Let’s calculate the charge in percentage terms per year. That’s 10% (10/100X100) for one week or 520% (52x10) for one year, not compounded! Total interest charge: 520+18 or 538%. You pay RM10 because you are late with your instalment payment of RM5 and you still have to pay that instalment.

But hang on a second? Are we calculating this right? No, it’s not quite accurate – in fact we have made a terrible, horrible mistake. You see, you are being charged RM10 on the RM5 instalment that you did not pay on time, not on your outstanding balance of RM100 on which you are already paying 18% a year.

Yes, it’s becoming mind-boggling. If you are a week late, you pay 200% (10/5X100) a week or 10,400% (200X52) a year!! I don’t often use double exclamations but you must admit that it is deserved here.

Oh, I can hear what the banks say – the RM10 is a minimum charge. But you don’t need a minimum charge in this age of computerisation when the machine does the calculation with no people involved in the automatic generation of the charge.

Perhaps you think that’s an extreme example. Let’s take my case of an outstanding sum of RM4,000 for which the late payment charge is 1% or RM40. I think I was late by less than a week but let’s just say it was one week. My minimum payment is 5% of RM4,000 or RM200. The RM40 is 20% of RM200.

That 20% a week translates to 1040% a year, not compounded. If I were a mere day late, it would be 7300% (20X365 days in a year).

I have heard the argument that the late payment charge should be imposed to encourage people to pay the minimum amount and maintain discipline for using credit cards. I suppose then one has to believe that banks will play this role well when they stand to benefit more the more miscreants there are. I prefer to suspend belief.

My bank, a large foreign bank with a long presence here shall remain unnamed because it will be unfair to single it out, but it tells me in the small print that the interest rate on outstanding amounts is 18% a year. But it omits to explain how much in percentage terms its late payment charges (1% or RM10, whichever is higher) on a yearly basis are.

Here’s what I suggest and I hope Bank Negara and the Association of Banks will pay attention. Late payment charges are punitive especially when you are already paying punishing interest rates of up to 18% a year.

So simply do away with the late payment charge and charge the interest, as long as I am under my credit limit. If I have just RM1,000 outstanding on a credit limit of RM80,000 should I be charged for not paying the minimum monthly maintenance? No! I should be penalised only if I go above my credit limit.

If banks still want more, give them the liberty to charge higher rates for outstanding amounts not already paid as required by instalments, a more punitive rate of a reasonable 25%, on the minimum instalment not paid

Let’s see what I would have paid if that was done. I was a week late on RM4,000. But if I had paid 5% or RM200 of it, there would have been no punitive rate. So I would pay 25% a year on RM200 for one week. That works out to 96.15 sen, yes sen. (200x25/100/52), instead of the RM40 I paid.

Really, charging a penalty of RM10 because I missed my instalment of RM5 or even RM25 just is too much. So is having to pay up to 7300% a year in charges because I was late in payment.

And while Bank Negara is looking at these things, perhaps they should take a closer look at the entire penalty rate system and see how bad they really are.

It baffles me how such high charges were permitted in the first place.

l Managing editor P. Gunasegaram has no doubts that credit cards are the worst form of legal financing.

We All Need to Become Millionaires

PERSONAL INVESTING

By OOI KOK HWA

One must have cash reserves of about RM1mil to be able to maintain one’s current lifestyle 20 years after retirement

WE need to become millionaires when we retire! A lot of people have misconceptions about being millionaires. To them, being a millionaire means they should own total assets – by adding up their total cash, house, Employees’ Provident Fund (EPF) contribution and car – that are worth RM1mil and above.

They believe that once they achieve one million cash, they should enjoy themselves by driving big luxury cars and staying in bungalows.

In reality, all of us need to become millionaires when we retire at age 55. Based on our computation, we need to own total cash, including all money in savings, fixed deposits and EPF, which have total value of more than RM1mil.

The key principle here is we need to have cash reserves of more than RM1mil to be able to maintain our current lifestyle 20 years after retirement from age 55 to age 75. This is on the assumption that we can live up to 75 (the average lifespan of Malaysians).

Based on our computation (see table), if you are now 35 years old and your current monthly expenses are RM3,000 per month, assuming you are only able to generate a return of 3% (the return from fixed deposits) on all of your savings and the RM3,000 will grow by the average historical inflation rate of 3.5% per annum, you would need RM1.6mil when you retire at age 55.

This amount will be enough to maintain your current lifestyle for the next 20 years after your retirement at 55.

However, if you need to spend RM5,000, RM7,000 or RM10,000 per month, then you need RM2.6mil, RM3.7mil and RM5.3mil respectively at your retirement age of 55.

In short, you need to become a millionaire when you retire even if you only maintain a simple lifestyle after your retirement. You will not be able to use this money to buy a big luxury car or a bungalow, as you really need the money for the next 20 years.

Thomas J. Stanley and William D. Danko have conducted research on the reasons why some Americans become wealthy. They discovered that a lot of them live well below their means.

Unfortunately, we notice that some Malaysians do not have enough money when they retire. Some of them may not be aware that they really need to accumulate that amount of money when they retire. Some may be aware, but they may have used up all their savings to support their children’s education. As a result, they need to find a job after retirement.

Some may have difficulties finding a job. A lot of companies may prefer to employ a young graduate rather than a retiree unless the latter is willing to accept a lower pay.

We also believe that a lot of investors are quite worried about having enough money for retirement. They are also concerned that their money may not be enough to protect them against inflation. Hence, besides controlling our expenses, we also need to know how to grow our money.

Looking at the table, different minimum achievable annual target returns can provide different required amounts for retirement.

For the current monthly expenses of RM3,000, if you are only able to generate a 3% return per annum, then you need to have RM1.6mil for retirement whereas you only need about RM900,000 if you are able to generate a return of 10%.

However, higher returns come with higher risks. We need to understand our risk tolerance level. We need to equip ourselves with adequate investing knowledge if we intend to generate higher returns.

Man Held Over ATM Cash Trick

The Star - Friday January 23, 2009

JOHOR BARU: A man with a history of drug offences thought he had discovered a simple and fool-proof way to double his money quickly.

His method involved cutting a RM50 note near its reflective strip and joining the two cut pieces to pieces of white paper, thus creating two tampered RM50 notes.

He then deposited the tampered notes into an account via a cash machine and later withdrew two genuine RM50 notes from an ATM machine.

His plan worked and to escape detection, the man travelled from Kuala Lumpur to Johor to deposit the tampered notes in banks in Permas Jaya.

Then he got greedy and deposited too many of the tampered notes, causing the cash machines to jam. Sources said bank employees later found dozens of the tampered notes when they checked the cash machines.

Johor police with the assistance of their Selangor counterparts arrested the 40-something man in Petaling Jaya several days ago.

Police are trying to ascertain whether he was involved in other counterfeit cases elsewhere.

The banks are also doing their own internal audit to ascertain why the cash machines were not able to detect the tampered notes.




Editor's Note: Maybe someone who has the pic of the tampered note can share with us here.

Investment Advice

Stick to basic investment in asset classes, that is, genuine companies that use these commodities for real markets, real products and real profits.