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Tips on Setting Up Retirement Fund for Millennials

By Isny Dewi R

10 September 2019

Tips on setting up retirement fund while still young and productive.

Setting up a pension fund is usually synonymous with people who are already 40 or older. In fact, even better if you prepare a pension fund early on. Most millennials hardly think of setting aside money for a pension fund. This is usually caused by several factors, such as many needs in their productive period, having small income, or feeling retirement is still long so that pension fund is considered not too important at this time.

In fact, all financial planners suggest to start to pay off pension fund while still young and productive. It’s to make future pension fund expenditures lighter. Moreover, millennials tend not to have many burdens that are very urgent, such as school cost, mortgage installments (KPR), as well as paying electricity every month.

For that, from now on try to pay for your pension fund. If you're confused about how to get started, these tips below might help you.

1. Make a Target When You Retire
Financial planner Eko Endarto explained, you need to target a number of things, one of which is your age to retire. For example, you plan to retire at 55. If you are now 25 years old, you have about 30 years to prepare your pension fund.

After you make sure about your target retirement age, the next step is to calculate and assume life expectancy. For example, if you are going to retire at 55 and you will live to be 75, then the pension fund you need is approximately the same as 20 years of life. From there, you can calculate the amount of pension fund that can be paid in installments. If your monthly needs are around Rp 5 million, then the pension fund that you need for the next 20 years is around Rp 1 billion.

2. Make it as a Habit
Eko suggested that setting aside pension fund from salary or other income should become a habit for millennials. This of course requires commitment and discipline. Try to set aside at the beginning about 10% of your income. If you suddenly have an urgent need, you can use the pension fund. But, make sure you have the commitment to increase your pension fund even in small amount and try to no longer use this fund.

3. Reduce Consumption and Switch to Emergency Funds
If you are a consumptive person, it's good to reduce the habit. Instead of spending your money on something that is not important, allocate the money to an emergency fund. This method is useful for securing your pension fund if there is an urgent need.

You can use emergency fund instead of pension fund. As for ideally, emergency fund should be equivalent to three times of your monthly expenditure. Emergency fund is a fund that is needed when you have financial problem. But make sure, don’t unite emergency fund with pension fund. Emergency fund is better in liquid instrument (easily to withdraw), while pension fund is better to use long-term instruments.


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