Adequacy of Retirement Wealth in Malaysia: Spending Behaviour Analysis

This paper aims to measure the retirement wealth adequacy among population in Malaysia based on 7743 samples from Household Expenditure and Income Survey (HEIS) 2014. The determinants of retirement wealth adequacy are also examined using the OLS regression. The HEIS2014 contains information on household income and expenditure data, together with socio-economic and demographic characteristics of each household head such as age, education level and occupational group. The retirement wealth adequacy is projected using a wealth-need ratio, which is equal to the projected wealth (or income) accumulated in working years divided by the projected total needs (or consumptions) in retirement years. A wealth-need ratio of equal or larger than one indicates that an individual's retirement wealth is adequate. Based on life cycle hypothesis which states that retirees should retire with a maintained lifestyle, a 70% replacement ratio is used in this study to project the total consumptions throughout retirement years. We also project the total consumptions by implementing different replacement ratios for different salary classes in Malaysia to take into account heterogeneity of consumptions among households. The results show that all households (or 100%) have wealth-need ratio of one or more if we use 70% replacement ratio. However, the percentage of households who have wealth-need ratio of equal or larger than one reduces to 88% when we use different replacement ratios for different income classes. The results from the wealth-need ratio indicates that the following demographic and socio-economic groups have higher percentage of adequate retirement wealth; age 30-35, single (not married), work in management field, degree education, live in region 4 (Pulau Pinang, Selangor, Kuala Lumpur, Putrajaya), and work in private sectors.