Essay: FINANCIAL RETIREMENT PLANNING

FINANCIAL RETIREMENT PLANNING: A STUDY AMONG MALAYSIAN WORKING ADULTS

CHAPTER 1: INTRODUCTION

1.1 INTRODUCTION

Chapter one aims to introduce the overview of the research topic. This study to examine the determinants of financial retirement planning among Malaysian working adults. This chapter will discuss briefly on the research background, problem statement, research questions, research objectives, and significant of study of relevant hypotheses. In this chapter, there are also explanations of the dependent and independent variables as provided to discover the relationship of the variables mentioned. Lastly, this chapter is concluded with an outline of each chapter of the research.

1.2 RESEARCH BACKGROUND

This study focuses on the determinants of financial retirement planning among Malaysian working adults.

As shown in Appendix Figure 1; it’s been projected that elderly group aging from 60 to 80 years old will double/triple within 15 years and average life expectancy is approximately 75 years old in Malaysia (EPF, 2016). However, expectancy retirement age in Malaysia is between 55 to 60 years old (The Star Online, 2017). In Malaysia, latest survey by Randstad Work Monitor (2015) found that 76% of employees have to work longer than their current retirement age. 82% expect to retire between ages of 60-65. Not only that, EPF Head of Strategy Management Department Balqais Yusoff stated that only 22% of the 6.7 million Employees Provident Fund (EPF) active contributors aged 54 years have sufficient savings of RM196,800 or more to sustain themselves during retirement meanwhile other 78% of the contributors, unfortunately, did not have the basic amount for their retirement years (Bernama MalayMail Online, 2016).

Thereby, research found that most of households do not spare sufficiently for their retirement to keep up their pre-retirement way of live. The individuals who design enough for retirement normally are highly educated and from the high-wage background (Ridhwan, Mohamed, & Hisyam, 2017).

1.3 RESEARCH GAP

1.3.1 Research Problem Statement

This study analyses financial retirement planning among Malaysian working adults. A research conducted by Ibrahim, Isa & Ali in 2012 revealed the results of low level of awareness on the importance of retirement savings which shows that this issue was taken for granted by Malaysian employees. Furthermore, not many studies have investigated awareness of youths in financial products/services (Zabri, Ahmad, & Lian, 2016) probably due to infrequent timing of the purchases and complexity in streamlining product offerings by financial institutions (Nga, Yong, & Sellappan, 2017). More research with a bigger sample size and more variables should also be included to have clearer framework behind employee preference for the retirement age (Wahab, 2015).

According to Lee (2015), income and education have significant and positive effects on the decision to contribute to a pension fund. Not only that, he also stated that individual in their early 50’s is likely to have better financial retirement planning compared to individual in their late 50’s (Lee, An Analysis of Financial Preparation for Retirement: A Study of Retirement Preparation of Men & Women in Their Positive Savings Periods, 2015). Meanwhile, Millar & Devonish (2009) also indicated that some study shows different significant relationship between age towards financial retirement planning

The problem is it is unknown to what extent the determinants of financial retirement planning will impact the actual financial retirement planning among working adults in Malaysia. This study will examine on several factors which are financial literacy, demographic, goal clarity, and investment behaviour affecting the financial retirement planning. This study analyses financial retirement planning among Malaysian working adults. Retirement is a complex process which includes the preparation for retirement and decision to retire (Jung, 2011).

1.4 RESEARCH QUESTION

The approach embraced for this exploration involves the definition of several questions to determine the relationship of the variables mentioned in problem statement. The questions are classified into two categories which are major research question and specific research question. They are developed based on the variables of the research on theoretical framework.

1.4.1 General Research Question

What is the overall relationship between the determinants (Financial literacy, Demographic, Goal-clarity, and Investment behaviour) towards financial retirement planning among Malaysian working adults?

1.4.2 Specific Research Questions

1.4.2.1 What are the determinants or factors affecting financial retirement planning behaviour among Malaysian employees?

1.4.2.2 How impactful (in term of magnitude and direction) are each of determinants in affecting the retirement planning behaviour of Malaysian employees?

1.4.2.3 How does retirement planning differ according to age group or income levels in affecting the retirement planning behaviour of Malaysian employees?

1.5 RESEARCH OBJECTIVE

Research objectives have been developed based on the research questions above in order to guide the present study. It divided by two categories. Research questions and research objectives must be in line to get the final result of this research.

1.5.1 General Research Objective

To identify the relationship between the determinants (Financial literacy, Demographic, Goal-clarity, and Investment behaviour) towards financial retirement planning among Malaysian working adults.

1.5.2 Specific Research Objectives

1.5.2.1 To investigate the determinants or factors affecting retirement planning behaviour.

1.5.2.2 To examine the magnitude and direction of the impact of each factor on retirement planning behaviour.

1.5.2.3 To find out whether retirement planning differs according to age group or gender or income levels.

1.6 DEFINITION OF RESEARCH VARIABLES

From this study, certain phrase or terms are included to describe the concept of this research in simple explanation.

1.6.1 FINANCIAL RETIREMENT PLANNING

Retirement is a stage where a person is not in any kind of employment, business or occupation. Therefore, a person needs to have saving plan to cover their after-retirement expenses to live (Zabri, Ahmad, & Lian, 2016).

1.6.2 FINANCIAL LITERACY

Financial literacy is about empowering and enlightening consumers so that they are knowledgeable about finance in a way that is relevant to their lives (Murugiah, 2016). Financial literacy can be explained as a set of knowledge, skills and attitudes in the sphere of people’s financial behaviour leading to improved well-being and quality of life. It is also a degree that understands key financial concepts, ability and confidence in managing personal finances through appropriate short-term solutions and long-term financial planning, considering life events and changes in economic conditions (Shanmugam & Abidin, 2010).

1.6.3 DEMOGRAPHIC

Demographic characteristic includes gender, generation, race and ethnicity, education, geographic region, age, income level, and marital status. However, in this research we only study for age and income level as the determinants under demographic factors (Lee, An Analysis of Financial Preparation for Retirement: A Study of Retirement Preparation of Men & Women in Their Positive Savings Periods, 2015).

1.6.4 GOAL CLARITY

Goal clarity means that individuals working towards well-specified goals to performed better than those working with no goals or those who were encouraged to do their best (Zabri, Ahmad, & Lian, 2016).

1.6.5 INVESTMENT BEHAVIOUR

Investment behaviour are characterized as how the investors evaluation, forecast, investigate and audit the operations for decision making, which contain investment psychology, data assembling, characterizing and comprehension, exploration and analysis. The entire procedure is called “Investment Behaviour”. The factor that influences the estate investment behaviour is that not all investment is unexpected. Investors are taking part in speculation decisions in order to preserve ownership of the long-term or short-term outlook (Zabri, Ahmad, & Lian, 2016).

1.7 SIGNIFICANCE OF STUDY

This study is to obtain as much information to have a better understanding on the determinants of financial retirement planning. In this research, it is assumed that there is strong relationship between the independent variables (financial literacy, demographic, goal clarity, and investment behaviour) with the financial retirement planning.

This research explains further on the determinants that will affect the financial retirement planning decision. The finding of this research is to increase awareness among working adults in Malaysia so that they are able to plan their financial retirement at an early stage. The government also can refer to this study to create awareness as an initiative to support the citizens in developing a better financial retirement planning for their afterlife.

1.8 STRUCTURE OF RESEARCH

The main purpose of this study is to analyse the determinants of financial retirement planning among Malaysian working adults. 250 questionnaires will be distributed among working adults in Malaysia specifically in Klang Valley and The Greater KL.

1.9 SUMMARY OF CHAPTER

In chapter one, this paper introduces variables of financial retirement planning, financial literacy, demographic, goal clarity, and investment behaviour. This research also emphasizes on research background as well as the significance of relationship between the variables stated. Finally, the influence of the determinants towards financial retirement planning among Malaysian adults is summarized in this chapter therefore working adults in Malaysia can make a better decision in their retirement planning.

CHAPTER 2: LITERATURE REVIEW

2.1 OVERVIEW OF CHAPTER

This part clarifies the theory connected for the exploration and find how every independent variable influences the dependent variable by checking on past literary materials related to the topic. In appraisal the literature on this area of study, it was found that that various studies have been carried related to the financial retirement planning across the world. However, there is very little that been carried out in Malaysia. This exploration paper has endeavored to incorporate all accessible material done within and outside Malaysia for reference and guides. The finding from empirical results of all available study will be explained the significance relationship of the variables in relation to financial retirement planning possible related to Malaysia.

2.2 THEORETICAL BACKGROUND

The above framework is adapted from the framework created by Moorthy, et al. (2012) and became as the foundation of this examination. The framework is work out to expound the relationship of the independent variables and dependent variables.

2.3 RELATED STUDIES ON VARIABLES

2.3.1 FINANCIAL RETIREMENT PLANNING

A study conducted by Zabri, Ahmad, & Lian (2016) to establish the relationship between the retirement planning behaviour and the various factors affecting the retirement planning practices. According to them, the results show that age, education level, income level, goal clarity, attitudes towards retirement and potential conflict in retirement are among factors affect the retirement planning.

2.3.2 DEMOGRAPHIC

Several studies have used the life-cycle model of savings as a basis for analysing the effects of various socio-demographic events on retirement economic well-being (Lee, 2015). According to Lee also stated that income does not necessarily flow into the family at the rate necessary to meet current expenditures. Thus, there will be periods in the life cycle when expenditures exceed income.

According to Moorthy, et al.(2012) stated that demographic factors does influence a better retirement planning. However, according to Millar & Devonish (2009) stated that age and gender does not give impact to retirement planning but income does give impact to financial retirement planning.

H1: Demographic does have a statistically significant relationship with financial retirement planning.

2.3.3 FINANCIAL LITERACY

Recent studies found that, the deficiencies of financial literacy are found to be widespread phenomenon at a global level an is also distinctly proved in developing nations such as the United State (Murugiah, 2016). The research also stated that studies conducted especially at developed economies prove that, financial literacy has become one of the major components of sound financial decision-making and provides significant implication to financial behaviour. Most of the studies that had been conducted said financial literacy always has an impact towards financial retirement planning (Millar & Devonish, 2009).

H2: Financial Literacy does have a statistically significant relationship with financial retirement planning.

2.3.4 GOAL CLARITY

Goal clarity affected the retirement planning behaviour of working individual. It was found that working individuals should hold a clear goal for retirement planning which is both achievable and attainable (Zabri, Ahmad, & Lian, 2016). According to Zabri, Ahmad, & Lian (2016) also stated that goal clarity does affect the retirement planning and it deals with quality for life in retirement.

Besides that, according to Moorthy, et al.(2012) expressed that retirement goal clarity is a significant predictor of planning practices and predicting savings tendencies.

H3: Goal clarity does have a statistically significant relationship with financial retirement planning.

2.3.5 INVESTMENT BEHAVIOUR

According to Murugiah (2016), a study conducted revealed Singaporeans’ have healthy attitudes and financially literate towards managing their savings and investments. Most of the Singaporeans active in making savings, always record their spending and does some basic financial planning. However, Murugiah (2016) also stated that Americans’ have low levels of financial knowledge, as well as insufficient saving and high indebtedness.

However, there was a study conducted by Jamal, Ramlan, Karim, Mohidin, & Othman (2015) found out that financial attitude is not significantly related to students’ savings behaviour which is they accept the null hypothesis in their research conducted.

H4: Investment behaviour does have a statistically significant relationship with financial retirement planning.

2.4 SUMMARY OF CHAPTER

In summation, this chapter reviewed most of the of the accessible literature from previous researcher’s findings on the theme as well as the dependent and independent variables chosen for this examination. This review is used as a basis and support for the day.

CHAPTER 3: RESEARCH METHODOLOGY

3.1 OVERVIEW OF CHAPTER

This chapter covers the framework of research being conducted in this present study. This chapter explains on the research design, approach, strategy and a discussion on the sample selection. A complete methodology is further discussed in this chapter on hypotheses testing to find the significance to financial retirement planning.

3.2 RESEARCH DESIGN

3.2.1 RESEARCH PHILOSOPHY

The research background used in this study is positivism philosophy. Positivism philosophy is a model that is generated from the nature of knowledge. This philosophy is not affected by the act of investigating it and it is completely dependent on the assumption of social reality being objective and singular. Positivism view also involves theories providing explanation on establishment of causal laws by creating causal relationships between the variables and linking them to a deductive theory.

3.2.2 RESEARCH METHOD

This research is based on by collecting primary data from the samples to represent population. The method used to obtain the data is by survey using questionnaire to allow collection of standardized data for participants to respond to the same set of questions from a sizeable population in order to have easy comparison. Online questionnaires were distributed through social medias at a cost effective and easier manner to collect quantitative data to be analysed using descriptive and inferential statistics.

3.2.3 RESEARCH APPROACH

The research approach used is deductive approach. This approach comes from positivism affirmation of explanatory theories involving testing of a theoretical prediction by using research strategy solely designed for the purpose of testing the specific hypothesis made for this research. Deductive process is used to also find and explain the causal relationships between concepts and variables.

3.2.4 RESEARCH STRATEGY

This study is conducted through survey and it is a mixed method of quantitative and qualitative research design. This quantitative research strategy evaluates the relationship between independent variables and dependent variable which are measured numerically and analysed via a range of statistical techniques. Meanwhile, qualitative research strategy is based on meanings expressed through words and a collection results in non-standardised data requiring classification into categories. Hence this is a cross-sectional study whereby questionnaires are distributed at a lower cost to the respondents whom are representatives of the whole population.

3.3 DEVELOPMENT OF VARIABLES AND THEORETIVAL RESEARCH FRAMEWORK

For this research, there are four independent variables and one dependent variable. The independent variables are (1) demographic variables focusing into age and income level (2) financial literacy, (3) goal clarity and (4) investment behaviour. Meanwhile the dependent variable is financial retirement planning.

3.3.1 THEORETICAL RESEARCH FRAMEWORK

Figure 3 Adapted from: (Moorthy, et al., 2012)

H1: Demographic Factors

H2: Financial Literacy

H3: Goal Clarity

H4: Investment Behavior

3.3.2 DEVELOPMENT OF RESEARCH HYPOTHESIS

3.3.2.1 Demographic Factors

H0: Demographic Factors (i.e Age and Income Level) does not have a statistically significant relationship with financial retirement planning.

H1: Demographic Factors (i.e Age and Income Level) does have a statistically significant relationship with financial retirement planning.

3.3.2.2 Financial Literacy

H0: Financial Literacy does not have a statistically significant relationship with financial retirement planning.

H1: Financial Literacy does have a statistically significant relationship with financial retirement planning.

3.3.2.3 Goal Clarity

H0: Goal Clarity does not have a statistically significant relationship with financial retirement planning.

H1: Goal Clarity does have a statistically significant relationship with financial retirement planning.

3.3.2.4 Investment Behaviour

H0: Investment Behaviour does not have a statistically significant relationship with financial retirement planning.

H1: Investment Behaviour does have a statistically significant relationship with financial retirement planning.

3.4 SAMPLING PLAN AND SIZE

3.4.1 SAMPLING PLAN

The sampling plan used in this study is non-probability sampling. Non-probability sampling is subjected only for quantitative method which consist of large populations for large sample size ranging at least from 150 to 300 sizes. Furthermore, the sampling procedure associated for this research following the theoretical framework by Moorthy, et al., (2012) is quota sampling. Quota sampling is used to select the data from an expansive populace of working people. Not only that, quota sampling uses probabilistic sampling techniques of dividing population into specific groups as measured in our study to collect data of 3 different ages group according to number of class in each quota. This study of sample is more cost effective and can be set up very quickly, that’s why it is often used for structured interviews as part of a survey strategy.

3.4.2 SAMPLE SIZE

A total of 250 working individuals are chosen to participate in this survey. This study was limited to the sample age of 24 to 55 years old which divided into 3; first younger generation of working individuals from age ranging 24 to 34 years old. Middle generation working individuals are the second group ranging from age 35 to 45 years old and the older generation working individuals ranging from age 46 to 55 years old. The study will be conducted in Malaysia and the questionnaires are equally distributed to the working individuals associated in Klang Valley and The Greater Kuala Lumpur.

3.4.3 DATA COLLECTION APPROACH

Self-structured questionnaires were distributed to working individuals in the form of survey and completed by respondents from Klang Valley and The Greater Kuala Lumpur in Malaysia. 250 surveys were distributed to working individuals between age 24 to 55 years old via Facebook, email, Google form, lecture class and individually.

3.5 MEASUREMENT OF VARIABLES AND SURVEY DESIGN

Variable Name Type of Variable Measurement (Original) and Sources Changes (adopted/adapted)

Demographic Factors:

Independent Variable Age:

(1)18-25 / 26-30 / 31-40 / 41-50 / 51-60 / Above 60

Income Level:

1. RM 1,500 and below

2. RM1,600-RM3,500

3. RM 3,600-RM4,500

4. RM4,600-RM6,999

5. RM7,000-RM9,999

6. RM10,000 and above

Wahab, M. A., 2015. RETIREMENT AGE PREFERENCE OF OVER 60 YEARS OLD AMONG. Journal of Global Business and Social Entrepreneurship (GBSE), Vol.1(No.1), pp. 52-60. Age:

(1)Below 24

(2)24-34 years old

(3)35-45 years old

(4)46-55 years old

(5)56 years old and above

Income Level:

1. RM1,500 and below

2. RM1,501-RM3,500

3. RM 3,501-RM4,500

4. RM4,600-RM6,999

5. RM7,000 and above

Financial Literacy Independent Variable 1. Employee Provident Fund (EPF)or Public Pension scheme is the only source of income during my retirement.

2. I am aware that the value of money will depreciate over time.

3. I understand the process of compound interest.

Shanmugam, A. & Abidin, F. Z., n.d. Retirement Confidence and Preparedness: A Study among Working. p. 414.( UUM Sintok Kedah). 1. Employee Provident Fund (EPF)or Public Pension scheme is the only source of income during my retirement.

2. I am aware that the value of money will depreciate over time.

3. I understand the process of compound interest.

Goal Clarity Independent Variable 1. I set specific goals for how much will need to save for retirement.

2. I discussed retirement plans with spouse, friend, or significant other.

3. I have clear vision of how life will be in retirement.

Moorthy, M. et al., April 2012. A Study on the Retirement Planning Behaviour of Working Individuals in Malaysia. International Journal of Academic Research in Economics and Management Sciences, Volume Vol. 1, No. 2, p. 72. (UTAR MY). 1. I set specific goals on how much to be saved for retirement.

2. I discussed retirement plans with spouse, friend, or significant other.

3. I have clear vision on my quality life during retirement.

Financial Retirement Planning Dependent Variable 1. I am not confident that I could work out what my expected income and expenditure would be in retirement.

2. At present, I rate my financial preparation for retirement is good.

3. I am concerned about the state of my financial preparation for my retirement.

Moorthy, M. et al., April 2012. A Study on the Retirement Planning Behaviour of Working Individuals in Malaysia. International Journal of Academic Research in Economics and Management Sciences, Volume Vol. 1, No. 2, p. 72. (UTAR MY). 1. I am not confident that I could work out what my expected income and expenditure would be in retirement.

2. At present, I rate my financial preparation for retirement is good.

3. I expect my standard of living in retirement will decrease.

Investment Behavior Independent Variable 1. I am aware of other investment alternatives (stocks,properties,etc).

2. I am aware the participating in many different investments reduces my investment risk.

3. I cannot clearly distinguish between retirement fund and other fund(s) (child education fund, medical fund etc).

Shanmugam, A. & Abidin, F. Z., n.d. Retirement Confidence and Preparedness: A Study among Working. p. 414.( UUM Sintok Kedah). 1. I am aware of other investment alternatives (stocks,properties,etc).

2. I am aware by diversifying my investment portfolio will reduce my investment risk.

3. I cannot clearly distinguish the importance investing between retirement fund and other fund(s) (child education fund, medical fund etc).

Qualitative Data Independent Variable ADDITIONAL:

1. Do you have any other retirement savings besides EPF? If YES, please state (ex:mutual fund/ fixed deposit/ property).

2. On your own opinion, kindly state any other factors that gives an impact to your Financial Retirement Planning and WHY?

Table: Measurement of Variables

Referring to the table above it shows the original measurement of variables being adapted from previous studies to design our questionnaire. First, demographic factors of different age and income levels are measured as per tabulated in the table. Meanwhile, for every 3 questions per dependent and independent variables are measured utilizing a five-item scale adapted from Moorthy, et al. (2012) intended to assess individuals’ behaviour toward the retirement planning. All the items in this scale with a five-point response format (1= Strongly Agree, 5= Strongly Disagree).

3.6 HYPOTHESIS TESTING AND DATA ANALYSIS METHODS

In this research, the hypotheses will be analyzed through SPSS software to evaluate the determinants affecting financial retirement planning. The data analysis methods for this study was purely based by Moorthy, et al. (2012). The following techniques used to collect and measure data is by Pearson Correlation and Multiple Linear Regression Analysis.

3.6.1 PEARSON CORRELATION

Pearson Correlation is to watch if there is any straight relationship or correlation between the dependent variable with any of the independent variables. ANOVA test to be used to test whether all four hypotheses have statistically significant relationship or not: (1) H1: Demographic Factors (i.e Age and Income Level) does have a statistically significant relationship with financial retirement planning. (2) H2= Financial Literacy does have a statistically significant relationship with financial retirement planning. (3) H3= Goal Clarity does have a statistically significant relationship with financial retirement planning. (4) H4= Investment behaviour does have a statistically significant relationship with financial retirement planning.

Figure 4: Pearson Correlation Test by Moorthy, et al. (2012)

The covariance analysis outputs allow an indication as to whether there is correlation between the dependent variable and with any of independent variables. It varies from 0 to 1 or -1 (Moorthy, et al., 2012). If the P-value of the t-statistic is less than 5% significance level, the null hypothesis is to be rejected and therefore there is correlation between the two variables. The hypothesis related to the t-test here is a two-tailed correlation test denoted as follows:

H0: There is no correlation

H1: There is correlation

3.6.2 MULTIPLE LINEAR REGRESSION ANALYSIS

Figure 5: Multi Regression Analysis Result by Moorthy, et al. (2012)

By adopting Moorthy, et al. (2012) analysis as figure 7; the multiple linear regression model is described as below:

Econometric Model

Y = α + β1 X1 + β2 X2 + β3 X3 + β4 X4

Economic Function

Financial Retirement Planning = f (X1 = Demographic, X2 = Financial Literacy, X3 = Goal Clarity, X4 = Investment Behaviour)

3.7 SUMMARY OF CHAPTER

As a conclusion, this chapter explains on all the methodology used in order to obtain findings to examine the statistically significant relationship between the independent variables and dependent variable. The data to be collected in this chapter is a guide to obtain results for the upcoming chapters.

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